5 ms·

So why do employers pay 5-10x for contractors?

by dawidw 10y ago

reallydontask 10y ago
I can't speak about gaming but for more general contracting the multiplier is 1.75 - 2.5x of a normal employee's salary There are a lot of reasons why employers hire contractors, some more valid than others. In my limited experience, it's rarely worth it, mostly because the relevant processes are never in place to ensure that loads of knowledge doesn't walk away with the contractor at the end of the contract edit: Should clarify that I'm in the UK.
- dawidw 10y ago
  "There are a lot of reasons why employers hire contractors, some more valid than others." Could you elaborate on that, please? Thanks in advance!
  - Jonnax 10y ago
    Off the top of my head I know that contractors don't get benefits such as holidays, pensions and other employee benefits. Their contracts have an expiration so they're easier to get rid of on short notice. Also they are treated as capital expenditure versus operational expenditure. And I believe that you can do some accounting that is beneficial tax wise to a company. This is a UK perspective.
    - hnal943 10y ago
      Yep, those are the reasons in the US also.
  - reallydontask 10y ago
    On demand labour On demand skills higher skillset misallocation of internal resources internal politics hanging on to yearly budgets I could probably think of a few more Some of the above are perceived by PHBs types as there is always a finite pool of people with the skillset that is needed for the job at the skill level required etc...
  - liveoneggs 10y ago
    One that isn't mentioned much is avoiding corporate overhead costs, which I found interesting when I learned about it. Basically some big companies charge their divisions fees for upkeep of facilities, paying the finance team salaries, etc based on the number of employees in the division. So if you can have ten employees you are only on the hook for $1M/year in corp fees even though you actually have three "consultants" sharing desks with every employee for years-at-a-time. If you added the consultants to the employee roles then you would become a 50 person division, owing $5M/year to the home office. --- The CAPEX vs OPEX thing is a big driver too, of course, but there are definitely ways to classify employees, at least partially, as capex. It's why you can make an exempt employee fill out a timesheet to charge back projects which you have put into the capex group. A few jobs ago my group was told to find 80% capex or find new jobs. Most fridays were spent negotiating with project managers in tasks-for-hours swaps.
gambiting 10y ago
Because they can be hired and fired at will, while an employee(at least where I work) has to be given at least 3 months notice, a severance package mandated by law, and they can sue for unfair dismissal. Plus you have to pay healthcare, pension fund and other benefits, plus they are entitled to 25 days of paid holiday a year plus unlimited paid sick leave. And finally, it's hard to find someone willing to become an employee for just 3-6 months required to finish a product. That's where contractors come in - they are much quicker to hire, they are much quicker to let go, and healtcare,pension, holidays is their responsibility. So to companies they can be worth the 5-10x what they would pay an employee for the same amount of work.
- dawidw 10y ago
  I'm not sure about that 3-6 months contracts. I know few contractors and they've been working couple of years for the same position. So I'm not sure how this model can be beneficial for company. To make the picture more unclear, those contractors wouldn't like to switch to permanent position!
  - gambiting 10y ago
    Well at least in the UK if you are a contractor I would say it's typical to take 500-600 pounds a day. Plus if you are self employed you can expense a lot of things that you can't as a regular employee - petrol, part of mortgage/rent, computer for work etc etc etc. Sure, you have to do your own taxes and pay your own national insurance, but overall you can be taking a lot more money home than an employee, so it's no surprise to me that people like being contractors and wouldn't convert to employees even if they were offered a permanent position. edit: "typical" for a mid-to-senior level programmer contractor. A "contractor" doing QC in games will not take anywhere near as much.
    - osullivj 10y ago
      500-600 is a typical London rate. Outside London 300-400 is more likely.
org3432 10y ago
Many reasons, at big companies employees require a lot of red tape so it's a way around it, you may need a specific skill set for a short period of time, or just a large volume of work to get done at peak. If they're good, the person may not want to be an employee, I see that all the time.
optimuspaul 10y ago
I think that 5-10x is rare, but 2-3x is common. The reasoning is that the actual cost of an employee is 3-5x their actual pay. There is insurance, taxes, more insurance, benefits, workspace (which some contractors will need as well), office supplies, computer, etc. All that adds up.

