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What does it mean to be a Contractor?

May 26, 2010

   In this article, I am going to assume that you have very little, or no knowledge of working as a Contractor or Consultant.  With that in mind, I will attempt to inform you from your current status to someone who is more familiar with the Contracting profession.  The only way to truly know it, is to be one, but it’s better to know ahead of time what you might be in for.  If you are seeking a job in any IT, Engineering, or technical-related discipline — such as Programmer, Engineer, Systems Analyst, Designer, Drafter, Software Engineer, Technician, etc. — this article could lead to the most profitable, and professionally rewarding era of your career.

People who work in this profession have, over the years, called themselves by a variety of titles:  Contractors … SubContractors … Consultants … Job $hoppers … Contract Engineers … Technical Temps … just to name a few.  I consider all of these titles to be interchangeable, but I will normally refer to them as Contractors.  Basically, however, they are all the same.

Contracting has 3 components:

There are 3 different components of the contracting profession.  The 1st I have already mentioned: the Contractor.  That would be you, the Programmer, Engineer, etc.  The 2nd component is the Contract Staffing Firm, which is the agency that recruits, and hires Contractors.  The 3rd component is the Client Company, such as Microsoft, Boeing, General Motors, etc.

Here’s the way this industry works:  The Client Company contracts with a staffing firm to recruit and hire Contractors (like you) to work on the Client’s project on a temporary job assignment.  That’s a very simplified description of the Contracting profession.  But, it does give you a basic foundation.

In explaining this further, let’s assume that 1 of the 1,000’s of client companies who often utilize Contract personnel has a major project underway.  They have tried to hire enough, AND the right caliber of direct employees to staff that project.  Unfortunately, they have not been successful, and now find themselves falling behind on their schedule.  The Client can then turn to 1 or more Contract Staffing Firms, and ask them to supply Contract personnel in the job disciplines they require.  Highly skilled Contractors will then be hired by the Staffing Firm(s), and step right in, normally side-by-side with the Client’s direct employees, to work on the project.

There may be other reasons for a Client Company turning to Staffing Firms to furnish them with Contractors.  Perhaps they are a company that anticipates ups, and downs, as far as manpower forecasts are concerned, over a several-year span.  We frequently see this in the Aerospace industry.  Unfortunately, it’s either feast or famine.  🙂  Such Clients are far better off hiring Contract personnel, rather than direct employees.  In that way, they avoid the enormous cost of searching for, and hiring each employee.  Contract Staffing Firms have vast files of resumes for well-qualified Contractors who are immediately available to fill their Client’s needs.  The Client also avoids the day-to-day costs of maintaining that individual as an employee (paying for things like insurance, payroll, and other administrative burdens that add up very quickly).  The Contract Staffing Firms absorbs some of those costs.  The Client also avoids a reputation, among their direct employees, of continually hiring personnel then, a couple of years later, letting them go.  Contractors know that their job assignments are temporary, and are always prepared to move on to other projects.  Direct personnel are usually not conditioned to think that way, and unfortunately, are not prepared when released.

As a Contractor, working in this manner, you would be working on the Client’s project, under Client supervision, but you would be an employee of the Contract Staffing Firm that placed you.  They would give you your paychecks, withhold taxes, and pay some benefits that you may receive (such as vacation, medical, etc.).

During the late 1990’s another rationale emerged for Clients to hire Contractors through Staffing Firms.  Now, we often see Contract positions being advertised as “Temp to Perm” or “Contract to Direct.”  This is simply a “try before you buy it” approach.  Both Clients and Contractors are more frequently “checking each other out” before committing to a long-term relationship.  This has proven very beneficial for both the hiring Clients, and job-seeking Contractors.

Frequently overlooked as a reason for entering the Contracting job market … but, perhaps the most valuable reason of all … is the opportunity for professional growth in a short amount of time.  This career path enables individuals to work for a variety of companies, learning from each, and taking that knowledge with them to their next assignment.  And, in this day of constant changes — with new software, programs, and computers being introduced on a regular basis — keeping up-to-date with technology is critical for your long-term career health.  After a few years of Contracting, one can amass an invaluable set of numerous marketable skills.  Added to whatever professional training one may undergo along the way, it doesn’t take long for a Contractor to make himself, or herself a very valuable commodity.

There are a variety of ways that a Contract assignment can be structured.

The most common method is to work as an employee for a Contract Staffing Firm on assignment with their Client.  The Staffing Firm normally finds the Contract job opening, then hires you to work for their Client.  That is basically what I have been discussing up to this point … working as an employee of the Contract Staffing Firm.

Or, if you prefer (and the Contract firm and Client will allow it), you can work through the same Staffing Firm as an independent Contractor instead of an employee.  This method, however, involves more responsibility for the Contractor and more risk to all 3 parties (Contractor, Staffing Firm, and Client).  An independent Contractor you must pay for your own taxes, insurance (including liability), etc., and must qualify with the IRS to work in this manner.  IRS Form SS-8 is the document that you would use to qualify.  There are several questions to submit for approval.  People found to be illegally working as independent Contractors, by the IRS, are subject to fines, and penalties as well as payment of back taxes.  Fines, and penalties can be levied on any or all parties found to be participating illegally.  As a result, some Staffing Firms refuse to place individuals as independent Contractors because of the risks to their Company (as do some Clients).  The bottom line is this:  if you can qualify with the IRS to work as an independent Contractor … there are definite advantages to doing so.

