Smart firms carefully weigh consultants / employees choice

750

Dear Joan:
My company employs a significant number of engineers, and along with most other companies, is having a very difficult time staffing our technical and engineering positions. A few years ago, we hired a number of contract engineers ("consultants") to fill in on an urgent project. The contract engineers are paid hourly and their pay amounts to 50% more than we pay our other senior engineers, or about double what our average engineers make. Historically, contract engineers could make an extra $30 to $40K a year, but professionally there were some downsides to this career, and being a permanent employee was considered a more "comfortable" and "safer" career path. However, due to the very tight engineering market, the disadvantages of being a contract engineer have lessened considerably (there is NO risk of being out of work, and assignments are much longer to fill in for permanent positions companies are unable to fill).

The basic problem: I believe it is unfair for some members of a project team (the "consultants") to be paid $40K or more than the other members of the team, year after year. When we get into our inevitable "overtime mode" at the end of each project, the contract employees (who are paid hourly) get paid for every hour of overtime, and the permanent employees do not. While the project assignments of permanent and contract employees are similar, the permanent employees always show much more company loyalty and product ownership: working late and weekends, working at home, shuffling personal life around to accommodate work responsibilities, etc. It is the permanent senior level engineers who make the company tick and produce product after product; if anything, they are the ones who should be paid significantly more than the contract workers. I think it is reasonable for a consultant to be paid a lot more on a short-term basis when the company's need is strong. But when "short term" employees are employed for several years, I think a company owes it to its permanent employees to treat them in a comparable manner.

What can a progressive company, large or small, do to properly reward the efforts and loyalty of its permanent employees in today's tight job market? Alternatives are: Stock options, bumping the pay of the permanent employees (the ones identified by management as ones the company cannot afford to lose) by $10 or $15K to close the gap; pay ALL employees for overtime, not just the contract employees; let the contract employees go and take a moderate project slip and work more aggressively to fill the positions. Obviously, I am biased in my opinion, and would be very interested in what a neutral third-party thinks about this situation. Due to the demand for technical employees in the coming decade, I think the permanent vs. contract issue will be with us for at least the next 10 years.

Companies are having a tough time recruiting a variety of technical specialists, so what used to be a short-term fix has become a way to keep the company supplied with qualified people to do the work. The issue becomes more complex when they stay--sometimes for years.

I posed the question about fat salaries to Bill Hufschmidt, President of IT Consultants (www.itconsultants.net), a company that places IT professionals in organizations. He said, "Many contract employees work for consulting firms who take a portion of their pay to cover marketing, training, and other overhead costs. The contract employee may be earning a little more cash than the person they sit next to but usually they don't have all the benefits of a full-time employee. If the contractor is self-employed, they are also covering all their own costs and bench time [downtime they spent between assignments]."

The obvious question is, "Why not hire more full-time employees?" But have you added up the fixed costs of hiring a full-time employee lately? Social security taxes, unemployment insurance, workers' compensation, vacation pay, health care, pension benefits, etc. often cost as much (or more) than paying more cash for a consultant. And the company must pay these fixed costs during downturns in business. And if employees aren't up-to-date on their skills, or they have performance problems, it’s tough to fire them in our litigious world.

Bob Horvat, is the owner of Compensation Resources Group, Inc. (crgi@aol.com), a company that helps companies design compensation systems. He adds, "Smart companies do a benefit analysis to determine if they are making the right choice between consultants and employees." Hufschmidt agrees, "Sometimes companies think they're saving money and turn technicians' jobs into management positions so they don't have to pay overtime. It may save them money for the first few months, but it can be short lived and good people will jump ship." (Criteria for determining whether an employee is qualified for overtime pay varies by specific circumstances so consult your labor attorney, tax accountant or other qualified advisor.)

Some employers learned a valuable lesson in the early days of downsizing and got caught short when they didn't have the employee depth required to adapt to new opportunities that required industry and company-specific knowledge. They also got burned when consultants came in, acquired knowledge and then left. Now they guard the transfer of knowledge more carefully. They know that intellectual capital is an important asset. They would rather reward their own employees and build internal competence. They use consultants to supplement their skill sets, expand their capacity during peaks, solve specific problems and teach their internal staff new skills.

Smart employers are fair. They try to find ways to use both pools of talent. For example, Horvat suggests incentives such as a 401K plan with some type of company match based on profitability, company profit sharing, stock options, or other incentive program for loyal employees.

Smart employees are aware of their marketability. It is the responsibility of any employee to continue to enhance their skills. If they do, and their job changes for any reason, they have multiple skills to sell-either internally or externally. Hufschmidt suggests that employees:

·        Stay at your company as long as you continue to learn things.

·        Ask for more responsibility on your job.

·        Leave if you're not staying marketable.

Is the grass really greener? Hufschmidt (and other similar consulting firms) say, "80% of the people we talk with are looking for permanent jobs." Contract work isn't for everyone. You must be willing to take boom times with down times. You need to be self-sufficient-moving from place to place. Your income is tied to your marketability and willingness to keep state-of-the art skills. And you need to constantly add value to your customer.

Finally, if you think the person sitting next to you is getting a better deal, ask him or her who they are working for and go talk to their consulting company. If they work for themselves, ask them about the pros and cons. See if the grass is greener. You may be surprised with the facts.

Advanced Consulting Skills for HR Professionals is Joan Lloyd’s intensive, interactive full-day workshop for HR practitioners.  Human resources professionals—both functional experts and generalists—have a new found opportunity to act as internal consultants who can help their organizations with organizational changes, performance coaching, conflict mediation and other value-added services. This workshop focuses on giving HR professionals the tools and strategies they need to help their organizations as well as advance their careers.

As a participant, you will have an opportunity to work on the problems and opportunities you face in your own organization, as well as to hear innovative ideas from other organizations.  Few training opportunities provide this level of intimate, hands-on experience. Call us for information about having Joan Lloyd work with your HR Team (800) 348-1944.  (Occasionally, we run this workshop as an open enrollment training offering.  Subscribe to Joan Lloyd’s “Article of the Week,” where we announce these sessions, as they are scheduled.)