So why do employers pay 5-10x for contractors?

by dawidw 10y ago

So why do employers pay 5-10x for contractors?

I can't speak about gaming but for more general contracting the multiplier is 1.75 - 2.5x of a normal employee's salary There are a lot of reasons why employers hire contractors, some more valid than others. In my limited experience, it's rarely worth it, mostly because the relevant processes are never in place to ensure that loads of knowledge doesn't walk away with the contractor at the end of the contract edit: Should clarify that I'm in the UK.

dawidw 10y ago
"There are a lot of reasons why employers hire contractors, some more valid than others." Could you elaborate on that, please? Thanks in advance!
- Jonnax 10y ago
  Off the top of my head I know that contractors don't get benefits such as holidays, pensions and other employee benefits. Their contracts have an expiration so they're easier to get rid of on short notice. Also they are treated as capital expenditure versus operational expenditure. And I believe that you can do some accounting that is beneficial tax wise to a company. This is a UK perspective.
  - hnal943 10y ago
    Yep, those are the reasons in the US also.
- reallydontask 10y ago
  On demand labour On demand skills higher skillset misallocation of internal resources internal politics hanging on to yearly budgets I could probably think of a few more Some of the above are perceived by PHBs types as there is always a finite pool of people with the skillset that is needed for the job at the skill level required etc...
- liveoneggs 10y ago
  One that isn't mentioned much is avoiding corporate overhead costs, which I found interesting when I learned about it. Basically some big companies charge their divisions fees for upkeep of facilities, paying the finance team salaries, etc based on the number of employees in the division. So if you can have ten employees you are only on the hook for $1M/year in corp fees even though you actually have three "consultants" sharing desks with every employee for years-at-a-time. If you added the consultants to the employee roles then you would become a 50 person division, owing $5M/year to the home office. --- The CAPEX vs OPEX thing is a big driver too, of course, but there are definitely ways to classify employees, at least partially, as capex. It's why you can make an exempt employee fill out a timesheet to charge back projects which you have put into the capex group. A few jobs ago my group was told to find 80% capex or find new jobs. Most fridays were spent negotiating with project managers in tasks-for-hours swaps.

gambiting 10y ago

Because they can be hired and fired at will, while an employee(at least where I work) has to be given at least 3 months notice, a severance package mandated by law, and they can sue for unfair dismissal. Plus you have to pay healthcare, pension fund and other benefits, plus they are entitled to 25 days of paid holiday a year plus unlimited paid sick leave. And finally, it's hard to find someone willing to become an employee for just 3-6 months required to finish a product. That's where contractors come in - they are much quicker to hire, they are much quicker to let go, and healtcare,pension, holidays is their responsibility. So to companies they can be worth the 5-10x what they would pay an employee for the same amount of work.

dawidw 10y ago
I'm not sure about that 3-6 months contracts. I know few contractors and they've been working couple of years for the same position. So I'm not sure how this model can be beneficial for company. To make the picture more unclear, those contractors wouldn't like to switch to permanent position!
- gambiting 10y ago
  Well at least in the UK if you are a contractor I would say it's typical to take 500-600 pounds a day. Plus if you are self employed you can expense a lot of things that you can't as a regular employee - petrol, part of mortgage/rent, computer for work etc etc etc. Sure, you have to do your own taxes and pay your own national insurance, but overall you can be taking a lot more money home than an employee, so it's no surprise to me that people like being contractors and wouldn't convert to employees even if they were offered a permanent position. edit: "typical" for a mid-to-senior level programmer contractor. A "contractor" doing QC in games will not take anywhere near as much.
  - osullivj 10y ago
    500-600 is a typical London rate. Outside London 300-400 is more likely.

org3432 10y ago

Many reasons, at big companies employees require a lot of red tape so it's a way around it, you may need a specific skill set for a short period of time, or just a large volume of work to get done at peak. If they're good, the person may not want to be an employee, I see that all the time.

optimuspaul 10y ago

I think that 5-10x is rare, but 2-3x is common. The reasoning is that the actual cost of an employee is 3-5x their actual pay. There is insurance, taxes, more insurance, benefits, workspace (which some contractors will need as well), office supplies, computer, etc. All that adds up.