Not in practice, because they use a hiring entity to dictate the terms. You're expected to show up on a schedule, do the work etc. much like a FTE, but you're not an FTE.
I think some folks have this illusion of software contractors that this is somehow common, it really isn't. The norm is you-are-almost-but-not-quite an employee type work environment, and thats at the better places.
I've worked at a place where contractors were treated like they weren't human, basically. Worst equipment, forced to work in an old warehouse that barely passed code to be considered retrofitted for an office, people routine got sick out there because they were exposed to the elements. Not to mention, during fire season (this was California) they were in a building that didn't have a good enough air filtration system, so they were forced to sit in smoke all day, more or less
I quit that place pretty quickly, but it was nothing short of terrible
I think the GP's point was that's how it should be. If a company is going to -- for "legal reasons" -- not treat contractors the same way they treat employees, then they should be doing so not only in bad, exclusionary ways, but also in good ways, with the expected perks of being a contractor that FTEs don't get: freedom to set their own hours, work where they want, and subcontract out their work.
But no, companies like Google want to have their cake and eat it too: they want a class of workers where they can require of them more or less the exact same things that they require of their employees (and much more easily fire them), but can give them a lot less, and treat them like a second class.
That's entirely Google's choice. It does not have to be that way. But they've decided to create this two-class system for their own benefit, not for anyone else's.
Also consider that these people are probably often not contractors in the legal sense. They're likely W-2 employees of some sort of staffing agency, who are then placed at Google. Google pays the staffing agency, the staffing agency pays the "contractor" a salary (significantly less than what Google pays the staffing agency), and all is fine... legally, anyway.
>> Google pays the staffing agency, the staffing agency pays the "contractor" a salary (significantly less than what Google pays the staffing agency), and all is fine... legally, anyway.
The staffing agency vig is so high it is practically the same as an FTE.
I used to work for a temp agency (clerical, not in tech) and I remember once seeing what my agency was getting paid for me on an hourly basis. Iirc, it was something like 3-4x what I was getting paid hourly. It was kind of sickening tbh. Plus many agencies forbid temps from being hired away without paying an outrageously hire fee to do so.
It felt like being an indentured servant in many ways. The only upside was that if you hated the place you worked, you could always ask to be reassigned someplace else. But that's the only major plus I can think of.
The most profitable consulting-type businesses have profit margins >=50%, before distributing profits to equity holders. But either way I'm not sure about your implicit assumption here that the profits should be comparable to the pay of the employees.
Hey, you began your comparison with the most profitable consulting firms…
2 things -
1) Accenture has an EBIT of 20%.
2) The tippy top of the consulting pyramid plays on branding in a way that the average firm does not.
The VAST majority of service driven firms will not become McKinsey etc. making this a poor comparison
Finally - I doubt that the top firms have those margins, I would most definitely like to be corrected though. If you could clarify or share your source, I’d appreciate it.
Note I mention profit before distributing to equity holders. The highest prestige and therefore most profitable consulting companies are all partnerships.
Some highly profitable consulting companies that are partnerships have very high margins, if you don't include the profit sharing component of the pay of equity partners (but do include bonus and fixed salary). The primary public source I can point to is that many top law firms publish their margins to be >=50%.
As for McKinsey, according to Google, McKinsey has 10k consultants and 2700 partners. There are 30k employees, so I give you that the overhead rate is higher than law firms. But
given how different pay is between partners and non-partners, and there is still a relatively large portion of partners compared to other employees, the margins, if calculated this way, is probably still pretty high.
Now is this the right way of considering profit margin? There are some good reasons to disagree with it. But in the same way people can like or dislike EBITDA. At least, it's like nobody discounts Larry and Sergey's cut from Google's profit.
In this context, I would argue it is indeed a good way, especially for the purposes of discussing the discrepancy between grunt pay and hourly charge. It tells us that a very large part of that discrepancy goes to equity partners (who aren't those doing the execution work), rather than "overhead" as it's being argued. This is very different from big-corp type public companies where, even though executive pay is a lot, the bulk of the pay goes to shareholders ans a large number of rank and file and moderately paid middle-managers, which I suspect to be closer to accenture's profile.
The idea of equity in a consulting-type business is pretty strange, on the face of it.
Leaving aside the partnership fair/unfair model, equity = access to capital.
But consulting-type businesses are essentially headcount machines, because the product is 1 person's time.
So why do you need access to capital?
Granted, it makes expansion easier (hire ahead of work), but as far as profit distributions go, what are equity holders providing in exchange for their slice of the profits?
Primarily, you want an apples to apples comparison. A law firm is a service provider, however not a consultancy. The service the two types of firms provide are not directly comparable.
Furthermore, a law firm is a place where your assertion - “ discrepancy goes to equity partners (who aren't those doing the execution work)…”
Senior partners are pretty critical in bringing and keeping clients.
In my previous service company, we aimed for 10%, which was considered the norm. However, we were particularly bad at achieving this, with only 8-9%, though we did have a good atmosphere and happy employees
Getting to profit through pure people power is hard. Every next person you add doesnt double your output. It’s maybe increases it by some %. (This includes overhead costs)
FWIW, this isn't the case at Google (or many other large technology companies). Google dictates the staffing agency markup (which is very limited) and audits for compliance.
This, among many other processes, has significant negative impacts on the quality of the agency that will work with Google on this sort of work - but it does help with cost control.
(Source: I ran one of these agencies, and Google was a past client.)
> They're likely W-2 employees of some sort of staffing agency, who are then placed at Google.
