Home > Career > Question of the Day: Which are better, Contracts or Permanent Positions?

Question of the Day: Which are better, Contracts or Permanent Positions?

I read an article the other day in InfoWorld that made me want to vomit. The author made me sick. He was whining and complaining about those despicable recruitment agencies that go through job candidate listings like real estate listings, yet his own frustration was with the clients, the companies that hire people for six months to do impossible feats and then just let them go. Namely, these were temp-to-perm positions that he despised. Contractors would sell their soul to a company, being on call with a cell phone through the nights and weekends, doing everything that they could to win the favor of the employer well enough to keep going on a permanent basis, but then be let go as soon as the so-called "probationary period" was over. These companies, according to him, were abusers of the system, taking advantage of folks who really wanted a long-term position by convincing them to bend over backwards for them and then letting them go as soon as their commitment ended.

I think the author had an attitude problem, for one thing. And I think the author’s attitude problem showed in his personal experiences with these temp-to-perm employers, and I think that’s why he didn’t retain the positions. But what bothered me most about the article was that he made a very pronounced notion that short-term contracts were for people who were spoiled by the dot-com craze of the late 90s and for young people. That was frankly insulting, because I see a lot of value in short-term contracts, both for myself as well as for employers, and the dot-com jumpstart of the Internet was not a regretful mistake of the economy but an overzealous surge of interest in a new thing. If there was a mistake in the late 90s it was in wasteful venture capitalism, not in hiring short-term contracts.

But the article along with my present state of unemployment did bring about the important necessity of discerning what the merits are of contracts, temp-to-perm opportunities, and permanent positions. To say one is better than the other is just ignorant. The reality is that they are very different, and address different needs of job candidates and of employers.

Standard Contract Positions

Contract positions are your typical three or six month jobs where someone would go in, do some work, and leave, and they would be paid for their time on an hourly basis. If you work overtime, you get paid overtime. You don’t get taxes withheld, you get 1099’d and are expected to pay taxes at the end of the year. These are scarce anymore for some reason, unless you have created a corporation for yourself and an EIN rather than a SSN is used on the 1099.

The advantages of a short-term contract is that you are not obligated to show loyalty to the company. You’re there to do a job, you might walk away with a professional reference, you gain exposure to a new environment with a new business and technical scenario, and you gain more experience in rubbing shoulders with complete strangers. Those may not sound all that ideal, but believe me, they grow you as a professional. Contracts typically pay out a little more for the hourly rate than permanent, salary-based positions simply because the temporary nature of the job is anticipated. Contracts are an advantage for hiring companies, as well, because they facilitate short-term needs rather than permanent ones, which is understandable in the world of software where, in the ideal world, software should be called "done" once written.

The disadvantage of standard contract positions is that you are extremely likely to be unemployed at the end of your term. This is a devastatingly frightening proposition to many people, especially for "breadwinning" family men having a wife and children. But for someone in a metropolitan area who has managed to maintain the lifestyle that suffices in demonstrating a strong grasp, both deep and wide, of the technologies and concepts and who has the soft skills to go along with the hard skills, the transition is usually short-lived. Just dealing with all of the opportunities can be a full-time job in itself.

The advantage of a short-term contract that is specifically on a 1099 basis is that you do get paid more because taxes are not taken out, but then you are responsible for your taxes.

The disadvantage of a short-term contract that is specifically on a 1099 basis is that the opportunities are scarce without an EIN. The IRS throws a fit when a SSN is used on a 1099, even though legally it’s perfectly fine and the IRS actually can’t do anything about it other than whine.

W-2 Contracts (Agency)

W-2 agency contracts are a strange hybrid of full employment and short-term contracts, yet surprisingly these are a common form of contract positions. These, too, are typically six month positions for a company that essentially contracts out the employment agency rather than the candidate. You might receive a salary, but regardless you probably still track your hours. Meanwhile, the employment agency then withholds taxes and hires you as a consultant, even though you never talk to them or see them or hear from them again except on your pay stub and perhaps every month or so when they call you up to ask how things are going. Actually, with these more than the standard contracts where an agent would just win a commission, you are typically treated with a lunch once a month rather than just a phone call. I’ve had at least one of these types of positions.

The advantage of W-2 agency contracts is that the negotating is completely transparent between the candidate and the company. You’re assessed for what you bring to the table, but the real relationship that the company has is with the agency. Legally, the agency is obligated to reimburse you for overtime because you are performing tasks that are commercially measurable, hence billable, by the hour (if indeed that is the case).

The disadvantage of W-2 agency contracts is that your real employer isn’t the company you’re working for but the agency. You are "owned" by the agency. You feel disconnected with your managing supervisor because even though they interviewed you, they didn’t actually hire you–they hired your agency and your agency hired you. This may not seem to matter at first, but will be felt, both in the interview process of developing a relationship with an agency as well as after you have worked with the company for a few months.

