Ask HN: Why do contractors exist if they charge the same as a FAANG FTE?

https://news.ycombinator.com/item?id=28219844

by zingar • 5 years ago

20 21 5 years ago

news.ycombinator.com

I recently worked out that a faang salary works out to the same as a fairly average skilled contracting rate (say $1k/day). What is an employer gaining by hiring contractors (who probably receive 25% of that themselves) instead of employing another full time person at 250k per year?

Are there other major costs to company of a full time employee that are significant relative to the salary?

ggm• 5 years ago

Easier to dismiss

tsjq• 5 years ago

they're known as Contingent Workers and the expenses towards them goes under different category in the company's finance books: regular employees are some kind of liability, C-W aren't same. also hides the headcount. World does not know how many were hired, when, and how many laid off.

think of C-Workers as EC2 for Employees: Elastic, flexible, quick hire, quick fire. H1B C-Workers do not show under the company's Visa books. Other costs of FTE: leaves, health-insurance, provident fund, gratuity, group life insurance, car-lease-plan, ESPP/RSU/ESOP, bonus, promotions, payhike, etc.

wil421• 5 years ago

This is correct. The company I used to work for hires a lot of contractors and would furlough them as needed. They also hired about 200 contractors to get a big cloud based project done and they were all let go at the beginning of the pandemic.

Later in the pandemic they started layoffs and only then did the news outlets pick up on it.

paulcole• 5 years ago

Is that $250k cash salary or value of total comp? You might be leaving out things like insurance, stock grants, bonuses, other benefits, payroll taxes, administrative costs, equipment, etc.

Plus there’s the flexibility of having an as-needed contractor vs. a full-time employee.

NordSteve• 5 years ago

Demand for IT workers inside non-technology companies varies greatly based on the set of projects under way. Large projects are funded as capital projects with finite end dates. Companies want to vary the number of workers in response to demand, hence contingent workers. They commonly hire for expertise in a particular area, so that no training is needed.

Technology companies, in contrast, see technology workers as resources whose labor can be converted into products to sell. They hire for flexibility and willingness to learn, assuming that people will need to adapt their skills to what the company is needs. They typically set an overall headcount goal for the company with no specific end date.

A 25% deal as a contractor is a very bad deal - 90-95% for good contractors is not uncommon.

dhanvantharim1• 5 years ago

In Canada there is significant overhead for a FTE, When I used to be a contractor for my own corp I realised how much overhead the company has on top of just salary, health insurance, CPP, EI etc.., Also as a contractor it was a win for me because I can take dividends instead of salary and pay less taxes. I dont think easy to let go is a factor because they can layoff a FTE with two weeks pay and my contracts usually have similar clause to terminate my contract.

shishy• 5 years ago

If a company is paying you $X in annual salary your cost to them is basically double that if FTE (insurance / benefits / perks / etc.) so contractors can be "cheaper".

redis_mlc• 5 years ago

The reverse of your question is very interesting.

In 2000, W2 contract programming rates were about 2x employee salaries, $75/hr - $100/hr vs. $75k - $100k/year plus stock options.

In 2021, W2 contract programming rates are less than employee salaries, and often there are issues with Obamacare penalties, $75/hr - $100/hr vs. $150k - $250k/year plus stock options.

In 21 years, W2-style contract rates have not increased in Calif., while other states like Texas have caught up to Calif.

jasode• 5 years ago

Are there other major costs to company of a full time employee that are significant relative to the salary?

Yes. There's accounting/budgeting/HR jargon of "fully loaded"[1] as in "fully loaded salary" or "fully loaded cost" of an employee -- which is a higher amount that's calculated by the company. The extra costs in a fully loaded salary include health insurance, 401k match, vacation, etc.

Depending on the company benefits and overheard structure, the fully loaded cost could be ~1.2x to 2x the salary. E.g. it costs the company ~$375k behind-the-scenes to pay the $250k the employee "sees".

Therefore, your intuition that $250k salary == $250k billed-by-contractor is actually not an apples-to-apples comparison. The $250k-contractor costs less than a $250k employee. Other non-salary reasons for contractors include having a flexible size workforce -- especially for non-strategic projects. Instead of bad press headlines announcing, "layoffs of X employees", just cancel the contract.

