Debunking 5 Myths About Contract Employment

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  • Due to news coverage of Google’s treatment of contract workers, contract employment has developed a negative impression among job seekers
  • We address the Top 5 misconceptions about working as a contract employee

In 2019, news outlets such as the New York Times and Bloomberg have written about contract workers being treated as “second-tier” employees in large companies such as Google; which has created some misinformation and a negative image of contract employment. Due to these recent coverages, job seekers are less likely to pursue employment opportunities that are under contract.

Currently, 1 in 5 workers in the U.S. is employed on a contract-basis, according to a survey conducted by NPR. The Staffing Industry Analysts estimate that people identified as contingent workers represent 31% of the employed population, accounting for 48 million workers.

So… why do companies choose to hire workers as contractors?

There are several reasons why companies choose to hire workers as contractors. It could be because the work that needs to be fulfilled is temporary or the company wants to hire the worker on a “trial run” period before offering a direct-hire offer.

Other reasons why companies, especially those within the high-tech industries, have engaged with staffing firms to engage workers as contingent employees is to reduce the “back office” costs that come with recruitment, HR compliance and payroll processing. This gives employers the ability to ramp up talent and focus more on key aspects of business operations.

Below we address some common misconceptions about contract employment:

Myth #1: CONTRACT JOBS ARE FOR “BLUE-COLLAR” WORKERS

This misconception is easily dispelled by looking at the high tech industry. High tech companies routinely hire contingent workers for “white-collar” roles such as software programmers, mechanical engineers, IT, web developers, etc. The American Staffing Association (ASA) reported that in California, there were 2,613,500 people working under contract, with 20% working in the engineering and IT sector.

Myth #2: CONTRACTORS ARE PAID LESS THAN FULL TIME EMPLOYEES

According to Glassdoor.com, the average pay for mechanical engineers in Silicon Valley is between $94,17- $113,658 a year. For Orange County, it’s $80,417-$96,879.

Based on SoloPoint’s internal data for contingent worker pay in 2019, mid-level mechanical engineers average $45-70 an hour on contract assignments, which is an estimate of $93,600-$145,600 a year. This is consistent with their peers who are direct/permanent workers.

Because the need for contingent workers can be very urgent, the length of assignment can be short, and the skill set needed can be hard to find, employers tend to pay contingent workers at the same level as their peers — or in certain cases pay them a premium for taking on a shorter assignment.

Myth #3: CONTRACT WORKERS ARE CLASSIFIED AS INDEPENDENT CONSULTANTS INSTEAD OF W-2 EMPLOYEES

Contingent workers can be classified as W-2 employees or 1099 (independent) consultants. In most cases, an employer can engage a staffing agency to identify, screen and hire contingent workers as W-2 employees. In this scenario, the contingent worker is an employee of the staffing firm.

In other cases, an employer may elect to engage the contingent worker as a 1099 independent consultant for specialized tasks. However, recent legislative developments in California have cast some potential limitations in how an employer can engage 1099 consultants.

Myth #4: CONTRACT WORKERS DON’T GET BENEFITS

Contract workers who are employees of a staffing agency typically will be offered some level of benefits. Most common benefits are health and dental insurance, 401(k), PTO and sick days (qualifiers vary between staffing firms).

For those classified as 1099 consultants, it is true that they do not receive benefits since they are in essence their own employers.

Myth #5: CONTRACT JOBS HAVE NO FUTURE

According to the ASA, one-third (35%) of contract workers surveyed were offered a permanent job by a client where they worked on an assignment, and two-thirds (66%) of those accepted the offers of permanent employment. 9 out 10 contract workers who participated in the ASA survey said contract work made them more employable.

It is common practice for employers to use the contract period to evaluate the contract worker. This enables the employer to determine if the contract worker has the necessary skills to perform the job and that they are the right cultural fit for the company.

SoloPoint Solutions offer resources to further understand the different benefits of contract employment for employers and contingent workers. To learn more about our services, call us today at (408)246-5945 or (714)708-3639.

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