Temp-to-Perm Positions

I haven’t had to deal with any temp-to-perm (contract-to-permanent) positions so I don’t know what the relationship is on paper, but in practice these are "try-before-you-buy" options for employers. Yes, I did say "for employers" and not "for employers and candidates" because most job candidates have made up their minds that they want a long term job or a short term contract. A temp-to-perm position is begging for someone who wants a long term job but isn’t given any hope of being treated as a real employee until the contract ends. Negotiations are almost always consisting of the employer saying, "We want a permanent employee, but to start off with you will be a contractor." To that extent, the author of that article was absolutely right. And typically an employer who opts for temp-to-perm rather than either temp or perm is likely a difficult company to win over to patiently work with a candidate on a permanent basis anyway. It’s easy after a few months to find faults in someone, and it’s easy in that short a time period to quickly and heartlessly say "goodbye". People don’t usually grow from their jobs and prove their adaptability in a new environment until after a year, and that includes a company’s ability to adapt to a new personality in a team.

The fact is, any permanent position can typically be terminated in six months. You don’t need to go "contract-to-perm" for a company to retain the option of firing an employee or for an employee to retain the option of quitting. The whole notion here is to intentionally retain the intent to keep the position unstable.

Permanent Positions

Permanent positions are almost always on a W-2 basis. As an employee, you are "owned" by the company. These days, the employment contract is typically such that you can quit at any time and the company can fire you at any time, for any reason, stated or unstated. "Middle-men" such as agencies are much less likely to be involved in setting up a candidate for a permanent position, but when they are involved they typically win only a finders’ fee.

Permanent positions, the classic form of employment, are ideal for folks who need job security. I think they’re also very ideal for entry-level positions because they grow the employee at a personal level.

The downside of permanent positions is that they tend to be tree-hugging opportunities. People age with companies and it becomes difficult to keep up with technology because the surroundings don’t change. As a result, these positions are quickly becoming obsolete in the fast-paced world of software engineering. They are more reserved for IT support staff and for consultants.

Conclusion For My Life

In my view, the best option among these for a software developer really is the standard or W-2 contract. There are enough technical opportunities now that, short of the return of Jesus Christ or a nuclear attack or natural disaster that wipes out all computing infrastructures in the nation, there will never be a lack of new opportunities for software developers who use modern toolsets. Unlike other jobs such as manual labor, the more technology replaces our everyday tasks, the more dependent we are on people who implement the automation.

And it doesn’t make sense to just commit to one company for a long term when that one company will only have its own proprietary implementation to grow you. Diversity in experience beats tree-hugging loyalty, hand over fist.

This is not to negate the value of company loyalty or the wisdom in having a long-term, "permanent" position. Kudos to all breadwinners who are proud of themselves for holding out through thick and thin with their employers in order to keep food on the table. The insults that we "young’ns who aren’t married and go from job to job are just immature kids" are pretty difficult to take seriously. The trade-off of choosing a wife and kids over an exciting and diverse career of working with many different companies is perhaps there for many people, but declaring the superiority of one over the other isn’t particularly fair. I choose my career path to pursue a future of seniority in my field and thus to prepare myself for a future wife and kids. I look forward to cashing out. But I also know that once I cross that line, I won’t likely ever be able to go back. So why cash out too soon? Let the eggs mature before letting them hatch. That’s what a lot of these people failed to do, and it shows by their lack of understanding of industry knowledge with modern toolsets and skills. Personally, where maturity is a measurement of wisdom, I think the mature option is to not get too old too fast. This is a fast-paced industry and if you want to invest in it you have to keep yourself headstrong.

That said, would I consider a permanent or even a temp-to-perm position? Of course I would! I will consider any position that will grow me as a professional. If a permanent position entails a lot of growth in areas where I am lacking, and if that growth would require a very long term commitment to get past the hurdles, then I love a good challenge! And of course if a permanent position is one that I would love anyway, I may as well do what I love.

I am only trying to set my own expectations, not make a hard and fast decision for my next and future steps. Every opportunity should be considered as each one promises to bring a new set of experiences to my life.

Categories: Career
  1. Joe Zapert, 6quarks
    December 8, 2006 at 7:29 pm

    FYI, you don\’t need to start a corporation for yourself to get an EIN. All you need is a sole-proprietorship and all you have to do to start one of those is get out of bed one day and say, "I\’m a sole proprietorship."* You just fill out an EIN request form, check off the sole-proprietorship box, and the IRS will mail you an EIN.Now, on your W-9\’s, the instructions say something like: The IRS "prefers" that sole proprietors use their SSN instread of their EIN. This of course is nuts. It\’s either a rule or it\’s not, and it\’s not! Use your EIN and feel like a real company. Yay!*(Well, as far as the IRS is concerned. To do business with the public you might need a business licence from your local jurisdiction, but probably not if you\’re working in someone else\’s office and not doing retail. And of course you\’d need to register a ficticious name if you weren\’t naming your business the same as your first and last name.)

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