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> Sorry, we spent $200k on consultants A former employer decided to freeze pay for a few years and later later start laying off people. During the pay freeze a

> Sorry, we spent $200k on consultants A former employer decided to freeze pay for a few years and later later start laying off people. During the pay freeze a colleague suggested that we might save a significant amount of money by hiring staff, rather than paying the large number of consultants we had hired. I think the ration was something like getting rid of two consultants would free enough money to hire three developers. Managements take was that we should keep the consultants, because they where much easier to fire, two weeks notice, compared to four. So it was "better" to have consultants. My colleague pointed out that the majority of our consultants had been with us for 5+ years at that point and any cancelling of their contracts was probably more than 4 weeks out anyway. The subject was then promptly changed. In fairness to management large scale layoffs did start 18 months later.

jddj 2y ago
Outside of the US this optionality does have some value to deserve at least some premium. Hire an extra dev for the same money looks good on paper, but employment being the trapdoor function that it is in some jurisdictions does muddy the water. (I do understand that there's a historical context to keep in mind, and that the relationship is often asymmetric in the other direction as well)
- mrweasel 2y ago
  > but employment being the trapdoor function that it is in some jurisdictions does muddy the water. Absolutely, I should have clarified, this was in Denmark. Laying off someone is pretty easy, unless they happen to be pregnant, a union representative or work-place-safety representative. And I should know, I was laid off from a job after two months because they decided that they didn't have the budget anyway.
  - varjag 2y ago
    Two months in much of Europe is within 6-month trial period, it's easy to let anyone go.
- yobbo 2y ago
  Furthermore, the "additional cost" of an employee in Europe is a further 35% of the salary due to social fees. That is why contractors often don't cost more to the company, although it might seem like that to employees.
mstaoru 2y ago
5+ years "consulting" would probably be reclassified as employment by most courts.
- mrweasel 2y ago
  In this case a consulting company was hired, so these where employees, just with a different company. They just opted to station the same people at the same client for all those years.
  - pjmlp 2y ago
    In Germany now there are laws in place for this, you get ridiculous stuff like as consultant you are not allowed to eat together with team mates from the employer because that is seen as bounding activities (you may "accidently" bump into each other in the cantine, but not go together), or share the same office equipment for coffee, having to go down the stree to get coffee while employees get theirs from the kitchen, and so on.
    - ElevenLathe 2y ago
      The one that is most ridiculous and sad IMO (I'm in the US) is that contractors aren't invited to the Christmas party.
      - seb1204 2y ago
        Why is that ridiculous? Contractors are not employees, so why should they be invited to a give thanks party for employees? Become an employee if you want to partake. Feelings of entitlement are wrong here. Decency though tells us to invite everyone.
        wholinator2 2y ago
        Yeah, that's the line at a Christmas work party. Is it about Christmas, or is it about work
        2y ago
pydry 2y ago
Consultanties get brought in to provide ass cover for management but they cant just say that.
sheepscreek 2y ago
There’s the whole capital expenditure vs operating expenses angle too, and depending on a company’s particular situation, one might look better on paper than the other. Without going into too much detail, contractors will be hired typically to contribute to capital expenditure and employees to the latter. This distinction is even more relevant for earnings. So companies will optimize this for taxation and accounting to win shareholder brownie points.
- xtiansimon 2y ago
  Or as wind-up to a merger /acquisition.
- Salgat 2y ago
  Can you explain more how paying double for a contractor for tax reasons saves the company money? Or is this all some nonsense setup by the company to shuffle the numbers to look superficially better for a specific metric?
  - rincebrain 2y ago
    To my understanding, it's the latter. "We spent 1B in one-off costs for increased future growth" is a much happier story to investors than "we have recurring costs of 1B", put simply, even if the actual recurring cost number is worse. (There's also some complexities in some industries around money from, say, grants, which you can only spend on certain types of expenditures...)
  - Olreich 2y ago
    It’s all about accounting for the spend. Wall Street often looks at Capital Expenditures as a sign of growth or at least net neutral, but they view Operating Expenses as negative. If you can reduce your operating expenses by 200k, but increase your capital expenditure by 400k, you’ve reduced overall profit in order to increase growth potential because your investing 400k into new stuff that will bring in more revenue. This strategy cannot work long term unless there is growth happening elsewhere in the company to make up for the excess money burned on contractors and reduced number of employees. But it can definitely work short term if the growth numbers for the quarter are going to look bad, and it has the benefit of giving management someone else to blame when the project work doesn’t get done. If your company starts replacing employees with contractors, that’s a bad sign.
