contractor employees handbook

7/28/2019 Contractor Employees Handbook

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Copyright 1998-2000 James R. Ziegler. All Rights Reserved.

* ' 1 0 6 4 # % 6 / 2 . 1 ; ' ' 5 # 0 & $ 1 1 -www.CEHandbook.com

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By James R. Ziegler, Ph.D.

Published by

P.A.C.E.

Professional Association of Contract Employees

http://www.pacepros.com

The Contract Employees Handbook is online at

http://www.cehandbook.com
http://www.pacepros.com/http://www.cehandbook.com/http://www.cehandbook.com/http://www.pacepros.com/


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Chapter 1: An Overview of Technical and Professional Contracting

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The Worlds Oldest Profession?Call em freelancers, free agents, independent contractors,

sole proprietors, or just plain self-employed. They go back

as far as the oldest profession, and just as that line of work

is historically corrupted by greedy and unscrupulous

middlemen, so are the professions of technical contractors

corrupted by greedy and unscrupulous temp agencies,

recruiting firms, staffing firms, and other so-called

consultants in the bodies-for-hire business.

But a pimp by any name is still an unsavory character whois out to skim as much as possible off the top while keeping

the clientele happy and the workers under control.

Temping is as old as work for hire. In fact, the familiar,

permanent, full-time employment model may be litt le more

than a flash in the corporate pan. That model, characterized

by permanent, full-t ime employment where the employer

provides a secure career path, job training, and access to

health insurance and a pension, has been with us for

scarcely a century. Before that it was every man for himself,

and any woman without a man was in a world of hurt.

Fortunately, today the historically ancient model of

contingent work offers great potential for men and women

alike, and may offer one of the best avenues that women

and minorities have for rising above the proverbial glass

ceiling.


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Chapter 1: An Overview of Technical and Professional Contr acting

1-3

A New Paradigm.

The traditional model of permanent employment is beingrapidly replaced by a new paradigm of contingent

employment.

This new paradigm has taken on a strategic role in both

small and large companies alike, from your average cash-

strapped start-up to such industry giants as Microsoft

where fully one-third of all workers are technical and

professional temps.

And Microsoft is not unique in this regard. This is how

James Meadows, VP for Human Resources at AT&T put it in1996:

People need to look at themselves as self-

employed, as vendors who come to this company

to sell their skills. In AT&T, we have to promote

the concept of the whole work force being

contingent [i.e., on short-term contract, no

promises] though most of our contingent workers

are inside our walls. 'Jobs' are being replaced by

'projects' and 'fields of work', giving rise to asociety that is increasingly 'jobless but not

workless'.Quoted in the NY Times, 2/13/96.

So, it looks like the historically ancient model of

contingent employment is gaining new respect, and the

world's oldest profession is attracting some high-powered

advocates.

Nevertheless, contractors will always be vulnerable to

unscrupulous and indifferent agencies, and it looks like the

agency system is here to stay. But, to the extent that contractworkers understand how the system works, and understand

how to make the system work for contractors, contracting,

when compared with permanent employment, will provide

better opportunit ies for professional advancement, greater

financial rewards, and ultimately that ever-elusive thing we

call job security.


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Two Kinds Of Workers.

The IRS recognizes two categories of individual workers.

s Independent Contractor

s Employee

Independent contractors may be sole proprietorships,

partnerships, limited liability companies, or corporations.

Most technical and professional consultants are either sole

proprietorships or one-person corporations. These are the

two business forms that we usually associate with

individuals who operate as independent contractors.

There is some disagreement about the precise definition of

an independent contractor. Some authors restrict the term to

individuals working as an independent business. Others

include all businesses ranging in size from a one-person

operation to the largest mega-corporation.

Sole Proprietorships

Sole Proprietor is the default tax status of every person

with a social security number. As long as individuals

conduct their business as a sole proprietorship, they neednot register with any government agency. In common with

all businesses, sole proprietors may have to take out a local

business license and fi le a fict it ious name statement, but

aside from that, becoming an independent contractor is so

simple it is virtually automatic.


