We’ve all heard the well-rehearsed arguments of being a full-time employee for a company versus independent contracting. With technology careers, this debate becomes even more relevant given the large number of both contracting and full-time positions available. There simply aren’t enough people to fill the demands of the industry, which for most software engineers, gives them the opportunity to choose. In the end it comes down to personal preference and circumstance, as there is no silver-bullet formula for choosing; however, does it always have to be a choice of just one or the other? Do hybrid business models exist out there that combine elements of both contracting and full-time employment? In this article, we will attempt to re-define the context of the debate by examining not only the pros and cons of the two schools of thought, but by also helping to clarify the various alternatives that combine elements of each.
The 5 Pros of Independent Contracting
- Compensation. Independent contractors usually enjoy a higher pay than their full-time counterparts, including straight-time overtime since you often bill hourly.
- Skillset Growth. A huge plus with contracting is the ability to gain a more diverse skillset across different industries and experience a change of scenery often.
- Office Politics (as in, less). With contracting, you’re almost always one-step removed from the daily woes of office politics and bureaucracy.
- Flexibility. You often get to decide your hours and locations of work.
- Being your own boss. This can be a big plus for self-motivated individuals who struggle with authority or feel that having a boss holds them back.
The 5 Cons of Independent Contracting
- Benefits (as in, there are none). Not only do you not receive benefits, but no pay between contracts, and certainly no access to employee fringe benefits. Add that to other expenses such as FICA, vacation & holiday pay, self-financed 401(k), health coverage, etc. and pretty soon that higher pay differential dwindles pretty quickly.
- Stability (as in, there is none). There’s always a sense of instability when you’re always having to look for your next gig after a contract ends. In addition, when a client needs to trim expenses, contractors are usually the first to go.
- Corporate career growth (as in, there is none). Certainly going freelance means a less structured career development path. With little ability to climb the corporate ladder and take on new roles within an organization, you may find yourself stuck in a rut at times.
- Camaraderie (as in, there is none). Independent contracting can get lonely at times with never being able to fully experience the sense of belonging to a team. Is your client’s full-time staff out of the office for that exciting offsite or end-of-project celebration? Chances are you won’t be celebrating with them. Who knows? Maybe you can go, assuming you don’t bill for the time, of course.
- Domain Knowledge (as in, less). Especially in the case of short-term contracts, there just simply isn’t enough time to fully absorb business domain knowledge, since you’re always changing clients.
The 5 Pros of Full-Time Employment
- Benefits. Full-time employment usually offers a full suite of great benefits, including group rates on health insurance, 401(k), fringe benefits, etc.
- Stability. With the exception of start-ups, full-time employers offers much more stability than independent contracting.
- Corporate career growth. With a more structured career development path within the organization, you have the ability to climb the corporate ladder and take on new roles.
- Camaraderie: The value of associating with a great team cannot be overstated. Strong, genuine, relationships made at work certainly improve one’s overall well-being.
- Domain Knowledge. With going full-time, you gain the ability to become very knowledgeable of the business domain for a particular company/industry.
The 5 Cons of Full-Time Employment
- Compensation (as in, less). Although you can enjoy great benefits with a full-time employer, your pay is usually more fixed and is less that of an independent contractor.
- Skillset growth (as in, less). You also have the potential to get pigeon-holed in your skillsets, with little ability to experience a change of scenery.
- Office politics. Far too often, you can fall victim to the intricacies of office politics and bureaucracy.
- Flexibility (as in, less). Most often you will be working a set schedule at a specific location.
- Being your own boss (as in, you never are). With full-time employment, unless you’re at the top of the ladder, you will always have to report to somebody, whether you like it or not.
See a pattern yet? The pros of one type are the cons of the other. This simplified chart helps to summarize this concept:
|Independent Contracting||Full-Time Employment|
|Office Politics and Bureaucracy|
|Being Your Own Boss|
|Corporate Career Growth|
Introducing the Consulting Company
Consulting companies (not to be confused with staffing companies) offer a hybrid model of the two types of employment by combining elements of each. Stable factors such as salary, benefits, etc. are guaranteed through them (similar to a full-time employee), but you actually perform your day-to-day work for the various clients that they do business with, similar to independent contracting. What makes this business model unique is that, in addition to having many of the pros of both independent contracting and full-time employment, consulting companies also possess an expert knowledge on the demands of the market and seek to mold their engineers into the type of people who can best meet that demand. Since their product and brand is people and not products, good consulting companies seek to offer a more structured career development path that can not only improve one’s marketability in the industry, but also accelerate it. Let’s examine the pros and cons listed above only in the context of a consulting company:
Pros of the Hybrid Model
- Compensation. Like independent contracting, you have the potential for higher pay, since clients are usually billed an hourly rate higher than their equivalent full-time salary.