[1] https://www.google.com/search?q=%22fully+loaded%22+salary

bdavis__• 5 years ago

another part in the "fully loaded employee" is the cost of supervision and organizational overhead. most contract labor is costed as if it was "material", neglecting these costs.

(you could argue this is just an accounting trick..)

mpalfrey• 5 years ago

Flexibility. Can be a lot quicker to hire a contractor (and get rid of them) than a permanent employee.

Also useful if you require niche skills for a project.

codegeek• 5 years ago

Salary is just one of the costs of an employee. You need to add Benefits (Health Insurance, 401k, Vacation Days, other perks), Additional Payroll taxes (usually about 7.5% SSn+Medicare), Unemployment and disability insurance costs, Workers Compensation and many other indirect costs. True Contractors (not W2) just get paid a fixed daily/hourly rate without any of these additional benefits.

Also, you can fire contractors much easier than employees even in At-Will states in the US. There is no unemployment to worry about. Lot of cost savings.

wodenokoto• 5 years ago

Even an average contractor can have experience doing something your team has never done.

Let’s say you are at the end of the line and it’s time to move from Python 2.7 to 3.x

- Has anyone on your team worked professionally with Python 3.x? (No they’ve been working on this codebase the entire time)

- Has anyone experience moving a codebase? No.

- Once the code base has moved, do you need 1-2 extra people to maintain it? No.

benreesman• 5 years ago

250 TC is what the best returning interns made straight out of college when I was at a FAANG. A senior engineer with some big wins and a little stock price appreciation is looking around when his or her TC falls below 1MM.

ALittleLight• 5 years ago

Why use a VPS when you could have your own metal?

webel0• 5 years ago

(who probably receive 25% of that themselves)

This tidbit suggests to me that it might be useful to delineate between the two archetypal tech contractors:

1. Less experienced workers who are having trouble breaking into FTE world. They have to work through agencies (who take the other 75%, which is perhaps high but not by much).

2. Experienced engineers who maybe have niche expertise or just a strong track record.

When you talk about FAANG comparisons, I think you’re mostly talking about the latter group.

There are gains for the employers potentially. But these folks also tend to have more bargaining power. At a certain point, working for a “cool company” may not be all that exciting. Instead, they just want to consult.

(Also, I think other have made good comments re:benefits.)

chrismaeda• 5 years ago

One answer is accounting rules. In a typical IT shop that supports a business...

Spending for "business as usual" (BAU or "opex") activities must be fully expensed in the year that it happens.

Spending for capital projects (new IT systems and upgrades aka "capex") can be amortized over the lifetime of the project. So if you spend $1M on a new IT system, you might expense it over a 5-7 year period.

So IT organizations will only have permanent staff for BAU and will hire temporary contractors for capital projects.

jasonkester• 5 years ago

I always negotiate all my gigs as contracts because it makes a lot more sense, both for me and the employer.

It immediately removes all the silly little lies and coercion that need to go on between you and your employer. You don't need to "share their vision" or think your options are going to be worth something if they exit. They're paying for your time, so if they want more, there's a mechanism for that. Just ask and you'll bill them at your day rate.

Similarly, there's no awkwardness if you wrap up your piece ahead of schedule or they decide they don't need you for a while. Just say the word and you'll down tools and send a final invoice. No bridges burnt and you can ramp back up when they need more help.

You can also be the most expensive guy on the team without looking like it on the books, which can be handy for the company. You can even schedule in downtime over the course of the year so that you end up billing the same as a salaried dev in the end (while getting an extra six months of vacation in the mix).

There's tons of flexibility, and that's the appeal for me. I love programming computers. I just don't really love doing it all day every day for 2000 hours a year, so contracting makes a lot of sense.

apineda• 5 years ago

I contracted for 2 years and fully agree with this. I'm F/E now and the little games drag you down but it's a part of the m.o. I'm tempted to reconfigure my situation. It'd be interesting to see what my boss thinks about that.

raihansaputra• 5 years ago

How do you find contract work like this? Freelancing directly with a client is hard especially if they're non-tech. Contracting strictly as a programming-time-for-hire appeals me more.

aristofun• 5 years ago

Where do you find contracts paying 1k$/day?

I’d like to get some and leave my full time job for good )

Ask HN: Why do contractors exist if they charge the same as a FAANG FTE?

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