The Difference Between Direct Hires and Contractors Part 2

The following blog is part 2 of a transcription of a webinar we hosted with The Judson Group. For the full webinar, click here, or click here for part 1

Hiring contract staff also allows your team to respond more quickly to changes in the marketplace. If all of a sudden a new server comes out or a new version of Windows, whatever the case may be, it allows your team to respond more quickly because you can bring someone in right away to get that taken care of. Of course this is nice because there is no long term fixed costs to employing a person permanently. You also reduce the risk for worker’s comp, unemployment, etc. Because they are employed by the contract staffing company, that risk is on their shoulders, and not on the client themselves. 

Now I want to discuss contractor expectations. One thing companies need to understand is contractors are typically interviewing for several opportunities at one time, so they will move quickly and you should too. As you find a contractor you’re interested in, please snag them up. What I mean by that is I know direct hiring can take 3-4 months to hire someone on, but these folks are gone within a week or two. So if you’re interested in somebody you want to bring in on a contract, please make that happen as soon as possible and you’ll save yourself a lot of frustration in the end.  

With contractors you’ll see more emphasis placed on skills rather than cultural fit. It is not to say that the cultural fit is not important, but when you bring someone in for a short period, you can get away with them not being a perfect fit because they’ll have that skill fit. Now if you see that person is a great fit in 6-12 months, then you can hire that person on.   

Since contractors have a shorter interview period, there are resources available to test their skills from an Engineering standpoint, Finance and Accounting, and even typing, if you will. There are different tests out there that you can give, and a lot of times staffing companies will have those available to test those resources. After an hour interview, you get excited and you want to do the reference checks and tests to make sure their skills are exactly what they say.   

When you bring on a contractor you typically have a set timeframe such as 6-12 months. You’ll want to keep your contractor informed if your project is running long, if you plan on extending their contract, or if for some reason budgeting didn’t go through and the contract will be coming to an end. It is important to keep them informed because they will be looking for their next opportunity. If after 5 months nothing has been said, that contractor will start looking for their next opportunity; if you plan on extending them through the year, you need to make that known. A lot of staffing companies will require 30 days notice of a contract ending so they have time to prepare for their next job. During this 30-day period, the contractor may have to leave to go interview at a different company as well. 

I want to talk a little bit about the contract-to-hire side. The contract-to-hire side is very attractive to a lot of our clients, especially our small to mid size clients where a $15,000-$20,000 fee at the front end could be a pretty big hit for them. The same can be said for newer companies, growing companies, etc. We have agreements with a lot of our small to midsize companies that states in 0-2 months it will be this fee, in 2-4 months it will be this, etc. It can be very difficult to recruit for a contract-to-hire scenario. The reason I say this is because the person that you want at your organization, if in the end you really do want a direct hire, that person is going to be working somewhere else. It is nearly impossible to pull someone out of a permanent opportunity to look at a contract-to-hire because of the stability they currently have. The folks that are out there and are available as soon as possible may not be the folks that you want. We do see where contract-to-hire makes sense, but we inform our clients upfront that it is very difficult to recruit for that because the staff that you really want for your organization are out there working and not necessarily looking to make a move.     

Let’s talk about co-employment. This is very important when we’re talking about contract staff because there are a number of times where I have had contractors that have been out working 3 or 4 years at a client site. So while this is great, the client renews the contract every year, and there are some co-employment issues that you will need to deal with. Basically, co-employment is a term used to describe an employment relationship in which one employee is considered to have two employers. It is a general and broad reference, and by itself is neither positive nor negative in nature. There was a court case a number of years ago with Vizcaino v. Microsoft that has really brought attention to this issue. At the time, Microsoft had around 1,500 to 2,000 contract employees that had been on contract between 8-10 years, or sometimes a little over 10 years. Those employees sued Microsoft and stated they were basically common law employees and wanted benefits, 401k, etc and they won. So a lot of focus has been on this issue of benefits on a contract. 

Can staffing workers be considered common law employees of the customer and, therefore, claim eligibility to the participate in the customer’s benefit plans that cover all or some of the customer’s common law employees? There are a number of ways to prevent this; a customer can effectively control who is eligible to participate in their employee retirement income security act and other benefit plans by clearly and specifically defining those workers who can and cannot participate in the plans. This can be done by adding a policy stating only employees will be covered and not contract staff or temporary workers, or whatever your case may be. You can also explicitly exclude staffing firms from participating in your plans, even if those workers are determined to be common law. What I mean by that is you sometimes have larger organizations that do not include contract staff in lunches, holiday parties, etc., because it would be considered co-employment. If it is a company sanctioned event, then they do not invite the contractors. The problem with Microsoft was that they were inviting their contractors to sales trips, every company party, every lunch, and basically treating their contractors as employees. 

There is another option aside from excluding staffing firm employees from those kinds of events if you want to make them a part of your team, but you need to be careful. We have a couple of clients where if they have people on contract for 18 months, they have to stop the contract right at 18 months. If the contractor shows up at 18 months and 1 day, their access card will not work and they need to stop working there for 3-6 months before they can come back on contract. What this does is it shows they are not an employee in a more black and white way.

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