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1-5

Sole proprietors may use their Social Security number as

their federal tax identification number, and they complete

IRS Form 1040 just like any other individual taxpayer. But

there are also some important tax consequences of sole

proprietorship that distinguish sole proprietors from

regular employees.

s Sole proprietors pay both the employers and the

employees share of federal payroll taxes reported on

IRS Schedule SE. Ordinarily, the employer pays half of

the FICA taxes and the employee pays the other half,

but in a sole proprietorship the individual is both the

employer and the employee, and thus pays both

halves. This is the so-c alled Self Employment Tax.

FICA Social Security. 6.2% + 6.2% = 12 .4% of all

gross earnings up to the annual wage cap ($76,200

in 2000).

FICA Medicare. 1.45% + 1.45% = 2.9% of gross

earnings with no upper limit.

Sole Proprietorship

Tax ID# = SS#

SS#SS#SS#

The Business and theBusiness Owner are

the same entity.

Hence Self-employed

Employees are optional.

Figure 1-1: Sole proprietorship business form.


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1-6

s Sole proprietors deduct legitimate business expenses

on Schedule C. This means that sole proprietors getmore tax breaks than employees, and they are able to

spend more of their earnings tax-free.

s Sole proprietors pay quarterly estimated State and

Federal income taxes on Form 1040ES.

s Sole proprietors may take advantage of special

retirement plans designed especially for self-employed

individuals that permit tax-deferred retirement contri-

butions up to the federal maximum of $30,000 per year.

On balance these tax consequenc es are very favorable forsole proprietors and, except for the additional tax benefits

of incorporation, it is generally more advantageous to be a

self-employed sole proprietor than a regular employee.

Partnerships

A partnership is like a shared sole proprietorship.

Although a partnership may have employees, the partners,

themselves, are not, for employment tax purposes,

employees. Partners are owners.

In many ways a business partnership is like a marriage in

which each partner is fully responsible legally and finan-

cially for the business dealings of the other partner or

partners. When one partner goes bad, gets lazy, or makes

poor business decisions, a partnership can be your worst

nightmare. My advice regarding business partnerships:

Never enter into one. (I withhold any further comments on

the similarity of matrimonial partnerships and business

partnerships.)


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Limited Liability Companies

If a partnership is like a marriage, then a limited liability

company is like a marriage with a prenuptial agreement.

SS#-----------SS#-----------SS#

Partnership

Tax ID# = FEIN

SS#SS#SS#

Partners are owners.They are not employees.


Figure 1 -2 : Par tnership business form.

Limited Liability Company

Tax ID# = FEIN

SS#SS#SS#

Owners (limited liabilitypartners) are called

members. They are not

employees.

The Business and its

Members are separate

entities.


SS# SS# SS#

Figure 1-3: Limited l iabil i ty company business form.


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The limited liability for m affords most of the protection of

the corporate form, but wi th simpler reporting require-ments and generally lower fees. For this reason limited

liability companie s are gaining popularity, and in some

states a single individual can form one.

Corporations

An independent contractor doing business in the

corporate form has certain additional advantages over a

sole proprietorship. The chief advantage arises becauseincorporation creates a separate entity that is legally

distinct from its sole shareholder who is also the corpo-

rations employee. This separation allows the owner to hide

behind a corporate veil such that the owner's personal

assets may be protected from creditors of the corporation

and from lawsuits. However, if legal requirements of the

corporate form are not rigorously adhered to it is frequently

possible for lawyers and the IRS to pierce the corporate veil

and attack the owner directly.

Corporation

Tax ID# = FEIN

SS#SS#SS#

The Business and the

Business Owner(s) are

completely separate

entities.

All corporations have at

least one employee.

Corporate officers are

employees with the

same status as other

employed workers.

Figure 1 -4 : Corporat ion business form.


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Corporations have three functional groups: Directors,

Officers, and Shareholders. Directors (members of theBoard) direct the overall business. Officers (President, Vice-

president, Secretary, Treasurer) run the day-to-day business

operation. Shareholders are the owners and investors. In a

one-person corporation one individual directs and runs the

business , and also owns al l the corporat ions shares. The

sole shareholder is also the corporation s sole employee.

Corporations have the legal status of a person for

purposes of taxation, contracts, tort liability, and law suits.

Most corporations are closely held, meaning they have alimited number of shareholders, and their shares are not

traded on a public exchange such as the New York Stock

Exchange or NASDAQ. Closely held corporations are

generally exempt from filing with the Securities and

Exchange Commission (SEC), and from publishing audited

financials and annual reports.

