Why do Companies Hire Contractors Instead of Employees?

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Creative jobs, Web jobs, Marketing jobs, contract, contract to hire, direct hire

Here at Profiles, 90% of our clients are Enterprise companies, and people who approach me looking for a job are always surprised regarding the client’s preference in hiring contractors. These candidates often ask the questions of “Why do companies prefer hiring contractors instead of employees?”.

First, we should cover a few terms that are commonly used to describe Contract vs Permanent employees:

  • Contract Employment – also referred to as Temporary or Consulting. Contract hire refers to a position where the staffing firm employees the hire and distributes payment based on hours worked. The staffing company carries the burden, payroll, benefits, paid time off, etc. A contract position can still equate to 40 hours per week and even overtime pay which is 1.5 times the amount of a regular hour.
  • Direct Hire Employment – also referred to as Full-Time or Permanent Employee. Direct hire refers to a position where the brand offers the candidate a job directly with a fixed yearly salary and will carry that hire on their payroll and offer their benefits package. Staffing firms are still used in this process to make the match, however, the offer letter and onboarding process will come from the brand directly. A typical work week is defined as 40 hours and any overtime will not result in additional pay.

Specifically, with large companies, people assume that these companies can “afford” to hire their employees immediately, but that’s not why companies hire contractors; it has to do with the cost it takes to employ someone full-time.

When looking at contact vs full time hires, full-time employees are very expensive to a company. Let’s say a company hires you for $50,000 in a permanent position, it actually costs them almost 50% more to employ you. Let’s break down the financial difference between independent contractors and employees.

True Cost of Hire:

•  $50,000 for a base salary

•  $7,500-12,000 in benefits (based on packages and PTO)

•  $3,825 in Social Security and Medicare Taxes

•  $3,000 in Federal Unemployment Tax

•  $2,500 (estimated) in State Unemployment Tax

TOTAL: Approx $70,000
(not even including overhead: computer, phone, heat, building, paper, pens, training, etc.)

A Few Key Differences Between Independent Contractors and Employees

Taxes and Headcount for Contract vs Full Time

Did you know that companies are required to match your social security and Medicare tax dollar for dollar? It’s expensive to hire a person as a full-time employee; this could contribute to the fact that the US unemployment rate is steadily at an all-time low, under 4%%. [1]

Then there’s the dreaded word, “headcount”. When dealing with any public company, it is critical that they prove to their investors that they have maximum productivity using the least amount of employees. This is because employees are considered the most expensive cost to any company, and the most risk.

Therefore, a way for a company to get around this is to hire long-term contractors. By contracting a professional, a contract staffing agency like Profiles takes on the risk, finances their benefits and matches all taxes.

Contract to Hire Possibility

Pro Tip: As a recruiter, I often explain to job seekers that working as a long-term contractor is a great way to break into a large company. Our contract positions often convert to full-time, direct hire roles. It provides both the company and contractor the opportunity to make sure they are the right fit for each other and allows the contractor to shine in a competitive job field.

In summary, this provided an insiders look as to why companies hire contractors instead of employees. As you’re looking for your next dream job and targeting major corporations, consider working on a contract vs full time basis. It may be your window to big opportunity.

About Profiles

Profiles is an award-winning staffing firm specializing in Marketing employment, Creative, and Web & IT jobs. Since 1998, we have served the needs of our Clients and Talent by matching the best candidates with the best companies in the Mid-Atlantic region: Baltimore, MD, Washington, DC, Philadelphia, PA and Richmond, VA.

Author Name – Nancy DiSciullo
Title – Senior Account Manager
LocationWashington, DC

[1] https://tradingeconomics.com/united-states/unemployment-rate

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