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Contract Position w/ Large Companies

Discussion in 'Chit-Chat' started by DenverCruiser, Aug 16, 2006.

  1. DenverCruiser

    DenverCruiser

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    I am currently going after a position with a large company. I was just informed in my last interview that it was a contract position. They explained to me that they (and apparently alot of large companies) set up their budgets this way because they are not sure of new positions they may want within the year. Therefore they put alot of money into their "contract folder" for new positions that develop. This company is growing very vast especially in this department. They say this position WILL be approved in the next budget, in 9 months, and will become a firm position at that point.

    Anyone have experience with this?:confused: This something to be concerned about?
     
  2. WagonsRule

    WagonsRule

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    No experience, but I imagine it's just a way for the company to avoid giving you benefits.
     
  3. masscrusher

    masscrusher

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    If it is not on paper, it is worthless.
     
  4. srplus

    srplus Walked with the Dinosaurs

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    It really doesn't matter contract or employee EXCEPT... if the company is upstanding and a good company it will do as it says. However, I have seen a large number of businesses and even government employers going the contract route and not to get the position on the books... instead as contract labor you are not entitled to sick days, vacation benefits, usually group insurance benefits and what ever else goes to the employee.

    As contract labor (most likely) you will legally have to buy a business license from some municipality, will be responsible for your own insurance (and sometimes even Workman's Comp), will be responsible for all of your own taxes including Social Security, Medicare and withholding - there will be no employer matching for your SS or Medicare and you will have to pay the whole amount out of your contract price.

    All of these things need to be outlined for you so that you know exactly what you are getting into. There is nothing wrong with contract jobs if you know exactly what is involved. The good news is that often the employer does go ahead and make it a real job and takes it off of contract. I had a friend that could only get on with the state this way. He worked as contract labor for three total years before switching to a career service position. He never would have gotten that cherry job if he did not pay his dues as a contract laborer because it is WHO you know.

    If they are a good company it may be on the up and up that they will switch the job from contract to employment status within the year... but, you should know that the main reason they go to contract is to save the money that they would have to pay an employee. All of your normal holidays will be unpaid if this is a true contract position. Often companies offer some type of hybrid contract that takes this and vacation time, etc. into account when figuring out the rate for the contract. More frequently they try to save the bucks. You need to be your own best advocate if you take a contract position. You will not be gaining any seniority or retirement except for what you set up for yourself.

    Caveat emptor. Even when on paper sometimes worthless... it really depends entirely on the integrity of the company. Know who you are dealing with.
     
  5. Mr. Toad

    Mr. Toad

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    One reason for the popularity of contract employment is that it's a less messy way for businesses with a multi-state presence to handle personnel matters without worrying too much about the local forum's (i.e. the individual states') employment laws.

    Look at it this way -- as long as you are on contract, you are permanently a probationary "employee" and they can decide you're out whenever they want.

    Never assume a company is doing anything in your favor. Upper management isn't on contract, I bet.
     
  6. DenverCruiser

    DenverCruiser

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    Damn, this is unfortunate news.

    Anyone know specifics about taxes. I know taxes would not be take out (that is just a matter of budgeting) but would contract employees actually have to pay a higher % of their income?

    Thank you all for your posts.
     
  7. NorCalDoug

    NorCalDoug problems solved daily...

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    many large companies do this. it's how I was hired on (almost 4 years ago) with my previous place of employment. after 6 months of working as a contractor (non-full-time-employee), I was given the option of becoming a FTE or staying on as a contractor. I opted to convert to FTE.

    all companies are different...so their reasons for doing this are different too...

    many times it comes down to the simple fact that it's much easier to terminate a contract than it is to fire an employee. the rules are very different in most companies when it comes to contractors vs. employees.

    IMO, I think it's a good thing. In my experience, contractors make much more money than employees -- usually between 20% to 50% more...but YMMV. for that extra money, you may not get benefits of any kind...so you'd need to put some of that extra money away for those unpaid days off that you might need to take for vacations, sick days, etc. If they're not paying your more as a contractor vs. FTE, that might be a warning sign

    From an employer's standpoint, it's nice because the money is usually budgeted differently and if you end up with a complete idiot/jackass, the contract can usually be terminated at any time.


    In your case, I would suggest that you get some sort of documentation regarding when you might be converted from a contractor to FTE. Who would your contract be with? Companies hire contracting companies to handle paying contractors (typically). Some contracting companies provided health benefits as well.
     
  8. miletwo

    miletwo

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    As a contractor (I am one... full time for 2 years now) I pay less taxes. Why? Because every damn thing I spend money on is now tax-deductible. My car, fuel, dsl line, clothes, lunch, dinner, software, hardware, cell phone, all of the above, are all tax deductible. By the time I hit my "taxable income" it's considerably less than it would have been otherwise and I make out like a bandit.

    Sure I have to carry my own worker's comp, health, life, office space, taxes, accounting, billing, blah, blah, blah... but I love it. IF the laws were different, I would stay with the same company indefinitely as a contractor. As it is, I have to find a new contract at minimum of every two years because laws state that after that I have to be full-time.