Corporations come in two primary varieties, C-corpo-

ration and S-corporation:

s

The C-corporation is the default form of corporation. Itis best suited to larger corporations. Income to a C-

corporation is taxed twice, first at the corporate level,

and second when dividends are paid to the owners.

s The S-corporation is a special form in which income is

not taxed at all at the corporate level. Instead, income

passes to the shareholders where it is taxed as

individual income. One-person corporations usually

adopt the S-corporation form. In many respects an S-

corporation has the look and feel of a sole propri-

etorship, but with the added protection of a corporateveil. The S-corporation form is restricted to corpora-

tions with fewer than 75 shareholders. There are also

limits on how much an S -corporation can earn before it

must convert to the C-corporation form.

s Other forms:


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Professional Service Corporation. This form is

reserved for doctors, veterinarians, attorneys,engineers, accountants, architects, and certain other

professionals. Taxed at a flat 35%, a professional

service corporation is generally advantageous

when corporate net income is greater than $150,000.

Nonprofit corporation

Religious corporation

Technically, the owner o f a one-person corporation is not

an independent contractor. He or she is an employee of thecorporation that is itself the independent contractor.

All newly formed corporations must obtain a new federal

employer identification number (FEIN). This number distin-

guishes the corporation as an entity separate from its owner

or owners. The corporation files its taxes using IRS form

1120 or 1120S, and it identifies itself by its FEIN. Corporate

directors, officers, and other corporate employees file their

taxes using the standard IRS form 1040, and identify

themselves using their Soc ial Security number.

Shareholders, that is investors/owners, are not employees

of the corporation unless they also happen to be a director

or officer of the corporation.

Because all corporations have at least one employee, each

corporation must also obtain an employer account number

in each state where it has employees - even if it has only one

employee, the sole shareholder.

On the plus side, corporations offer significant tax advan-tages and greater legal protection for business debts and

lawsuits for the owners and officers. Also, incorporation

may make it easier to attract clients, whose decision makers

are more likely to view you as a bona fide business. On the

minus side, corporations have more complex reporting and

bookkeeping requirements , not to mention higher fees.


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1-11

Summing It Up

Table 1.1 gives a summary comparison of the features andbenefits of various types of business entities including So le

Proprietorship, General Partnership, Limited Liability

Company, C-corporation, and S-corporation. The table i s

adapted from the Entity Comparison Table in the Parcorp

Services web site at http://www.parcorpsvcs.com/.

Table 1-1: Comparison of business entit ies.

Sole

Proprietor

General

Partnership

Limited

Liabil ity

Company

C-

corporat ion

S-

corporat ion

Liabil ity

Protect ion

None.

Owner /

propr ietor

has unl imited

liabil i ty.

None.

Partners

have

unl imited

liabil i ty.

Yes.

Owners /

members are

general ly not

personal ly

l iable for the

debts of the

business.

Yes.

Owners /

shareholders

are not

personal ly

l iable for the

debts of the

corporat ion.

Yes.

Owners /

shareholders

are not

personal ly

l iable for the

debts of the

corporat ion.

Management Owner /

propr ietor is

responsible.

General ly

par tners are

equal ly

responsible.

Owners /

members can

manage or

elect to have

designatedmanagers.

A board of

directors

elected by

the

shareholdersmanages the

corporat ion.

A board of

directors

elected by

the

shareholdersmanages the

corporat ion.

Formation

and

Operat ion

Defaul t

s tatus of

every

Amer ican.

Legal

requirements

are few.

Legal

requirements

are less

formal than

for

corporations.

Must

maintain

corporate

formal i t ies

such as a

board of

directors,

shareholder

meetings,

resolut ions,

and annual

report ing.

Must

maintain

corporate

formal i t ies

such as a

board of

directors,

shareholder

meetings,

resolut ions,

and annual

report ing.
http://www.parcorpsvcs.com/http://www.parcorpsvcs.com/


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1-12

What Is a 1099?

Client companies must file a Form 1099-MISC with the IRS

if they pay a sole proprietor more than $600 in a calendar

year. IRS Form 1099-MISC reports gross earnings only. It

does not report payroll taxes and withholding taxes because

client companies do not collect and pay taxes for

independent contractors, including sole proprietors.

Durat ion Life of sole

proprietor.

Dissolved by

death of

partner.

