Corporate Contractors: The High End of the Precariat

September 15, 2017

The Wall Street Journal has an in-depth story on a cohort of workers that has heretofore been largely ignored by the press, in part because they are not tracked in labor surveys, that of individuals hired by corporations as contractors, often through an agency.

Bear in mind that these workers are not consultants. A consultant writes his own proposal for an engagement, specifies what the end product will look like, works on his own schedule, and supplies his own materials. Consultants typically also charge a large premium to what an employee in the same general skill areas would be paid. The reason is that consultants typically have more highly developed expertise and fancier credentials than staff in the same area of most clients, plus it is understood that the client is paying more to rent specific skills than if it bought them.

By contrast, these corporate contractors work like employees, but without many of the benefits. They have to show up at the office like everyone else and usually work on premises and report to a manager. They do not get benefits like vacations, sick days, 401 (k)s and medical coverage. Most important, they are hired for gigs that typically run for months at a time, but can still be terminated early. And their pay is typically lower than that of the employees with which they work. And the corporation hiring their services does not pay employer FICA taxes.

Mind you, this device is long-standing, but the Journal indicates that it is becoming more common. I’m sure readers have their own stories, but for instance, on Wall Street, many if not most of the IT professionals that looked like employees were on long-term contracts. Similarly, an ex-sister-in-law was the manager of a small unit at Ford for seven years…as a Kelly Girl.

The Journal also describes how contracting also being implemented to treat the contractors a more like second-class citizens, out of a view that that reduces the tax risk of having the contractors deemed to be employees and have the company that engaged them hit with a tax bill. This key paragraph comes well into in the story:

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