    Go for it... stay a contractor as long as you can if you ask me.

    J.Anderson
     
  9. kbtrans

    kbtrans

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    Social Security .... this is a 15% tax. For employees,
    the company pays 1/2 and you as employee pay 1/2.
    As a contractor, when it comes to filing your federal
    tax return you will be responsible for paying the
    full 15%.

    Aside from having to provide your own health insurance,
    this is the main cost to you as a contractor. The company
    saves money by not paying the 1/2 social security and
    also by not paying for mandatory (in Colorado anyways)
    Workman's comp insurance.

    One danger of going the contractor route is failing to
    put away enough of your income to pay income tax.
    That can be a really tough surprise come tax time if
    you have not been putting a pencil to federal (and state)
    income tax during the year to know exactly where you
    stand.

    The contractor to employee path I have seen work both
    ways ... It all depends on the integrity of the company you
    are dealing with.

    best of luck

    Paul
     
  10. squinty20

    squinty20

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    Usually the contractor isn't independent, they will hire you as an employee of an agency. Do you know if this is the case? The contractor company will pay you, pick up your benefits, and cover the taxes. It is the same as being a regular employee in that perspective.

    The part that I don't like is the fact that the contractor is the first out the door when layoff time comes. Big companies will have massive staff reductions without reporting it, because they reduced the contract numbers. HP used to do this all the time. Until a couple of years ago HP had a no layoff policy, however massive numbers of contractors were coming and going all the time.

    Usually the contract method is a way for the company to save money. They pay a bit more in wages, and much less in benefits and taxes. It also allows the company to report the cost of the employees differently on the balance sheet as well.
     
  11. DenverCruiser

    DenverCruiser

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    I asssume that I would be hired by an "agency" but am not sure at this point. I will, before going ANY further, work on getting this information as well as actual $ numbers etc.

    You guys rock!:cheers: Thank you for all your help. Keep them coming if you have any more information. Also, from all counts/resources I have found, this is a company that "takes care of its employees."
     
  12. srplus

    srplus Walked with the Dinosaurs

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    You will be responsible for paying your Federal and State taxes on either a quarterly or monthly basis if you are not a contract employee that is hired thru some kind of "leasing company".

    Although there are tax bennies to being self employed as mentioned by miletwo you better be prepared to keep EXCELLENT FULL COMPREHENSIVE records... NO BS on this... if you are deducting part of the house for an office you better have complete records of what you are deducting and it better meet the specifications set forth by IRS. Same deal on cars, cell phones, etc... you may be able to deduct all but if they pull your records and 90% usage is personal then they are only going to let you deduct 10% for business purposes if you are audited.

    Best advice here is to talk to a good CPA. If he/she is worth their salt then they will save you far more in taxes then their fees. Also, by using a CPA you have some credibility and assurance that what you are doing is legal and by the books. I have been self employed for almost my entire adult life and had a business that hired contract labor. I had a long war with IRS over this and it took me many years and quite a few $$$'s to defend myself.

    Whatever you decide just make sure you know what you are getting into and who you are doing business with before you make any false starts or leaps off a cliff.
     
  13. Mr. Toad

    Mr. Toad

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    Then you would be an employee . . . of the agency, which will handle your withholding and the employer's 7.5% share of Social Security, etc. just like any other employer would. Just keep in mind that you're the temp's employee, not the company's.
     
  14. DenverCruiser

    DenverCruiser

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    Which is a completely foreign concept to me! Just seems odd as hell.
     
  15. Mr. Toad

    Mr. Toad

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    Yeah, it's a little goofy. Just think of it like being a drywall hanger employed by a drywall subcontractor. It's just that on this job, the GC gives orders directly to the subcontractor's crews.
     
  16. re_guderian

    re_guderian SILVER Star

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    Different states/companies might be different. I know my company can only have the same contractor for 18 mos, then they have to be "off" for 6 months (or is it 12?) before they can be hired on again...

    And belive me, NOTHING is guaranteed. Don't count on anything to be there in 12 months. Any hiccup, and the contractor budget goes, let alone new hires...
     
  17. PabloCruise

    PabloCruise

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    x2 - from experience
     
  18. PabloCruise

    PabloCruise

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    Correct. I was hired by a Co as a fulltime employee (nice benes). They took the product line outside the Co in an LLC and told us they would no longer need us, but we could become contactors to the LLC. Goodbye health, life, 401(k) (w/ Co match).

    The paper usually says something about Co reserves the right to change these benes at any time...
     
  19. PabloCruise

    PabloCruise

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    If that is the case, then you will be Agency employee and they will provide your tax/witholding...

    BTW, it pays to shop the agencies if you have a gig. Let them compete for you. When I was in this position I found that the agencies would offer more vacation time to get me to sign on. Maybe ask for sign-on if it comes down to multiple agencies...
     
  20. OZCAL

    OZCAL

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    On the bright side, you get to refer to your "client" instead of your "boss". Should impress the parole agent :flipoff2:
     
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