scarface_74 2y ago
“A former employer decided to freeze pay for a few years and later later start laying off people” Why would anyone stay at a company that had pay freezes for a few years. I would have been looking for another job the moment they announced them.
- bluGill 2y ago
  There are soft perks. I have a pension that counts how long I work for the company (I have no idea what the real terms of it are, but that simplification will do for this discussion). Long term than pension is - hopefully - worth far more than a couple years of no raises. Depending of course on how long I live - statistically I will die sometime between 60 and 100 with the most likely age being 80 - the longer I live the more than pension is worth, on the low end it is worthless. That said, when the no raise hit I made my boss aware of my displeasure in that (As a senior engineer at the top of the pay scale I expect my raises should just match inflation, but no raise is a clear pay cut). I did find a transfer position in the company that resulted in a nice level promotion and thus raise, which is sometimes the best option. Though your mileage will vary.
  - scarface_74 2y ago
    I forgot that pensions are still a thing in some places. But when you calculate the the present value of the pension (ie discounted future cash flows), is the difference between staying and going and making more money elsewhere worth it? (serious question, not trying to be combative)
    - bluGill 2y ago
      > is the difference between staying and going and making more money elsewhere worth it? That is a great question that is at least partially unknowable. You cannot discount future cash flows without knowing how long you will live and thus how much you should discount. Also things like inflation are unknowable. As I said, I did leave. I stayed with the same company but found a different division. Which is the best of all worlds. I think, perhaps I could get a better offer elsewhere? If so would that better job still exist or would I now be laid off for months before finding a new job and thus destroying all the income gain from that new job? There are a ton of unknowable factors. I can say it worked out okay for me so far, but that is about it.
EGreg 2y ago
How exactly does one become a consultant on a 1099? Go work for a consulting company a W-2? That’s how I did it four years ago. Well, the consulting company takes a nice chunk above what they bill you out for. How does one do it freelance? I also would prefer contract work or consulting work, I like that no feelings are hurt when I leave having done a good job, leave em better than you found ‘em.
- bluGill 2y ago
  You have to legally start a company. That means some legal work (you don't need a lawyer, but it helps). You need to do the books yourself - and because this is very different areas of tax law you really should hire an accountant (only an hour/month, but having extra eyes look at the books is useful). If you do this right you make more money, but there are problems if you miss some legal detail that W-2 employees don't have. Many times you cannot get called as a 1099 as some places won't work with you. however most of the big consulting companies have others working for them on a 1099 and will be happy to deal with you. However the amount they pay you doesn't change so you have to really understand how to make tax law work for you to make it worth out. (perhaps you can give yourself a 401k with a match - check with the lawyers/accountants above to see if that is legal and if so what the rules are. If not there are other loopholes that work similar)
  - Damogran6 2y ago
    As I understood it, you're also on the hook for valuing yourself properly. You may think you're making more money, until you factor in vacations and medical and retirement and slack time and...and...and
  - natbennett 2y ago
    In the United States you can create a company just by operating as one — “sole proprietorship.” A 1099 can also be issued to an individual. It’s useful for a variety of reasons to have an LLC or an S-corp but you don’t need one to get started as a software contractor.
    - 2y ago
hammock 2y ago
Many companies have a policy like “freelancers, once kept on for 12 months, must be either hired full time, or fired” to deal with this
dolmen 2y ago
Think about a wider scale than your employer: if the costs of the consultants goes in fact in the pockets of the investors of your employer, that money is not lost.
kavalg 2y ago
In quite many places, hiring consultants has a very high corruption potential (e.g. the hiring manager favoring one of several suppliers). With employees they don't have this leverage.
Simon_O_Rourke 2y ago
Management tend to get a bee in their bonnet about headcount, specifically full time employees, while they don't count consultants as being under the same kind of restrictions. It does often end up in the madness you describe, like that time there was a data entry consultant costing at my 0 company 100k, which a full timer would have been paid 35k max.