General ly

l imited to a

f ixed amount

of t ime,

however,

more states

now al low

perpetual

ex is tence.

Perpetual Perpetual

Taxation Not a

separate

taxableentity. Sole

propr ietor

pays al l

taxes.

Partners pay

tax on their

share of theincome and

can deduct

losses

against other

sources of

income.

General ly

there is no

tax at theLLC level .

Income / loss

is passed

through to

members of

the LLC

according to

the

Operat ing

Agreement.

LL C s can

elect to be

taxed as a C-

corporat ion.

Corporat ion

must pay tax

on al l incomeand is

subject to

cer ta in

restr ic t ions

on retained

earnings.

Shareholders

then pay

income tax

on the

income

distr ibuted to

them

resul t ing in

doubletaxat ion.

No tax at

corporate

level . Income/ lo ss is

passed

through to

the

shareholders

according to

their

percentage

of

ownership.

Transfer of

Ownership

No No General ly

yes, subject

to approval

from other

members.

Yes.

General ly

there are no

restr ic t ions

on transfers.

Yes. Subject

to consent

an d

restr ic t ions

on

Shareholders

.

Table 1-1: Comparison of business entit ies.

SoleProprietor

GeneralPartnership

LimitedLiabil ity

Company

C-corporat ion

S-corporat ion


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Independent contractors operating as sole proprietors are

often referred to as 1099s, and contracts with independentcontractors are referred to as 1099 contrac ts. A more

accurate term is business-to-business contract because a

sole proprietor is very much an independent business in

every respect.

Partnerships, limited liability companies, and corpora-

tions are also independent contractors, but client companies

do not have to report payments to these businesses on IRS

Form 1099-MISC, or on any other form for that matter. Form

1099-MISC is only used to report payments to sole propri-etorships. It is technically incorrect to refer to a contract

with a partnership, l imited liability company, or a corpo-

ration as a 1099 contract.

The term corp-to-corp contract should be used only for

contracts between two corporations, although you will

often hear the term used incorrectly as a catch-all for any

independent contractor agreement.

Independent contractors complete IRS Form W-9 to

declare that they are exempt from withholding taxes. The

client keeps the completed form as evidence that the

contractor is a vendor and not an employee of the client.

Client companies must withhold and pay to the IRS 31% of

payments made to any independent contractor for which

they do not have a W-9 on file.

What Is a W-2?At the end of the year every employer submits an IRS

Form W-2 to the IRS for every worker they employed

during the year. Employers send additional copies to their

employees who attach the W-2 forms to their local, state

and federal tax returns.


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The W-2 form reports gross wages paid to the employee,

and in this regard it is similar to IRS Form 1099-MISC.Additionally, the W-2 form also reports federal , state, and

local taxes withheld from the employee s paycheck.

The W-2 form distinguishes a bona fide employee from an

independent contractor. Employees receive a W-2 at the end

of the year; independent contractors do not.

Employees

So, you might ask, If independent contractor is the

default tax status of every taxpayer, why do the vast

majority of companies shy away from hiring independent

contractors? Why, instead, do they prefer to hire agency

temps for technical and professional assignments? What is

so bad about 1099 tax status, and what is so good about

being an employee? And, what the heck is an employee

anyway?

Actually, employees are a relatively recent phenomenon,

having arrived in their present form in only the last centuryor so. If recent trends are any indication, future generations

may view regular employment as a historical flash in the

pan.

Merriam-Webster's online dictionary, http://www.m-

w.com, dates the word employee back to only 1822, and

defines an employee as

One employed by another usually for wages or

salary and in a position below the executive

level.But even independent contractors receive wages, and

officers of corporations are employees, so how an

individual is paid and their job title are not in and of

themselves reliable discriminators.

A more realistic definition of employee might be this:
http://www.m-w.com/http://www.m-w.com/


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A worker employed for wages or salary by

another entity that is required to pay certaingovernment mandated payroll taxes out of pocket

and also collect and pay additional government

mandated payroll taxes plus withholding taxes

from the worker's wages.

In practice, however, there is an enormous gray area

where the determination of employment status is anyone's

guess.

s The Internal Revenue Service Code 3121(d) defines an

employee according to:

How the worker is treated.

Usual common law factors.

Statutory rules.

s Every state and federal department has a separate set

of criteria.

s The courts are notoriously unpredictable.

