FTE vs. Contract/Consultant
What is better? Being a full-time employee (FTE) or being a contractor or temporary/contingent worker? They each have their pros and cons to both the business and the individual. Having experienced both, I thought it would be helpful for others to understand key differences between both staffing options so they can make the most informed decision for themselves and their companies. When trying to be Agile, the choice has its own unique challenges regarding team engagement, motivation, and team forming/harmony, which will be discussed in more detail in a subsequent post.
Well these are obvious – when you are a FTE you generally get benefits from the company you’re working for (401 k, match, health, life, dental, discounts on products, bonuses, stock, holiday parties…). The company invests in you, your talent, your career path, and generally tries to keep you happy. Your job is usually more stable as it is harder and more expensive to lay off or fire a FTE (though I have been laid off from a full-time job). Oh and paid vacation – can’t go wrong with that.
I have also found as a FTE, what you say is generally more regarded, trusted, and valued within the company. Most managers are full-time employees. Most higher level titles are full-time employees in my experience. If that is the type of job you are looking for, chances are you will need to be full-time to be at the director, VP, and C level. FTEs bonuses, promotions, raises etc. are based on how the company is doing, so likely a FTE will be more invested and informed about those things.
As a FTE, it is more difficult to “job hop.” You generally need to be in a position for at least a year before you can move to another part of the company. You have to wait for promotions. Titles are very important. Tenure is important. If that is not something you are interested in, or you find yourself in a position that you do not like or was described to you differently, you might be stuck. Stakes are higher switching jobs frequently as a FTE and there other things to consider such as bonuses, stock vesting, and 401k match vesting that can all go away when switching jobs.
The other big thing is the money. FTEs are expensive. All those awesome benefits up there cost money and that money is coming out of your potential salary. Many times the only way to make more money is to switch jobs, and if you are a FTE…well see the above paragraph. You are essentially getting paid less money because the company is providing you with benefits to get you to be loyal and stick around. For some, this is great. When I was laid off the severance was awesome! But looking at only the bottom line between FTE and contractor salaries can be tough. I would encourage anyone who is struggling with this to try to determine roughly how much your benefits are costing your employer and add that on to your salary. Or if you are a contractor, you already know how much you pay for benefits.
A big pro of being a contractor or contingent worker is the pay. As discussed above, your hourly rate is higher because the company does not have to pay employment taxes on you or provide you with benefits. There are many other tax benefits of being a self-employed contractor, including business related write-offs (e.g. internet, cell phone, mileage, technology…). Another benefit is the ease of finding and leaving contracts. There is less company investment in training and contracts are often a set amount of time (6 months to a year). This can be a win-win because you can hit the ground running when you start at a company and immediately start adding value. It also gives you the chance to try many companies to find a good fit. Contracts can often turn into full-time opportunities if both parties are interested.
Another pro is the working flexibility. Because the company does not provide benefits for you, you are not locked into a set amount of vacation. Really, you can take more time off if you want (and the company is ok with it) and gaps between contracts can provide for some more time off if it works with your financials. The caveat is that if you don’t work, you don’t get paid so there is the idea of an opportunity cost of not working. However, many contractors get paid for every hour they work, so if you work over 40, you can make up some of those vacation hours. Contractors usually do not have set development plans so that means no reviews or setting of yearly goals!!! Your performance review is essentially if your contract is renewed or not.
The largest con most contractors would reference is the potential instability of a contract. Yes, contractors are easy to hire and easy to fire. There does not need to be notice, severance, or even a good reason. That makes contract work more volatile and is another reason why it pays better. It is easy to ramp contractor counts up and down based on demand and project needs.
Another con of being a contractor is that many companies have approved vendors they bring contractors in through. This means they may not hire your company directly to work with them and you will need to go through another firm. This firm will likely take a cut off your hourly rate for having the agreement and the maintenance costs associated with payroll and other overhead. Contractors often have distinguishing characteristics at their companies like different badges, smaller desks, or restricted access to employee only facilities (like workout rooms or hangout spots).
There are pros and cons to each type of employment and now that you know the basics I hope you can make a more informed decision about what is the right fit for you. In my next post, I will tackle the implications of having FTE and contractors on Agile teams and how employee status can influence or impede success.