jddj 2y ago

Outside of the US this optionality does have some value to deserve at least some premium. Hire an extra dev for the same money looks good on paper, but employment being the trapdoor function that it is in some jurisdictions does muddy the water. (I do understand that there's a historical context to keep in mind, and that the relationship is often asymmetric in the other direction as well)

mrweasel 2y ago
> but employment being the trapdoor function that it is in some jurisdictions does muddy the water. Absolutely, I should have clarified, this was in Denmark. Laying off someone is pretty easy, unless they happen to be pregnant, a union representative or work-place-safety representative. And I should know, I was laid off from a job after two months because they decided that they didn't have the budget anyway.
- varjag 2y ago
  Two months in much of Europe is within 6-month trial period, it's easy to let anyone go.
yobbo 2y ago
Furthermore, the "additional cost" of an employee in Europe is a further 35% of the salary due to social fees. That is why contractors often don't cost more to the company, although it might seem like that to employees.

mstaoru 2y ago

5+ years "consulting" would probably be reclassified as employment by most courts.

mrweasel 2y ago
In this case a consulting company was hired, so these where employees, just with a different company. They just opted to station the same people at the same client for all those years.
- pjmlp 2y ago
  In Germany now there are laws in place for this, you get ridiculous stuff like as consultant you are not allowed to eat together with team mates from the employer because that is seen as bounding activities (you may "accidently" bump into each other in the cantine, but not go together), or share the same office equipment for coffee, having to go down the stree to get coffee while employees get theirs from the kitchen, and so on.
  - ElevenLathe 2y ago
    The one that is most ridiculous and sad IMO (I'm in the US) is that contractors aren't invited to the Christmas party.
    - seb1204 2y ago
      Why is that ridiculous? Contractors are not employees, so why should they be invited to a give thanks party for employees? Become an employee if you want to partake. Feelings of entitlement are wrong here. Decency though tells us to invite everyone.
      - wholinator2 2y ago
        Yeah, that's the line at a Christmas work party. Is it about Christmas, or is it about work
      - 2y ago

pydry 2y ago

Consultanties get brought in to provide ass cover for management but they cant just say that.

sheepscreek 2y ago

There’s the whole capital expenditure vs operating expenses angle too, and depending on a company’s particular situation, one might look better on paper than the other. Without going into too much detail, contractors will be hired typically to contribute to capital expenditure and employees to the latter. This distinction is even more relevant for earnings. So companies will optimize this for taxation and accounting to win shareholder brownie points.

xtiansimon 2y ago
Or as wind-up to a merger /acquisition.
Salgat 2y ago
Can you explain more how paying double for a contractor for tax reasons saves the company money? Or is this all some nonsense setup by the company to shuffle the numbers to look superficially better for a specific metric?
- rincebrain 2y ago
  To my understanding, it's the latter. "We spent 1B in one-off costs for increased future growth" is a much happier story to investors than "we have recurring costs of 1B", put simply, even if the actual recurring cost number is worse. (There's also some complexities in some industries around money from, say, grants, which you can only spend on certain types of expenditures...)
- Olreich 2y ago
  It’s all about accounting for the spend. Wall Street often looks at Capital Expenditures as a sign of growth or at least net neutral, but they view Operating Expenses as negative. If you can reduce your operating expenses by 200k, but increase your capital expenditure by 400k, you’ve reduced overall profit in order to increase growth potential because your investing 400k into new stuff that will bring in more revenue. This strategy cannot work long term unless there is growth happening elsewhere in the company to make up for the excess money burned on contractors and reduced number of employees. But it can definitely work short term if the growth numbers for the quarter are going to look bad, and it has the benefit of giving management someone else to blame when the project work doesn’t get done. If your company starts replacing employees with contractors, that’s a bad sign.