This is precisely what Samsung does in Austin at its fab, via Randstad. I was a supervisor, and had about 50:50 FTE and Contractor. They were treated exactly the same, including getting pizza parties and the like. The main – and largest – difference was FTE benefits were awesome, and Contractors got the bare minimum required by law (Texas, so basically nothing).
I often complained about this to management, to no avail. My main argument was that we were training people to quit and go work for Intel or GloFo as FTEs. Didn’t seem to matter.
I hate this model so much. Just pay people if you want FTEs.
It is a shell company, except that it is not Google (or its equivalent) who is creating it. It is the Infosys and Cognizants (or other bodyshopping firms) of the world who create this structure to satisfy the demand created by the Googles.
I mean classic example are contracting out food service in the corporate cafeteria. You contract the work to some random other company who hire people to do food service or do you want Google or whoever to start hiring cooks themselves? Janitorial staff is also a classic role for this style of employment.
That's quite different - Google contracts for a service to be provided and takes no interest in managing janitors and cooks individually. The red badgers sound like they're being given individual instructions but denied employee protection.
Two different kind of outsourcing contracts. And red badgers, unless they are freelancers, have employee protection. Just not from Google, or any other company using subcontracting agencies for that matter.
but looking at it from a top down perspective, it does seem like google treats these contractors no better than the janitors and cooks. So i dont think you can say it's different merely because the nature of the work is not the same.
The difference between a legitimate third party service and these ought-to-be-illegal body shop arrangements is whether Google is paying for a specific service—e.g. clean offices—or people that they boss around.
Google managed to hire their first chef in 1999 and manage them directly, I'm sure they can manage a global team of cooks better than anyone else if they wanted to, because of their specific needs and so many global offices to spread the gains through. It's all just a decision they took.
Google has infinite money and doesn't have to care about things like that. They can waste money on food just like they waste it hiring 10000 engineers who don't do any work.
What surprises me the most is how a corporation like Google is incapable of meeting temporary staffing needs internally, by shifting people already on their payroll around projects. It's as if they are just admitting that they are shit at managing projects and workloads and scoping work to the point that they need external help to plug these gaping holes in their load management.
How many people do they need to pay to manage this contractor circus? How much effort do they waste sourcing contractors, tracking work assigned to them, treat contractors differently even interns of security processes, and dealing with higher attrition levels? So much waste.
That’s not legally a contractor then. As someone who has done contracting, both for software and in construction plus has hired them and had to be advised by lawyers around the legality of what makes or breaks a contractor…
If you are setting their hours, bossing them around and/or providing equipment they are not a contractor they are an employee. This is the law in 100% of the United States.
>That’s not legally a contractor then. [...] If you are setting their hours, bossing them around and/or providing equipment they are not a contractor they are an employee.
There are 2 different uses of "contractor":
(1) contractor : official IRS tax classification of 1099 independent contractor
(2) "contractor" : a W-2 employee of a "temp agency" or "staffing agency" or "bodyshop" that is sent to a client company (such as Google) needing contingent workers. Adecco[1] is an example of a staffing company that sends people to Google. These temp agencies with workers classified as W-2 employees act as legal cover to "avoid repeating Microsoft lawsuits". From Google's perspective, these Adecco employees are "contractors".
If the above working arrangement looks convoluted with the economic inefficiencies of paying for an extra middleman (the temp agencies), it is. But it cleverly avoids the IRS claiming, "Hey Google, your so-called contractors are misclassified and should be employees!" ... and Google can say, "They already are employees! They're Adecco employees!"
The "1099 real contractor" is not as common as "fake-contractor-but-really-somebody-elses-W2-employee" ... because the "1099 contractors" won their lawsuit against Microsoft.
The tax reform act of 1986 removes the safe-harbor provision for engineers and programmers. This strange sentence means that if a company hires an engineer or programmer - as an independent contractor - and the IRS later decides that this person is really an employee, then the company is liable for back taxes and probably penalties. For other professions, the "safe harbor" provision means that the company is only liable for paying the employer share of taxes going forwards - the previous stuff is handwaved away.
In effect, this scares companies so much that it is very difficult to get hired as a 1099 contractor as a programmer/engineer. The vast majority of companies will require you to be a W-2 employee of some other company (which will be the "staffing agency" or "bodyshop" or "temp agency").
One programmer was driven to fly his aircraft into an IRS building due to this issue.
I'm a mostly fake contractor. I miss the good old days when I could fake contractor directly to companies. Now I have to go through a middle-man that takes a cut. I still make triple what I was making before, but it bothers me that the middle man is likely taking 30-50% off the top.
These laws do not protect workers, they protect entrenched wealthy body shops.
IIRC they can, but only if the other company is also paying some proportion of the costs relative to how many of their employees are present, or something like that. It's been a little while but the rules are in some training presentation or other.
And the ruling makes it
clear that it’s based on the actual on the ground reality, which is why vendors get pulled in the same way.
If the main company is the one giving the vendors employees their direction, managing them, setting hours explicitly, they get included in all hands, etc. then the main company is also on the hook for being their actual employer as far as benefits, taxes, etc. go.
So there needs to be a clear delineation at all times, or bad things happen to the primary company regarding costs.
I think some folks have this illusion of software contractors that this is somehow common, it really isn't. The norm is you-are-almost-but-not-quite an employee type work environment, and thats at the better places.
I've worked at a place where contractors were treated like they weren't human, basically. Worst equipment, forced to work in an old warehouse that barely passed code to be considered retrofitted for an office, people routine got sick out there because they were exposed to the elements. Not to mention, during fire season (this was California) they were in a building that didn't have a good enough air filtration system, so they were forced to sit in smoke all day, more or less
I quit that place pretty quickly, but it was nothing short of terrible