Re: Independent Contractor v. Employee Status

Subject: Re: Independent Contractor v. Employee Status
From: Lisa Higgins <lisa -at- DRDDO1 -dot- EI -dot- LUCENT -dot- COM>
Date: Mon, 3 Mar 1997 14:23:33 +0000

John Gough wrote:

> A side-affect of the IRS decision was an explosion in the number
> of contracting companies, who link employers with contractors.
> This has proven to be bad for individuals, because the contracting
> companies are motivated to maximize the spread between what
> they charge an employer and what they pay a contractor.

While this is true, I believe that the original motivation for the
lawsuits is to encourage companies to rethink how they are
classifying the people who work for them.

Many large companies are seeing short-term 'savings,' not in real
dollars but in accounting, by 'outsourcing' their employees or
filling regular positions with contractors. The eventual goal, as I
see it, is to make it pay off for companies to fill their long-term
needs with regular employees rather than saving a few bucks by hiring
a series of contract employees.

To put a tech writing spin on it, from my strictly anectdotal
perspective, documentation groups seem to be the first departments
hit by experimental cost-cutting measures. I hope to see, before too
long, companies deciding that, in light of the recent decisions, it's
probably worthwhile to just go ahead and hire people to fill their
regular positions.

If my guess is right, we'll see a boom in contracting agencies in the
short term with a fairly steep downturn within a couple of years, as
companies start realizing that they're no longer saving money.

> A reasonable spread covers SS taxes, overhead, and a margin
> of profit. It should not exceed 20 to 30% of the amount charged
> the employer in most cases. Note that contracting agencies do
> not provide sick leave, vacation, health benefits, or savings
> plan benefits (some do if you have worked *continuously* for
> them for a minimum period of time, but the nature of contracting
> is short-term assignments).

Actually, most of the agencies I've worked with dealt primarily in
long-term assignments. They have a few large clients that hire
them to fill regular positions, not temporary ones. Some companies
here, though, have an 18-month limit for contract employees as a
result of similar lawsuits.

And many agencies do offer health and savings plans even for
short-term employees. They are worth looking into when they're

Also, I'd like to add that contractors working for agencies are
eligible for jury duty compensation, family and medical leave, and
any other legal rights that employees have. (And if anyone's having
trouble getting their agency to comply, let me know. I have some
really scary stuff you can fax them.)

> In addition, contracting companies are reluctant to disclose
> their spread. Most people don't have the knowledge or chutzpah to
> ask for that disclosure. Agencies balk at disclosing it even when asked.
> If they are such trustworthy people (many make a big deal of that), why
> don't they disclose those terms?

Here's another complication for this issue: Many agencies, including
one that I worked for, weight their numbers. That is, they take
taxes, overhead, and benefits out of their rates, THEN calculate your
rate. The agency I worked for showed me what the client was paying,
then calculated my hourly wage at something like 25% below that. The
rate seemed a little low to me, but I wanted the job. About six
months later, I found out that the client was actually paying them
almost double what I was making. Their cut was, in fact, 48 or 49%.

So, when you ask an agency about rates, make sure you're both talking
about the same numbers. Some agencies are very reputable, but many
are deceptive and sleazy.

And I don't think any of us should be waiting for the government or
the STC to step in to mandate that agencies disclose their spreads.
We should be demanding it ourselves. It's a seller's market right
now, as I see it, and it's a good time for writers to be bargaining
and showing a little muscle.

Besides, if an agency won't tell you what its cut is, I can almost
guarantee you it's at least 40%.

lhiggins -at- lucent -dot- com

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