scarface_74 2y ago

“A former employer decided to freeze pay for a few years and later later start laying off people” Why would anyone stay at a company that had pay freezes for a few years. I would have been looking for another job the moment they announced them.

bluGill 2y ago
There are soft perks. I have a pension that counts how long I work for the company (I have no idea what the real terms of it are, but that simplification will do for this discussion). Long term than pension is - hopefully - worth far more than a couple years of no raises. Depending of course on how long I live - statistically I will die sometime between 60 and 100 with the most likely age being 80 - the longer I live the more than pension is worth, on the low end it is worthless. That said, when the no raise hit I made my boss aware of my displeasure in that (As a senior engineer at the top of the pay scale I expect my raises should just match inflation, but no raise is a clear pay cut). I did find a transfer position in the company that resulted in a nice level promotion and thus raise, which is sometimes the best option. Though your mileage will vary.
- scarface_74 2y ago
  I forgot that pensions are still a thing in some places. But when you calculate the the present value of the pension (ie discounted future cash flows), is the difference between staying and going and making more money elsewhere worth it? (serious question, not trying to be combative)
  - bluGill 2y ago
    > is the difference between staying and going and making more money elsewhere worth it? That is a great question that is at least partially unknowable. You cannot discount future cash flows without knowing how long you will live and thus how much you should discount. Also things like inflation are unknowable. As I said, I did leave. I stayed with the same company but found a different division. Which is the best of all worlds. I think, perhaps I could get a better offer elsewhere? If so would that better job still exist or would I now be laid off for months before finding a new job and thus destroying all the income gain from that new job? There are a ton of unknowable factors. I can say it worked out okay for me so far, but that is about it.

EGreg 2y ago

How exactly does one become a consultant on a 1099? Go work for a consulting company a W-2? That’s how I did it four years ago. Well, the consulting company takes a nice chunk above what they bill you out for. How does one do it freelance? I also would prefer contract work or consulting work, I like that no feelings are hurt when I leave having done a good job, leave em better than you found ‘em.

bluGill 2y ago
You have to legally start a company. That means some legal work (you don't need a lawyer, but it helps). You need to do the books yourself - and because this is very different areas of tax law you really should hire an accountant (only an hour/month, but having extra eyes look at the books is useful). If you do this right you make more money, but there are problems if you miss some legal detail that W-2 employees don't have. Many times you cannot get called as a 1099 as some places won't work with you. however most of the big consulting companies have others working for them on a 1099 and will be happy to deal with you. However the amount they pay you doesn't change so you have to really understand how to make tax law work for you to make it worth out. (perhaps you can give yourself a 401k with a match - check with the lawyers/accountants above to see if that is legal and if so what the rules are. If not there are other loopholes that work similar)
- Damogran6 2y ago
  As I understood it, you're also on the hook for valuing yourself properly. You may think you're making more money, until you factor in vacations and medical and retirement and slack time and...and...and
- natbennett 2y ago
  In the United States you can create a company just by operating as one — “sole proprietorship.” A 1099 can also be issued to an individual. It’s useful for a variety of reasons to have an LLC or an S-corp but you don’t need one to get started as a software contractor.
  - 2y ago

hammock 2y ago

Many companies have a policy like “freelancers, once kept on for 12 months, must be either hired full time, or fired” to deal with this

dolmen 2y ago

Think about a wider scale than your employer: if the costs of the consultants goes in fact in the pockets of the investors of your employer, that money is not lost.

kavalg 2y ago

In quite many places, hiring consultants has a very high corruption potential (e.g. the hiring manager favoring one of several suppliers). With employees they don't have this leverage.

Simon_O_Rourke 2y ago

Management tend to get a bee in their bonnet about headcount, specifically full time employees, while they don't count consultants as being under the same kind of restrictions. It does often end up in the madness you describe, like that time there was a data entry consultant costing at my 0 company 100k, which a full timer would have been paid 35k max.