- Skillset growth. You also have the potential to quickly gain a more diverse skillset using marketable technologies across different industries, even more so at times than as an independent contractor.
- Office politics (as in, less). Of course, having a consulting company sitting between you and the client removes you (one step, at least) from the politics and bureaucracy of a client.
- Benefits. The consulting company provides you with stable benefits similar to that of a full-time employee.
- Stability. With a consulting company, you never need to worry about where your next gig is going to be (since they do all the job hunting for you), plus you get stable employment with benefits and a guaranteed paycheck, just like a full-time employee would.
- Camaraderie. With a decent sized, reputable consulting company, you will have access to a solid network of engineers with whom you can form meaningful relationships.
- Flexibility. Although you are usually limited by the client’s needs, options such as telecommuting, flexible hours, etc. are usually available. Plus if you really aren’t enjoying your experience with a particular client, the consulting company can hopefully plan an exit strategy for you.
Additional Pros not Listed Above
- Understanding of market trends. Consulting companies are best at understanding the needs of the market and how you can best fulfill those needs, since they deal with a large number of clients on a regular basis.
- Forgetting all the logistics and paperwork. There’s no need to worry about all the logistics of actually starting work–you can just show up to a client and focus on what you do best – solving problems with technology. You don’t need to go through all the ceremony, hoops, and paperwork of actually getting hired or placed.
- Structured career development. Since good consulting companies invest heavily in keeping their consultants marketable, they usually will offer a more structured and focused career development path. Most important, with how fast technology changes, they tend to be ahead of the pack in keeping everyone up-to-date.
- Stronger contract negotiation. A consulting company usually has more bargaining power on billing rates and other contract details than an individual would, since this is the consulting company’s bread and butter.
- An agent is on your team. Similar to the benefits of having an agent in other industries, you essentially have access to an individual who is willing to go to bat for you and do everything in their power to make sure you’re well taken care of. By balancing your needs with the needs of the client and the needs of the consulting company, your manager can help to ensure a win-win-win situation among the three parties.
Cons of the Hybrid Model
Although consulting companies try and combine the benefits of both independent contracting and full-time employment, there are cons to this model:
- Corporate career growth (as in, less). Since consulting fees are the main source of revenue for a consulting company, you will be less likely to climb the corporate ladder and take on new roles. Unless an activity is billable, you probably won’t be doing it often.
- Domain Knowledge (as in, less). Like independent contracting, there’s usually not enough time to fully absorb business domain knowledge, since you will be changing clients often.
- Being your own boss (as in, you never are). Not only will you be answering to your client, but you will also be regularly reporting to your manager in the consulting company. This can be a dent to the free-spirit nature that is a common attribute among independent contractors.
Additional Cons not Listed Above
- Client Choice (as in, less). Although you can help to bring in new clients to a consulting company, you will often have less control over which clients you will actually end up contracting with. If the consulting company says yes to a higher bidder that isn’t your first choice, you may be out of luck.
- Sharing the pie. Perhaps the most common argument against working for a consulting company is having to give up a piece of your billing rate to help cover overhead costs for the administrative staff, management, benefits, etc. that the organization incurs. This is a sacrifice you will have to make when working for a consulting company.
To help drive home these concepts, let’s look at a ranking chart (1-3 stars, with no ties allowed) among the three models:
|Independent Contracting||Full-Time Employment||Hybrid Model (Consulting Company)|
|Office Politics and Bureaucracy|
|Being Your Own Boss|
|Corporate Career Growth|
Of course, there is a disclaimer to all of this, and that is that not all companies are created equal. Some of the pros and cons listed above may be quite different depending on the overall strength and reputation of the company or clients you choose. Your best bet is to crunch the numbers (not just the salary, but the total compensation package), carefully weigh the pros and cons of each, do your own research on every company/client you can, and finally make an informed decision based on your own personal circumstances.