Why and When Contractors / Sub Contractors?

 Last Thursday one of the engagement partner called me asking for a resource. Yes ‘Resource’ a glorified word for IT associates.   It was for an attrition back-fill…. Whenever there is crunch, we look for various option

1. Internal Practice  / Corporate bench 
2. Travel Ready  associates from offshore 
3.  Lateral /External  Full Time Employee (FTE) 
4. Sub-Contractor (CWR)

We are familiar with first 3 options. Let us probe briefly on the last option ‘Sub-contractor or Contractors’

Who are Contractors – Contractors are workers who do their job on a contractual basis. They come with specialized skills in any particular area to perform the work.

 Eg. If you  are running a  small  restaurant,  you  will  be better off to  have the cook as FTE and your  web  designer  / cleaning services on a contractual basis.

In order to explain Contractors, let us see how they differ from full time employee.  The variances can be in

1. Relationship  Control
2. Behavioral Control
3.  Financial Control

Relationship Control:  you signup an Employee Agreement with a FTE, but with a CWR it is independent CWR agreement.

Behavioral Control: It is you, who are controlling the behavior of the person who is working for you. But with a CWR it is not mandatory that we can insist the same. They may be in multiple assignments and will not be able to stick the behavior pattern of our FTE.

Financial Control: You have W2 for a FTE while for CWR it is a 1099.  CWR get their wages including the tax upfront, he will pay his taxes year end.

When to consider Hiring a FTE

• Consider FTE for your essential job – Sales person in a Store should be a FTE
• You have the right to control the details of his /her work performance. For FTE you  can insist on coming into work and going out at a specified time ,  take  1 hour lunch break , 2 15 mins break…. You can train the person the way the job needs to be done.  In short the job is done under your supervision, they get the company’s DNA engraved in them
• Flexible – If they pre-qualify / qualify you can change the roles and responsibility without changing the contract.  Eg In Operations I  take care of resourcing for a Practice,  without changing my  offer letter , I  can get into  Sales Operations too.

 When to consider Hiring a CWRs

•  Outsource one off activities:  you are running a small business eg it could be a restaurant in a city or mobile phone store. For this maintaining the website or janitorial work you do not get FTE, you prefer CWR.
•  Consulting / Specialty Skills: If you need help with your books - financial / accounting details of your firm / Legal advice. This is NOT a day to day work for you. You approach them as needed. If your business is expanding and you need their help consistently then you can hire them as FTE.
•  Also it helps in checking /trying the performance of the candidate, before your hire them as FTE

Differences between FTE & CWR.

#	Full Time Employee	Contractors
1	Essential  to  run Business  and they are Long Term	Peripheral Job. Short Term / Project based - Uncertainty of having a steady employment.
2	Reliable	Less reliable
3	Proactive – need to plan.	Reactive
4	Hiring is long process. Hiring and termination has many restrictions / limitation.	Hiring is short process. Hiring and termination has few   restrictions / Limitation
5	Growth and responsibility opportunity is on the employer else they stagnate or they quit.	Minimal responsibility.
6	Expensive - have to pay Taxes, Social Security or other benefits including vacations. Includes payment of unemployment insurance and worker’s compensation insurance.	Although upfront their rates may look high - as it includes the tax.  Also they are not entitled for any benefits… not even sick leave.
7	Relocation  expenses -  reimbursed	Relocation  expenses -  Need not be reimbursed
8	Need to  wait for pay raise / promotion	Get to negotiate their rate after each project /assignments.
9	Will  be supervised	You are your own boss,  minimal supervision
10	Brand loyalty  -  Company's DNA	Lacks brand loyalty  / culture
11	Quality  is the focus	Quality is overlooked.

 In this pandemic situation where more work is done remotely /virtually CWR / freelance workers count is trending up.

In order to decide the hire type - FTE /Contractor - think and weigh in all the factors discussed and then decide, it is practicable.

Else take a hybrid approach - hire them as CWR check their performance and based on the feedback convert them to FTE.

To the engagement partner, who approached me for an associate, given a couple of internal option, if it does not work, will settle down with a contractor only, as you know attrition back-fill was reactive demand – unless otherwise he had factored that in his proactive #s.