In the high-tech industry where product launches and technological improvements are released at warp speed, one has to keep-up and be relevant at all time. This is a key component to contributing to the organization’s bottom line, the well-being of the company and maybe, ensuring job security…
The recent layoffs by large high-tech companies have shambled the status quo that being an FTE (Full Time Employee with benefits) of a corporation was a safe heaven. It is not and was never. I personally have debated many times the dilemma of FTE versus Contractor with candidates. Ninety percent of job-seekers believed being an FTE of a corporation was a safe heaven and did not consider or even evaluate the alternative of being a contractor through a service provider.
Corporations will not hire contractors directly as the liability is too high and past lawsuits have discouraged them from seeking direct contractual relationships with talents. Most large organizations work with Managed Service providers to source their contingent workforce demanding business liability insurance of $10 million and many other stringent requirements in order to be included in their procurement system.
The difference between these two types of position is small: a Full Time Employee of a corporation is salaried, receives benefits, and most time equity. A contingent worker who renders services to the corporation as a contractor, is in fact a Full Time Employee of the service provider and is salaried and receives benefits too (except equity).
Therefore, the difference is the equity FTEs gain as a direct hire of a corporation. However, it comes at a price: the cost of a Full Time Employee is huge. The added benefits are fixed expenses that directly affect the bottom line and when time comes to tighten the belt, FTEs are generally the first ones to go. Do not get fooled: FTE is no guarantee you will have a lifetime job anywhere.
There is also a 3rd option, should candidates believe it is in their best interest: to render services as a 1099 Independent Contractors operating under their own sole-proprietorship or business entity. Usually, these talents work for smaller enterprises or start-ups as big corporations shy away from the liability mentioned above. In this case, there are no benefits. I do find that when a spouse/partner covers benefits, the worker opts for this option to benefit from tax deductions.
The contingent workforce model allows a company to operate within known parameters such as budget, timeline, and specific deliverables. It lends itself to scaling up or down based on company initiatives and business drivers. It takes the “sweat” out of the planning and execution of projects. Freelancers contributed to $1.35 trillion to the US economy in annual earnings in 2022 up $50 billion from 2021.
Why do corporations hire contractors?
- Instant scalability with premium talents with low overhead
- Access to individuals with proven results, often leaders in their fields without worrying about the longer-term costs by the way of benefits
- No time/cost spent in hiring: screening, interviewing, onboarding, training
- If a company want to be inclusive, innovative, and agile, a flex talent strategy is a huge differentiator.
- Tremendous accountability from contractors as the Managed Services business model relies on performance for compensation which is not always the case with FTEs.
Why do you want to work as a contractor?
- Option to take multiple contract roles as needed and make more money than your FTE counterparts
- Diversify by working for more than one company and therefore, riding the wave better than FTEs do in time of downturn economy
- Learn new things and accelerate skill development at a much faster rate than FTEs by being exposed to different industries and departments.
- Higher flexibility with time and location of work as contractors are paid based on deliverables and performance. Note: some contractors do bill hourly.
- When working with a managed services provider, contractors are W2 employees and get full benefits.
- They have a wide variety of work and the freedom to choose.
After talking to many of my counterparts in the high-tech industry, the pulse is that large corporations will start to slowly re-hire the second half of 2023 to execute on their 2023 business initiatives. Small to medium companies will continue their steady but controlled hiring throughout the year and we see companies leaning towards hiring a contingent workforce rather than FTEs.
To close on the question of job security, there is no guarantee regardless of the type of work contract you have. What you do and your contribution to the company’s goal is what matters: being relevant.