I have a co-worker, a contractor for the company, earning $120k with 2 yoe, no MS degree. According to him, the staffing company he is employed thru probably charges the employer close to $200k for his service. Compare that to another coworker, FTE on the same team, doing the same job with an MS and 4 yoe for $100k. What are the reasons for a company that force it to hire an expensive contractor?
No bonus, no RSUs, no 401k, no insurance costs for contract employees
On the Accounting books the long term recurring expense of a full-time employee is considerably higher than a temp worker. The reason even a > $200k temp worker is sometimes preferred is because from a pure accounting balance sheet perspective they are far cheaper.
The employee making $100k probably costs the company $200k.
This is the right answer. Due to taxes and costs of benefits, the cost of engineer to the company (assuming competitive benefits) is around 2.2x salary and bonus. The rules change for stock grants/options and very high or very low salaries
2.2x! Wow, that’s beyond my expectation! I thought it’s more like 1.2-1.4x.
Contractors/consultants like me work under different pretenses than FTEs and with different cost calculus. Any employee (presumed on W2 hourly or salary with a firm vs 1099) will have costs, such as health benefits, 401k, training/etc that add ~40% to their overhead. Your $120k friend costs their employer ~$168k per this arrangement so the firm gets $32k gross profit. There are many reasons (good and bad alike) that drive the market for consultants/contractors. It spans from cost clarity/budgeting strategy to inability to find/retain talent.
1) it’s way easier to end a contract than it is to fire an employee, so that has value 2) costs for employees are accounted for differently than costs of contractors, so the bean counters who do the quarterly Wall Street filings can make that $200k look less bad than you realize
^ this for sure Plus, most companies give managers more flexibility in hiring contractors. It is very difficult for me to get new headcount approved. But as long as it it fits in my budget, I can pretty much hire contractors at will.