An Introduction to Contract Staffing

by Jerry Erickson, Publisher

For the purpose of this article, I am going to assume that you have very little or no knowledge of working in the contract staffing profession. Let's attempt to transform you. If you are seeking a job in any IT, engineering, or technical-related discipline... such as programmer, engineer, systems analyst, designer, drafter, software engineer, tech writer, QA/QC, tool builder, etc... this article could lead to the most profitable and professionally rewarding era of your career.

People who work in contract staffing have called themselves by a variety of titles: contractors... consultants... job shoppers... contract employees... technical temps... just to list a few. These titles are interchangeable; I will normally refer to them as contractors.

When did contracting begin... ?

Contract employees first surfaced prior to World War II in the Detroit area. They were hired to help in the retooling and manufacturing of automotive plants for the war effort. The profession has steadily grown ever since. You will find contractors working in virtually every major industry in the world: software, aerospace, nuclear, computer, marine, petrochemical, automotive, industrial, manufacturing, electronic, civil, entertainment, medical, chemical, textile, financial, commercial, refinery, communications, publications, architectural plant layout, tooling, brewery, transportation, electrical, structural, mining, pulp & paper, etc.

Why work as a contractor... ?

The most important aspects to the majority of contractors are:

·    It's easier to find a contract position today than to find a direct position

·         Opportunity to travel to different job locations

·         No fee when you apply for, or accept, a position as a contractor

·      The professional challenge of working on a variety of projects for different companies

·         Make more money due to the temporary nature

Perhaps the most valuable reason is the opportunity for professional growth received from working for a variety of companies. In this day of constant changes in the workplace, keeping up-to-date is critical for your long-term career growth. One can amass an invaluable set of skills in a few years of contracting. Added to whatever specialized professional training you may acquire along the way, it doesn't take long for a contractor to become an extremely valuable commodity.

 

Contracting has three components...

The first I have already mentioned: the contractor. The second component is the contract staffing firm, which actually does the recruiting and hiring of contractors (therefore becoming the contractor's employer). All the firms advertising their job openings on this website are contract staffing firms. The third component is the client company, such as Microsoft, Boeing, or General Electric. That doesn't mean that mega corporations are the only clients in our industry. Client companies can range from small, 5-20 employee firms, up to multi-billion dollar corporations. The government is also a large user of contract labor.

The basics...

The client company contracts with a staffing firm to recruit and hire contractors (like you) to work on their projects on a temporary job basis. Let's assume that one of the tens of thousands of client companies has a major project underway. They have tried to hire enough direct employees to staff that project, and now find themselves behind schedule. The client asks one or more contract staffing firms to supply contract (temporary) personnel in the specific job disciplines they require. Highly skilled contractors will then be hired by the staffing firm(s) and step right in, normally side-by-side with the client's direct employees.

Another reason client that companies turn to contract staffing firms is they may anticipate ups and downs in manpower forecasts. We frequently see this in the aerospace industry. Such firms are far better off using contract personnel to fill the temporary voids. The client company also avoids the day-to-day costs of maintaining that individual as an employee, such as: payroll, social security and Medicare taxes, unemployment charges, insurance access and other administrative burdens. The contract staffing firms assume all those costs. The client company also avoids a reputation of continually hiring personnel and letting them go upon project completion. Contractors realize that their job assignments are temporary and are prepared to move on to other companies.

As a contractor, you would be working on the client's project, at the client's site, under client supervision... but you would still be an employee of the contract staffing firm that placed you. They would provide your paychecks, withhold taxes, and pay any benefits you may receive (such as vacation, medical, etc.). You would also receive a W-2 at the end of the year from the contracting staffing firm as your employer.

Another rationale for client companies to use contractors is simply a "try before you buy" approach. Today both clients and employees frequently "check each other out" before committing to a long-term relationship.

Why are contractors paid more... ?

Often, it is simply because their jobs are temporary. Other times, it is because the expertise they provide is not readily available on the open market. When a client company is behind schedule on a project... they are usually willing to pay a premium for needed expertise. Typically, the average length of a contract assignment is 6 to 12 months; they can, however, be shorter or longer.

