We all have an image in our minds of the impressive contractor or “consultant” at any given workplace. They are highly specialized, make incredible salaries, and go from project-to-project like butterflies fluttering from flower to flower. To realize this fantasy, I switched to contracting a few years ago. Here are my notes and comparisons.
Overtime and Holiday Pay
The first biggest adjustment I had to make as a contractor is getting used to “hourly” salary. This includes overtime pay and hours worked during holidays. If no hours are reported for holidays, then I did not get paid. This was a change from being a permanent, full time , regular salaried employee who got paid holidays. With approved overtime, as a contractor, there were months when I made more money than i would have as a regular, full-time employee. A rule of thumb is to always keep track of the exact number of hours worked and always get approval before reporting overtime.
Lack of Benefits
The biggest change for me moving to contracting was the loss of benefits. As a regular, full time employee, I enjoyed ESPP (employee stock purchase plan), 401K, maternity leave, health insurance at a reduced cost, and many more benefits (especially with large multi-national firms). That also meant a little bit higher salary. This was the reason why most employers preferred to assign contractor to a project so that they don’t have to pay for their benefits.
As a contractor, I had to purchase my own health insurance. Some staffing agencies do provide competitive plans, but after the contract terminates, so does the coverage. COBRA option is not always offered. For example, in my last contract, my coverage with Blue Cross Blue Shield of Massachusetts was terminated suddenly without notice. Luckily, I was able to get coverage with my new contract. Affordable Health Care or “Obamacare” is recommended for those who contract frequently.
My 401K contributions also have to be rolled over each time my employer changes. Keep in mind that 401K contribution option is not always available through the contracting agency. The same applies to Flex Spending Account, short-term or long-term disability, or medical leave of absence.
Downtime and Extra Expenses
Note that contractors often are assigned to work on less critical tasks. The meat of the project is usually assigned to permanent, full-time employees. During layoffs, contractor budget is accounted for separately, so contractors may not be impacted by budgetary cuts faced by regular employees.
With contracting, downtime is sure to occur as you change assignments. Most contractors do not get paid during the period they are “benched”. In addition, contractors should be prepared to pay additional expenses such as travel and gas costs, obtaining immigration or visa documents, and minor costs such as food expenses as the contracting agency may not be responsible for reimbursing these. Read the terms of the contract carefully before signing. Know what is covered by the contracting agency while you are on assignment and which expenses are your responsibility.
Termination of Contracts
Know that all employment is “at-will”, meaning that at any time, the employer or the contractor can terminate the contract. It is not uncommon to suddenly find yourself “out-of-employment”. The terms of the duration can change as per project needs. Prior to terminating a contract, make sure that all deliverables have been completed. Always get consent from the client or your immediate manager regarding exit procedures. Always keep your contracting company in-the-loop with regards to any changes or developments. Communication is essential to maintaining good relations and avoid “burning bridges” with the client or the contracting agency.
In conclusion, if you like the thrill and challenge of completing project-based-assignments and you can quickly adapt to different environments, regular employment might leave you feeling bored. The excitement of different projects , short term deadlines, and flex hours can indicate that you are apt for contracting!