A 3rd way that some people become Contractors is to form their own corporation and work as employees of that corporation.  Their company simply bills their Clients for work performed.  They then pay themselves out of corporate profits.  This method, too, is not as simple as working as an employee of a Staffing Firm.  Complications with incorporating, dealing with the IRS, carrying your own liability insurance, providing benefits, and finding Companies that will hire you in this way, make this perhaps the least popular method of working as a Contractor.

Why do people Contract?

There are many rewarding aspects of working as a Contractor. The most important, to the majority of those working in this profession, are:

  • Making more money
  • Having the opportunity to travel
  • The professional challenge of working on a variety of projects for many different companies
  • Gaining real-world knowledge quicker than their direct counterparts

You should never be charged a fee when you apply for, or accept, a position as a Contractor than you would probably make at a similar direct (permanent) position.

The history of the Contractor:

Contract employees first surfaced prior to World War II in the Detroit area.  Yes, I started out in Detroit as well.  They were hired to help in the retooling and manufacturing of automotive plants for the war effort.  The profession has been steadily growing ever since.  You will find Contractors working in virtually every major industry in the world …  including Software, Aerospace, Defense, Military, Nuclear, Computers, Marine, Automotive, Manufacturing, Civil, Financial, Commercial, Oil & Gas, Architectural, Tooling, Electrical, Structural, etc.

Typically, the average length of a Contract assignment is from 6 to 9 months.  Many last longer; some are also shorter.  Once an assignment is completed, the Contractor moves on to other employment (hopefully, with a same Staffing Firm working for another client).

Contractors are highly qualified, highly paid individuals.  They often have attained additional knowledge, and technical training in their field.  They are, therefore, very well qualified to handle most jobs in their specific discipline.  That is a major reason why they are usually paid more than their direct counterpart would be paid.  And … the opportunity to make more money is why most people entertain the idea of being a Contractors in the first place.  Besides receiving a higher than usual rate of pay (plus overtime pay for projects that are behind), Contractors often get daily Per Diem (PD), in addition to their hourly rate, and travel pay to their job locations.  As of late though, many have entered this field because they have lost their direct position due to downsizing by their employers.

Besides being a professional at their job discipline, and having a desire to make more money … an equally important quality that must be a part of every Contractor’s makeup is the ability to be mobile.  They must be able and willing to relocate, sometimes 1,000’s of miles from their homes, and often with but a few days to report to a job assignment in another city, state, or region of the country.

Some contractors don’t travel from city to city to work on assignments…

Although the Contractors I have just described are mobile, and travel from city to city for various job assignments, there is also another type of Contractor.  I call them “Freeway Shoppers”, or “Local Contractors.”  In many major cities of the United States, there are 1,000’s of these workers who continually go from assignment to assignment within the same metropolitan area, and usually continue to live at the same address.  Under these conditions, you may not qualify for PD.  Most local Contractors are located in the major metropolitan areas of the United States, such as:  New York, LA, Chicago, Houston, Philly, Phoenix, etc.

3 things sometimes make local jobs less desirable to the “road” or “out-of-town Contractor:”

  1. The pay is usually somewhat lower than for a similar “road” job.  Sometimes this is simply caused by the lack of Per Diem paid to those who work away from their tax home.  Other times, it is actually just less money per hour because they know they don’t have to entice you away from your home.
  2. True or not, you may get labeled as wanting to stay in a particular area if you have too many local jobs under your belt.
  3. Local Contractors are more frequently required to attend job interviews — unlike their “Roady” counterparts, whose resumes, and telephone interviews are often the extent of their personal contact with Client Firms prior to reporting for work.

On the plus side, though, the local Contractors are often able to build up a great local reputation with many local Client Companies.  If a Contractor is really good at his, or her job, he or she is likely to be called back more than once by some companies.  In some cases, a local Contractor may be able to remain working for the same Contract Staffing Firm on several consecutive assignments (often accumulating vacation time, remaining on the company’s 401(k) plan, and retaining medical insurance without interruption).

Why are Contractors paid more than their direct counterparts?  Often, it is because their jobs are temporary in nature.  Other times, it is because the expertise they provide is not readily available on the open market.  When a Client Company is behind schedule on a project … they are usually willing to pay a premium for needed expertise, or simply sheer quantity of bodies, and for those able to “hit the ground running.”

When the project is again under control, or completed, the Contractors will likely be terminated, and must then find another assignment.  Though, not always.  If they are lucky, the Contract Staffing Firm for which they were working, will be able to place them on a new job immediately.  More often than not though, contractors will be left to their own capabilities, and network to find their next assignment.

Are you now ready to take on a Contracting position?  Tell me what you think.  Thank you!

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