How does the morbid expense of contracting employee make sense for the employer?

Expedia / Eng conbro
Aug 30, 2018 8 Comments

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?

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TOP 8 Comments
  • Illumina / Other
    Duderin0

    Illumina Other

    PRE
    Illumina
    Duderin0more
    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
    Aug 30, 2018 1
    • Intel / Mktg nononsense
      ^ 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.
      Aug 30, 2018
  • Wells Fargo qUyB01
    No bonus, no RSUs, no 401k, no insurance costs for contract employees
    Aug 30, 2018 0
  • Comcast JygG83
    The employee making $100k probably costs the company $200k.
    Aug 30, 2018 2
    • Facebook / Eng unicorn-
      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
      Aug 30, 2018
    • Expedia / Eng conbro
      OP
      2.2x! Wow, that’s beyond my expectation! I thought it’s more like 1.2-1.4x.
      Aug 30, 2018
  • Intel romomomo
    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.
    Aug 30, 2018 0
  • Expedia Wjxbsn
    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.
    Aug 30, 2018 0

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