Why Companies hire Contractors?

Nov 13th, 2012
Why Companies hire Contractors?

Unlike many countries, the US has an “at will employment” policy which means an employer can hire or fire an employee (or the employee can leave) at any time with no liability or obligations. So why do companies hire contractors if it is so easy to hire and fire.


The major reasons companies hire contractor or consultants are

-          Companies need a specialized skillset that is not required long –term or have a temporary unusually high load of work

-          Some highly skilled contractors or consultants may not want to work full-time jobs and are only available on a consulting basis

-          The company needs someone  temporarily without spending too much time as it requires more time to fill the full-time position as the interviews, offer acceptance, relocation, etc. take a lot longer

-          Contractors can cost less in terms of fully loaded costs as companies are not required to pay for benefits like vacations, medical insurance, etc.

-          Even if the contractors or consultants are higher priced on an hourly basis, it might be less expensive for the company to hire them for a project/limited time,  than hire someone full-time for it

-          The temporary resource can be tested to see if he/she is a fit for the FTE job – and can be converted to full-time later

-          Sometimes the company is limited by its investor/owners/management to limit full-time headcount to maintain flexibility. i.e. It is easier to fire a bunch of contractors without incurring a lot of HR/layoff grief if business conditions deteriorate.


This also leads to a followup question then- why do they hire contractors through staffing companies

-           The main reason for this is coemployment risks. If a company treats a contractor like an employee with the only difference being - not paying them benefits they can become liable if the employee takes them to court. By having a buffer agency in between companies reduce this risk. It is also the reason you won't normally find HR involved in the selection of contractors. It is usually Procurement.

-           The other reason is obviously the staffing companies have the advantage of economies of scale and breadth. They have more recruiters hiring for multiple companies in multiple cities and can do a better job than a single recruiter or group within a large company.

-           So companies would rather pay a few extra bucks to outsource this operation and administration in return for less overhead and lower risk.


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