W2, the IRS Test, and Who Do I Work For?
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So I have to ask - I hear about places like Google hiring all these "consultants" instead of hiring them full time. One of the main reasons for doing so is so that they, Google, doesn't have to give these contractors the same benefits that they provide their direct hires.
It's apparently so bad that people who work for the same team, some direct hires some consultants, it's not uncommon for there to be a company function that the direct hires all get informed of and are allowed to attend (typically on company time) but the consultants frankly, are not.
I've also heard that vacation allowances aren't the same either.
So - is all this shit I'm hearing nothing but lies? or are the rules different in CA? or are they just a bad company (OK we already know they are a bad company, so don't dive to deep into that).
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
Google, doesn't have to give these contractors the same benefits that they provide their direct hires.
Key word. Contractor vs FTE simply requires that they be two different pools. I was a full employee of the bank, with benefits. But not the same benefits as the FTEs. The FTEs had a single benefits pool as determined by HR. I had benefits that were negotiated just with me. So I could negotiate whatever mix of things worked for me, FTEs got whatever HR offered. Take it or leave it.
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
It's apparently so bad that people who work for the same team, some direct hires some consultants, it's not uncommon for there to be a company function that the direct hires all get informed of and are allowed to attend (typically on company time) but the consultants frankly, are not.
This is common and expected. If you let the contractors go to FTE functions, it makes it really obvious to investors that they are employees and that they've been tricked. FTEs often have loads of obligations that contractors don't, too. It's goes both ways.
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
So - is all this shit I'm hearing nothing but lies? or are the rules different in CA? or are they just a bad company (OK we already know they are a bad company, so don't dive to deep into that).
None of that is true. What you are hearing isn't a lie, it's just the norm and absolutely expected from any company. CA does have different rules, but not in this case. They are a bad company, but this isn't related
What they are doing totally makes sense for a public corporation and is how it is meant to be. Nothing wrong with it. NTG doesn't want to do that, because our staff are family, but a normal company where people come and go and it's just "a job", even a good job, this is a logical thing.
In all your description you'll notice that you keep saying that they get "different" benefits. But you never say who gets the advantage. That's telling, and accurate. Because one isn't better or worse, just different. Life is all about variety and large companies have to do more dramatic things to allow for variety in who they hire. This is just one of those ways.
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So examples....
When I worked for the big bank, I earned as a "consultant", who was still a legal FTE, but wasn't classified as an FTE to trick investors, I got no official vacation time, no medical leave, crappy health care, a standard 401K, and a salary that ranged from 50% - 300% over my counterparts. I earned more than my boss, and his boss.
While I got no official vacation or work from home, unofficially I got almost unlimited work from home and when I asked for a two week vacation, they gave me two months. I never needed medical, but they would have kept paying me had anything happened. When my daughter was born, they sent me home... for a year! And when layoffs came around, the FTEs were on the chopping block, but we were not.
As HR said outright "You only go from consultant to FTE when you aren't good enough to keep as a consultant, but not bad enough to fire." FTE was the lower role, by quite a bit.
Now other places, that'll be reversed. The point is just that it's kinda random. The two might be equal, but different. They might be equal and the same. They might be wildly different, but in either direction.
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@scottalanmiller said in W2, the IRS Test, and Who Do I Work For?:
@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
So - is all this shit I'm hearing nothing but lies? or are the rules different in CA? or are they just a bad company (OK we already know they are a bad company, so don't dive to deep into that).
None of that is true. What you are hearing isn't a lie, it's just the norm and absolutely expected from any company. CA does have different rules, but not in this case. They are a bad company, but this isn't related
What they are doing totally makes sense for a public corporation and is how it is meant to be. Nothing wrong with it. NTG doesn't want to do that, because our staff are family, but a normal company where people come and go and it's just "a job", even a good job, this is a logical thing.
In all your description you'll notice that you keep saying that they get "different" benefits. But you never say who gets the advantage. That's telling, and accurate. Because one isn't better or worse, just different. Life is all about variety and large companies have to do more dramatic things to allow for variety in who they hire. This is just one of those ways.
I lack actual information to say/know if one way is better or not.
For example of the contractors are earning more but get no vacation paid time off, then expectation could be like JBs recent post.... and that would be fair, in my mind.