Contractors often have obtained additional schooling and technical training in their field. Having worked in their discipline for an extended period of time, they are well qualified to handle difficult situations such as schedules, unusual problems, and can slip right into a team. These are reasons why they may be paid more than their direct counterpart. Besides receiving a higher than usual rate of pay, many contractors receive daily per diem and/or travel pay to their job locations. In today's tightened job market, many first-time contractors have entered this field because they have lost their captive positions.

When the project is again under control, or completed, the contractors will likely be terminated, and must then find another assignment. If they are lucky, their contract staffing firm will be able to place them on a new assignment immediately. More often, however, contractors are left to their own devices to find their next assignment.

Besides being a professional at their job discipline and having a desire to make more money... an equally important quality that should be a part of any contractor's makeup is the ability to be mobile. They must be able and willing to relocate, sometimes thousands of miles from their homes and often with a few days' notice, to a job assignment in another city, state or country. This is where per diem often comes in...

A mini-primer on per diem...

The most important part of per diem is to be sure you qualify for it by maintaining a permanent home, in addition to the temporary residence close to your work site. Some contractors claim that your temporary residence needs to be more than 50 miles from your work place... but that is not really true. Another claim is that your temporary residence needs to be in a different metropolitan area than your permanent home. The IRS guidelines actually state that you may claim per diem when you are operating two households while on assignment, your assignment is considered (by the IRS) to be temporary, and you expect your contract assignment to last less than one year. Your CPA should be able to help you determine whether or not you qualify for per diem. We urge you to establish a relationship with a tax professional who is familiar with contracting and per diem. Then you can run your situations past them to determine your specific tax liabilities and deductible items. You can call the IRS directly with questions to determine if your specific situation would qualify you for tax free per diem. IRS Form 463 can also answer many of your questions about per diem as a contractor.

Some contractors don't travel...

Although the contractors I have described above are mobile and travel for various job assignments, there is another type of contractor. I call them freeway, subway or local contractors. Major cities like Los Angeles, San Francisco, Chicago, Dallas, Detroit, Seattle, Boston, New York, Washington D.C., and Atlanta can support these contractors by providing multiple clients that might be able to utilize their expertise. Although local contractors can live in the same home, there can be other differences as well:

·    Their pay is usually lower than for a similar "road" job. This can be simply caused by the lack of per diem paid to those who work away from their tax home. Other times, it is actually less money per hour due to an abundance of local contractors. Supply and demand normally dictates what a job will pay.

·      Local assignments tend to be somewhat shorter in duration. However, we know of temporary assignments lasting several years.

·  Local contractors are more frequently required to attend job interviews... unlike their "road" counterparts, whose resumes are often the extent of their personal contact with client firms prior to reporting for work (unless a telephone interview is requested).

·   Local contractors are often able to build up a reputation with many area client companies allowing skilled contractors to be called back more than once. In some cases a local contractor may be able to remain working for the same contract staffing firm for several consecutive assignments (perhaps accumulating vacation time, remaining in the company's 401(k) plan, and retaining medical insurance without interruption)... even while working for several different clients.

Alternative structure of contract assignments...

Some contractors work as independent contractors instead of W-2 employees described above. This method, however, involves much more responsibility for the contractor and more potential risk to all three parties (contractor, staffing firm, and client). Independent contractors must pay their own social security and Medicare taxes, as well as the employer's share. And they must qualify with the Internal Revenue Service to work in this manner. IRS Form SS-8 is the document that you would use to determine qualification as an independent contractor. There are several questions to submit for approval. Fines and penalties are levied by the IRS on any or all parties found to be participating improperly. As a result, most staffing firms do not place individuals as independent contractors. Be sure to have attorneys and accountants involved if you go this route. For more information about working as an independent contractor, visit the Internal Revenue Service's website.

You will need an effective resume...

If this kind of work intrigues you, or you see it as an opportunity to find that dream job you have always been seeking... you'll need to prepare a professional resume. So you must have an effective and searchable resume. And, because contract firms input all their resumes into a searchable database, your resume needs to be presented in a manner that makes it easy for them to locate and submit it to their clients.

Links to resume information on our website...

Sample Resume Resume Writing Guide

Use the Internet to start your job search...

