Direct hire v.s. contract (employee, highest, 401k, unemployment)

[TheStupid]

To an employer, what's the difference between direct hire and contract? I don't quite understand why so many companies are only hiring under contract.

[Miss Crabcakes]

Originally Posted by TheStupid

To an employer, what's the difference between direct hire and contract? I don't quite understand why so many companies are only hiring under contract.

Direct hire means you will be on their payroll as a permanent employee.

Contract means you work for the staffing agency and its only temporary. It's much cheaper for employers to hire contracts apparently.

[TFW46]

It's cheaper and easier to hire contract employees. Companies dont have to pay benefits and can usually terminate a contract employee with no explanation or liability.

Many companies are also choosing to hire people on a contract basis to see how they work out before hiring them as permanent employees. One reason for that is the fact that former employers can no longer give "honest" evaluations of former employees (due to potential liability).

[Opyelie]

Companies can also employ a 1099 contractor as a direct hire without going through an agency. The two aren't mutually exclusive.

[pvande55]

If going through a third party, that firm is responsible for paying unemployment taxes. The employee is not eligible for benefits such as vacation or severance. However, the employee is entitled to overtime pay, whereas a salaried employee may work additional hours without pay.

[NJBest]

Originally Posted by pvande55

If going through a third party, that firm is responsible for paying unemployment taxes. The employee is not eligible for benefits such as vacation or severance. However, the employee is entitled to overtime pay, whereas a salaried employee may work additional hours without pay.

This is not completely accurate of all scenarios.

W2 Full Time Employee

• No much different than W2 contractor below except you are most likely to have benefits, and a promised career path with the employer.
• If you are an exempt employee, you are not entitled to overtime pay
• benefits options usually significantly outweigh contracor positions.

W2 Contractor (Temporary employee)

• Agency or employer does pay unemployment tax as well as workers comp and 50% of social security & disability
• Agency or employer may or may not provide benefits. You can be a W2 contractor and be eligible for health insurance, 401k, and even vacation. (Kelly Services works this way)
• You are entitled to overtime pay at a rate of 1.5x .

1099 Contractor

• You are responsible for SS, Disability, and employer taxes
• You get all the benefits of being a business entity (tax deductions, solo 401k w/ $49k limit, etc)
• Usually, 1099 contractor will have a higher hourly rate due to the lower administrative cost and fees for the agency and to compensate for the fact that you have to pay all of SS
• You are entitled to overtime pay at whatever rate the contract says. This can be from none to an multiplier agreed upon.

1099 Contractor is almost always a better solution, even better than full time employment, if highest pocketable income is your #1 priority. Other factors should be considered, if they are important to you.

[LookinForMayberry]

For starters, contract labor is cheaper, and there are less hassles if you have to terminate the worker's position. It allows them flexibility and greater cash flow.

[Rich_CD]

Originally Posted by TheStupid

I don't quite understand why so many companies are only hiring under contract.

It's cheaper to contract people who operate an independent legal entity (their own business).

People contracting out their abilities is also part of the new knowledge worker age.

[JS1]

This is a direct result of Obama's anti-business agenda. Hiring a permanent full-time employee is a risky move when you don't know what the federal government is going to do next, and it's expensive when you have to provide benefits (used to be customary, now it's mandatory under ObamaCare).

So, instead of more people getting health insurance, the result is FEWER people getting health insurance because of the health insurance mandates -- gee thanks, Democrats

[mcb1025]

If contracting meant earning a higher salary so that you could buy your own health/retirement benefits, then I'm all for it. Unfortunately, I foresee employers abusing that, because it is human nature to get the most for the least.

The company I work for started me out as a contractor. Guess what. My pay as a contractor was no different than my pay as full-time W2 employee. My point is, if this becomes the norm (contractor vs. W2), I believe that employers will find ways to exploit the system. It's just in their nature.