Contract vs Permanent Employment

There is a lot of discussion online about the debate of what is better, being an independent contractor or a permanent employee. I have run into this myself. I am a permanent employee for Pragmatic Works, and I know the rate they are billing me out at is much higher than my actual pay. So why not go out on my own and make a lot more money right? Let’s examine this.

One problem can be that most just do simple math and do not look at the other items that affect them and their family. Yes the hourly rate may be more. But you lose benefits, flexibility for time off, stability, security, and more .

Let look at a typical example:

Contractor: Billing out at $170 an hour, if that person is billable 75% of the year, which is the typical amount for a consultant, they can make $353,600/year. That is assuming they can hit that 75%.

If that same person was working full time and making a salary of $120k/year, it seems like this person is crazy for not going contract. But there is a lot more to this move than just going contract. The biggest question is, will they be able to keep contracts coming in to remain billable? They would either need to hire someone to find contracts, or take some of there billable time to search for more work. They also would need time to get training on new technologies to stay up to date, and they want to attend conferences also. All of these take away from their billable time. So lets say their billable percentage would be reduced to 65% due to  contracts/training/conferences. That would bring their salary down to about $230k/year.

Now lets look closer at the permanent employee:
Base salary= $120k
401K Match = $4,800
3 Weeks Vacation = $6,900
3 Sick Days = $1,380
Health insurance coverage = $2,500
Possible Bonuses = $1,000
Travel Reimbursements = $3,500
Training/ Certificates = $2,000
Laptop and Equipment provided and upgraded regularly $2,000
Licenses all needed software $5,000
Tax Deductions = $3,000

Total Compensation = $152k/year

So this looks like a huge difference, wow, $230k a year versus $152k/year. But there is a lot more non monetary items to consider. This following list contains some of the perks while working at Pragmatic Works, other companies may not have the same benefits.

  • A team with a wealth of knowledge for backup
  • Free Training materials for all needed technologies
  • Raises Based on Performance and Skills
  • Travel Limited to 50%
  • Help in obtaining MVP Status
  • Connections inside Microsoft
  • Opportunities to become an author due to company connections

And the one item people brush over is:


“While on the bench Pay continues”

Yes, this may seem like an obvious one, but this one is important. Let’s say the contractor has a family/medical emergency and needs to take off in the middle of a contract. The contractor may lose the contract and the buyer may look for a replacement while he is gone. They can do this because he has broken the contract. This may seem cruel, but if a company has a deadline, especially something for auditing or government mandated, they may have no choice. When the contractor returns, he now has to find a new contract, and has received no pay for a while, and is still not getting paid until he finds a new contract. This can be really tough on him and his family, especially with kids.

Let’s take the same situation with a permanent employee. The employee calls their employer to inform them they need to take leave due to family/medical issues. The employer find a replacement consultant from the team to get the job done and keep the client on track. During the time out the permanent employee still receives a paycheck maybe even disability pay from their benefits. When the employee returns, the company has another contract ready to go for them.

This is a situation where the stability of a permanent position can be seen. Stability is a factor that seems to be over looked, but it should be a major factor in your decision. Remember, this decision will  affect you and your family.

Another major factor is having a Strong Team for backup. When working as a permanent employee. Imagine a contractor finding himself coming to the end of a contract and the client ask them to stick around, but the next contract would include items they are not that familiar with yet. The contractor would need to ask for time to get trained on this technology, and during this time they may not receive any pay. There is a good chance that the client would have to find someone else and the contractor would be out looking for a new contract.

In the same situation as a permanent employee they would have a team behind them to back them up. Their employer could send in a coworker that has the skills needed to work along side to train on the job while building a solution for the client at the same time. This would keep the employees working and training while still getting paid. This collaboration would be harder to pull off as an independent contractor.

One other situation is a back up of hardware. If a contractor is on site with a client and their laptop bites the dust. As a contractor they would need to buy another laptop right away and install all of necessary software to get back up and running. This could cost them a couple days and these are days they may not receive  pay. If they were a permanent employee, the consultants employer could overnight them a laptop they already have set up ready to go. So no downtime and no expense of buying a new laptop.

Finally, from my own personal experience, I have seen a few employees leave and try to be independent contractors, and all of them have either, come back and asked for their old job back, asked for contract work from us, or taken a permanent job with another firm eventually. I have spoken to some independent contractors and the advice they gave me is “Have 6 months of savings ready to go at all times, you never know when the well will go dry.” I am not saying it is impossible. There are some successful independent contractor out there, I am just giving you food for thought before you try to make that leap.

By the way, Pragmatic works is hiring, email me if you know SSIS, SSRS, and SSAS, and would like to work with a team of SQL Server MVP’s and Authors.

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2 Responses to Contract vs Permanent Employment

  1. Craig Bryden says:

    You make some very valid points Mike. I have been a contractor before and am now permanently employed by a consulting company. I can certainly agree with a lot of what you’ve said. However, I should point out that it appears that Pragmatic Works is operating very professionally (e.g. my consultancy doesn’t have backup laptops just sitting there waiting for someone’s to crash) and that you get some excellent perks compared to what most get. My belief is that if you are very good at what you do and you produce good work, you should easily be able to maintain the 75% billable time (reputation is a great thing). Another thing to consider is that I often have to work overtime which I am not paid for. As a contractor I would be pulling in big money under those circumstances.
    Having said all of that, I feel that anyone going the contracting route should make sure they are well connected and be confident that there is currently a big demand for their skills.

  2. kaki says:

    Thanks a bunch for sharing this with all people you actually recognize what you are talking about!
    Bookmarked. Kindly also discuss with my website.
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