There are literally thousands of websites where you can review job opportunities offered by tens of thousands of employers. Most companies, including contract staffing firms, have their own websites where they post their firm's job opportunities. The options are endless. The secret is knowing where to look. Instead of spending hours "spinning your wheels"... narrow your options. Find websites that have jobs posted that fit your specific discipline and requirements. If you want to work only in the Midwest, find sites that specialize in Midwest opportunities. If IT is your field, find sites that have lots of IT jobs posted. If you want a contract position... seek out websites to allow you to isolate their contract postings. If you are looking just for contract positions, a good way to get started is to Google or Bing "jobs or employment" and "contract". That will bring up many sites that have contract jobs posted.

Find websites that provide services that will make your job search easier...such as a resume database that is searchable by recruiters seeking people who do what you do... will they email you new job postings that match your job description?...or offer you other job-seeking services? At C.E. Publications, we do that... so search our jobs database at cjhunter.com for contract or contract-to-direct openings.

By the way, in the contract world, a company with an office in Los Angeles can have job openings in Florida or Michigan. Therefore, if you are seeking work only in the Midwest, don't rule out sending your resume to contract staffing firms in other parts of the country. For a contract staffing firm, the entire world is their territory (although some firms specialize in local or regional openings).

Don't ignore print media...

Print media still offers job seekers a source of job leads. Newspapers have employment sections where you can find a smattering of contract positions. You should also check out trade magazines that service your specific job discipline or industry, as most have employment sections in the back of their issues. Contract Employment Weekly specializes in contract job advertisements. Unlike other periodicals, C.E. Weekly consists of mostly job advertising and contains openings only through contract staffing firms. Plus, we provide our subscribers with many services to help them locate and secure contract assignments.

After your resume has been sent...

You now approach the next phase of becoming a contractor. If you are lucky, a firm will immediately give you a call to ask if you would be interested in a particular assignment. They could also email you asking you to call them about a job. Many times, however, it is not quite that easy. Because contract firms receive so many resumes, and because many firms have comprehensive resume retrieval systems, they might be delayed in matching you with their assignment. Submitting a listing for our "Hot Sheet of Available Contract Personnel" is an excellent way of informing contract staffing firms of your availability (and, it's free to our subscribers).

Your resume can also be "brought to their attention" by calling or emailing the contract staffing firms personally. Hopefully, that personal contact will then cause them to access your resume and review it against their current job openings. Whether they contact you immediately or at a later date... they should always ask your permission prior to submitting your resume to a potential employer. Jobs in the contract industry also fluctuate with the economy. And there are times when contract requirements are cancelled due to any of a number of reasons... such as the loss of funding on a project, management decisions, or the availability of captive personnel to fill the client's needs.

Once a contract firm has offered you an assignment and you have accepted, request a confirming fax, email, or even a letter, so that it reaches you before you must leave for the job. In the confirmation, ask them to verify your job title, client company address, hourly rate for straight time and overtime, to whom you should report on your first day at work, starting date and time, the amount of per diem and travel (if any and when it will be paid), and expected job duration. You should then have your signed contract in hand before you leave home.

Length of assignment can cause problems...

A brief word about the duration of a contract assignment: The moment that you reasonably expect your job to last one year or longer, whether that happens on day one or day 364 of your assignment, that job is considered by the IRS to be "indefinite". When you are working in indefinite assignment, the IRS considers your tax home to be the assignment location and per diem is then taxed as regular income. So, if deducting the cost of living and working away from your tax home is important to you... keep a close eye on the expected length of your assignments. Many contracts are written in either three or six month durations. If, at the end of the specified time the contractor's services are still needed... the contract may be "extended" for another set length of time. Keep in mind, however, most contract assignments can be terminated (or extended) at any time by the client company. A six month assignment might end up lasting six weeks or six years. And, that determination is at the discretion of the client company.

While working on a contract assignment...

With every new assignment, you should begin preparing yourself for your next job by updating your resume reflecting your new assignment. This may seem a bit premature, but it is the best policy. Then, when your present job is approaching an end or, worse yet, ends without notice, you will be prepared to pursue your next assignment. At C.E. Publications, we also encourage you to keep all contact information updated in our database. You never know who might have an amazing offer to make!

In conclusion...

I know that this is a different type of employment for most. So... if you have questions, just email us and we will do our best to answer them for you. -- Jerry Erickson, Publisher