Of course the overheard conversations give an air of negativity as if the contractor is being screwed compared to the FTEs. -
@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
For example of the contractors are earning more but get no vacation paid time off, then expectation could be like JBs recent post.... and that would be fair, in my mind.
Right, but you saw the part where I did get a vacation, right? None is guaranteed, but I actually got a bit.
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
Of course the overheard conversations give an air of negativity as if the contractor is being screwed compared to the FTEs.
People always perceive themselves as getting screwed. The contractor feels screwed because they don't get the soft benefits. The FTE feels screwed because they don't earn the money. People aren't very objective and get emotional and always feel like the scorned party.
No one actually gets screwed, because in both cases people are negotiating what they get. You only really have a "getting screwed" situation when a union gets involved and peoples' values are no longer evaluated.
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@scottalanmiller said in W2, the IRS Test, and Who Do I Work For?:
@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
Of course the overheard conversations give an air of negativity as if the contractor is being screwed compared to the FTEs.
People always perceive themselves as getting screwed. The contractor feels screwed because they don't get the soft benefits. The FTE feels screwed because they don't earn the money. People aren't very objective and get emotional and always feel like the scorned party.
No one actually gets screwed, because in both cases people are negotiating what they get. You only really have a "getting screwed" situation when a union gets involved and peoples' values are no longer evaluated.
Yeah without hard numbers on both sides, we simply can’t know if it is equitable or not
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
Yeah without hard numbers on both sides, we simply can’t know if it is equitable or not
There's no real way to know, even with hard numbers. Because you have to compare the pools, too. And how the benefits matter to them. For some people, for example, vacations or health care are worthless, so even a small amount of money offsets them completely. For others, they are worth more than you'd normally pay.
The important thing is, everyone negotiates for what their value is and what they can arrive at in the end determines what is equitable.
Remember when a new employ approaches or is approached by a company, they are not yet in one pool or the other. It's not like group X and group Y are pre-selected. It's equitable by nature because you can choose either pool.
When I was at the bank, I was offered FTE conversion, but it wouldn't have been as good for me. So I turned it down.
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@scottalanmiller said in W2, the IRS Test, and Who Do I Work For?:
When I was at the bank, I was offered FTE conversion, but it wouldn't have been as good for me. So I turned it down.
At a 50% pay increase over the FTE, I can't ever see it being worthwhile. You're already talking a highly paid position (I'm assuming bottom of the barrel FTE is making $80K, that puts you at $120K min... you can pretty easily pay for vacation time (i.e. take non paid time off - if required) and healthcare and still likely still be earning more than the FTE.
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
@scottalanmiller said in W2, the IRS Test, and Who Do I Work For?:
When I was at the bank, I was offered FTE conversion, but it wouldn't have been as good for me. So I turned it down.
At a 50% pay increase over the FTE, I can't ever see it being worthwhile. You're already talking a highly paid position (I'm assuming bottom of the barrel FTE is making $80K, that puts you at $120K min... you can pretty easily pay for vacation time (i.e. take non paid time off - if required) and healthcare and still likely still be earning more than the FTE.
Exactly. Although their benefits were really good, they just didn't offset the pay differential. Some people liked it, but the increased risk of being FTE (all layoffs were of FTEs, not consultants) makes even a close situation totally not worth it.
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@scottalanmiller said in W2, the IRS Test, and Who Do I Work For?:
@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
@scottalanmiller said in W2, the IRS Test, and Who Do I Work For?:
When I was at the bank, I was offered FTE conversion, but it wouldn't have been as good for me. So I turned it down.
At a 50% pay increase over the FTE, I can't ever see it being worthwhile. You're already talking a highly paid position (I'm assuming bottom of the barrel FTE is making $80K, that puts you at $120K min... you can pretty easily pay for vacation time (i.e. take non paid time off - if required) and healthcare and still likely still be earning more than the FTE.
Exactly. Although their benefits were really good, they just didn't offset the pay differential. Some people liked it, but the increased risk of being FTE (all layoffs were of FTEs, not consultants) makes even a close situation totally not worth it.
This is the part that's completely counter intuitive. At least until you explain the reason they even have consultants is because of investors AND assumes the consultants find themselves in a position fairly equal to or better off than the FTEs.
And that's why the the everyman hates the idea of consulting - they expect to be the first ones put out to pasture.
