What you don't know about Contract Jobs

May 29th, 2015
What you don't know about Contract Jobs

Most surprising things you may not know about contract jobs

Other than the short-term nature of employment, contract jobs are different than fulltime jobs in the following ways.

1. Almost every company from Fortune 100 down to 5 person startups hire contractors. At many large companies, contractors constitute upto 50% of the workforce and it is said 35% of the US workforce considers themselves freelancers. This ratio is expected to go upto 50% by the end of this decade.

2. Large Fortune 1000 hiring (Client) companies like Apple, Citibank or FedEx never hire contractors directly because of liability and cost reasons. They always use staffing agencies or consulting companies as middlemen to find and hire contractors.

3. The hiring company's HR and Full-time Recruiters mostly don't know about these contract jobs' existence because contract job hiring is usually managed by Procurement or directly by the hiring manager

4. Client or Hiring Companies never post contract jobs on their career websites, since the recruiting for these jobs is done by the staffing agency, so don't expect to see them on Indeed or Monster. This is a major reason why people don't know of the prevalence of contract jobs.

5. Staffing companies never post all their job openings on job boards. It is too expensive, time consuming and they don't have the time to go through hundreds of unqualified applications. They usually do the searching and reach out to job seekers.

6. On the other hand, many jobs posted by staffing agencies are not real (there's no law against this). They are often 'fishing' for candidates to populate their candidate pipeline and database for a future job openings.

7. Interviews for contract jobs are relatively easy to clear. They usually comprise of a telephonic screening followed by 1-2 hrs of in-person interviews at the client’s office with the hiring manager.

8. When you get a contract job, you will be on the payroll of the staffing agency and not the client. You will be a W2 (salaried) employee of the staffing agency but working at the client site.

9. You don’t get the of the benefits that full-time employees of the hiring company get and you are not eligible for the client company’s stock options, healthcare benefits, vacation, and other benefits like 401k.

10. You may or may not get healthcare benefits from the staffing agencies. Some staffing agencies offer vacations that you earn as you work (e.g. 1 day per month worked), and 401k plans that the company matches after 6 or 12 months. You have to ask or negotiate for these benefits- you don't get them automatically. If you work on a 1099 or corp-corp basis with the staffing agency, you don’t get ANY benefits from the staffing agency as you are considered an independent contractor and not an employee.

11. Client's hiring managers are restricted from treating contractors like fulltime employees because their HR and Procurement Depts have warned them not to do so for legal reasons. They worry doing so may lead the contractor to believe they are full-time employees and may later come and sue them. Oftentimes, contractors are not invited to morale events or all-hands meetings, etc. They often don't get to do formal performance reviews with their managers (althought the staffing agency might get feedback from the Manager).

12. Clients are often restricted from imparting training programs or providing equipment to contractors, so your staffing agency would provide this.

13. Many client companies have different ID badges for contractors with different colors or different email ids to distinguish them from full-time employees.

14. Term Limits- Most companies limit their contractors to 12-18 months projects at a stretch and then require the contractors to take a 3-6 month break.

15. Duration- Even though contract jobs may list a term of 6 or 12 months, it is quite common for a company to terminate the contract early for a multitude of reasons such as budget cuts, direction change, unhappiness over your fit for the job, etc.

16. Termination Notice- Some Managers will give you a 2 week notice but some Managers – especially if they are firing you, and are worried you could cause some trouble, may let you go immediately. This is usually done by calling the account manager of your staffing company and telling them to inform you by phone or they may ask the account manager to come and escort you out of the building during office hours.

17. A lot of contractors have their projects extended year after year. To avoid co-employment risks, client companies structure the work as projects also called Statement of Work where they say the work is based on deliverables and it is not specifically a contract for you- to get around the permatemp issue. Many contractors also convert into full-time employees at the client company.

18. Smaller companies are OK with hiring contractors on 1099 as independent contractors, but larger client companies and staffing companies don’t allow it because of the risk of an IRS audit that could find they misclassified the worker as a 1099 instead of as an employee.

19. You can also incorporate a company (LLC, etc.) and work as if you are a company yourself. This is called a Corp-Corp contract. Most client and staffing companies prefer this to 1099 as the burden of tax reporting falls on your company.

20. Contract jobs often pay higher because the company doesnt have to pay any benefits and the duration of the contract is short/uncertain and the higher risk is reason contractors demand and often get more.

21. As a contractor you negotiate your salary only with the staffing agency. The staffing agency then adds a markup on your rate to cover their cost and profit and bills the client at a higher hourly rate. Neither the client nor the staffing agency will tell you the client's bill rate because they worry you might demand more if you see the billing rate. See this rate calculator to understand how contractor rates are determined by staffing agencies.

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