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
And that's why the the everyman hates the idea of consulting - they expect to be the first ones put out to pasture.
And often it is. I wouldn't guess that what we had was the norm in all industries, but it is certainly common. Basically the "fodder" are stuck as FTEs and the elite that need special benefits, pay, and protection have to be kept away from the masses in some manner. In giant companies, seeing employees as expendable cogs is common and mass, blind layoffs are common. If you have people who are actually necessary (or highly critical) that you'd struggle to replace and losing them would disrupt the business or just be insanely costly to replace, you have to do something.
Basically, in a large company, the FTE pool is treated a lot like a union. And sometimes actually is a union. Unions mean that no one with any real value will consider working there. Unless you have a workaround. Consulting is the workaround to actual unions or just union-like employment pools. Giving people the power to negotiate based on their value, rather than just being a generic butt in a seat.
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So - if consultants aren't the first gone in layoffs - why are they paid so much more?
I mean you explained a bits:
FTE might equal better healtcare plan
FTE has paid vacation
FTE has paid holidays
FTE participates in company functions
401K
etcSo as a consultant you'd want the company to make up for these things, and that's generally done with a higher wage... but you said 50%-300% more - holy crap - WHY?
Does part of the answer come from the fact that the super high paid employees they don't want on the payroll books because that affects top compensation vs bottom for federal reporting? So it's better to keep those high earners off payroll and on operational costs? (seems like a loophole)
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
So - if consultants aren't the first gone in layoffs - why are they paid so much more?
I mean you explained a bits:
FTE might equal better healtcare plan
FTE has paid vacation
FTE has paid holidays
FTE participates in company functions
401K
etcSo as a consultant you'd want the company to make up for these things, and that's generally done with a higher wage... but you said 50%-300% more - holy crap - WHY?
Does part of the answer come from the fact that the super high paid employees they don't want on the payroll books because that affects top compensation vs bottom for federal reporting? So it's better to keep those high earners off payroll and on operational costs? (seems like a loophole)
You budget consultants based off projects which means you can pay them substantially more.
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
So - if consultants aren't the first gone in layoffs - why are they paid so much more?
Because they are the senior people. The ones that you couldn't hire at FTE rates, because they aren't fodder.
In small shops, this problem doesn't happen. Every new hire is a unique situation. But in a normal F500, the FTE pool is effectively a loose union with pay caps, strict vacation and benefit rules, etc.
Hiring a consultant means you can pay beyond the FTE cap, you can negotiate any terms that make them happy... such as...
- Higher Pay
- Foreign Pay
- 1099 Options (sometimes)
- Corp to Corp
- Any vacation they want
- Work from home
- Allowed to moonlight / side gig
- Whatever health benefits they want (including none)
- Guaranteed holidays or times
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@Dashrender said in W2, the IRS Test, and Who Do I Work For?:
Does part of the answer come from the fact that the super high paid employees they don't want on the payroll books because that affects top compensation vs bottom for federal reporting? So it's better to keep those high earners off payroll and on operational costs? (seems like a loophole)
Correct. This is the basic reason. They don't want their salary reported to FTEs, they don't want people able to compare, they don't want stock holders seeing the numbers, etc. But NOT for Federal Reporting, Fed reporting can't change because they are all employees just the same. It's SHAREHOLDER reporting.
So it IS a loophole, but not a loophole to the feds or IRS, they know exactly what is going on. It's a loophole to idiot investors who are attempting to sabotage their own investments by trying to manage something without knowing what they are doing.
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The bottom line isn't that consultants are better, worse, or anything in particular. They exist because companies need exceptions from the normal process. Maybe this is because a consultant is temporary, maybe because they are more permanent, maybe because they need to be paid more, maybe because they need to be paid less, maybe they just need a more flexible work arrangement. Whatever the case, the one universal factor is that consultant positions in any company are there to not be part of the general employment pool with the general employment rules and reporting.
Every company uses these differently. But nearly every large business needs them. And many small ones.
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Now, when it is used badly is when companies treat FTEs well, and consultants poorly, and advertise how great of a place they are to work at and use it to make employment there look better than it is. This is sadly common and part of the giant scam that American employment often is. No transparency and nearly everything is a lie.
In the real world, though, places that I have worked haven't done that and if anything it is the opposite. They make themselves look like much worse places because their FTE pool reports lower pay and less stability than the average actually is.