The pivotal issue appears to be who collects and pays the

taxes. Another name for employer might as well be tax

collector because collecting and paying taxes on your

behalf is what makes someone who pays you an employer

and not a client. In fact, one can argue that employers are

tax collectors first, and businesses second in the eyes of

most government agencies.

It is easier and far more reliable to collect payroll taxes

and income tax withholdings from fewer, larger, experi-enced employers than from a much greater number o f

independent contractors. Most independent contractors are

one-person operations that spend their productive time

selling their services. They are not particularly adept at

bookkeeping and calculating taxes. For this reason it is

probably fair to say:


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If the IRS and other government agencies had their

way, every worker in the United States would besomeone elses employee.

Here is another factor that favors employees over

independent contractors. Government agencies, including the

Internal Revenue Service (IRS), U.S. Department of Labor (DOL),

Immigration and Naturalization Service (INS), State Departments

of Employment, Workers Compensation Departments, State Labor

Departments, the U. S. Equal Employment Opportunity

Commission (EEOC), and the Occupational Safety and Health

Administration (OSHA) make it their business to make sure that

all workers are properly registered for public entitlements and thatthey are protected by rules and regulations governing the

workplace. These regulations apply to regular employees. They do

not, for the most part, apply to independent contractors.

Consequently, several government agencies have estab-

lished guidelines, or common law factors, that establish

criteria for determining whether individual workers are

fully compliant independent contractors or de facto

employees of the client company. The common law fac tors

universally address the issue of control.

Employers control the work of employees. They do not

control the work of independent contractors. When the IRS

conducts an audit of employee status, the auditors look for

evidence of control. The IRS training manual published in

1996 puts it this way:

Following the common law standard, the

employment tax regulations provide that an

employer-employee relationship exists when the

business for which the servic es are performed has

the right to direct and control the worker whoperforms the services. This control refers not only

to the result to be accomplished by the work, but

also the means and details by which that result is

accomplished. In other words, a worker is subject

to the will and control of the business not only as

to what work shall be done but also how it shall


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be done. It is not necessary that the business

actually direct or control the manner in which theservices are performed; it is sufficient if the

business has the right to do so.Independent

Contractor or Employee? IRS Training Course 3320-

102(10-96), pg. 2-3.

You can download the entire 160 page-training manual at

the IRS web site: http://ftp.fedworld.gov/pub/irs-utl/

emporind.pdf.

In a 1987 Revenue Ruling [87-41, 1987-1 CB 296], the IRS

devised a list of twenty common law factors to help

companies and IRS agents determine the tax status of

individual workers. The 1996 IRS training manual trimmed

that list to eleven factors organized in three areas of control.

s Behavioral control: The right to direct or control how

the work is done.

s Financial control: The right to direct or control how

the business aspects of the worker's activities are

conducted.

s Relationship of the parties: How the parties perceive

their relationship.

The courts also invoke common law to distinguish between

independent contractors and employees. The book, The IRS,

Independent Contractors and You!, 1993, http://www.worker-

status.com/, by tax attorney James R. Urquhart III, lists 51 common

law factors that have figured in court cases and appeals. Never-

theless, the courts are not limited to any given list of factors, but

rely on the totality of the evidence before them. The result is a

system that is arbitrary at best, if not utterly capricious.

We can best summarize the i ssue of control in one simpledictum:

Companies must treat their independent contractors

like the outside vendors that they are, and do whatever

they can to avoid the appearance that any independent

contractor is really their own employee.
http://ftp.fedworld.gov/pub/irs-utl/emporind.pdfhttp://ftp.fedworld.gov/pub/irs-utl/emporind.pdfhttp://www.workerstatus.com/http://www.workerstatus.com/http://www.workerstatus.com/http://www.workerstatus.com/http://ftp.fedworld.gov/pub/irs-utl/emporind.pdfhttp://ftp.fedworld.gov/pub/irs-utl/emporind.pdf


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The burden of proof is on each company, the employer, to

show unequivocally that an independent contractor is nottheir regular employee. It is not enough that both the

contractor and the client agree on independent contractor

status. If the worker looks like an employee, walks like an

employee, and quacks like an employee, the IRS will try to

reclassify the worker as an employee. Independent

contractors, and employees of independent contractors,

must look, walk, and quack like independent contractors,

and avoid any appearance that they are really employees of

their client.

In other words, a company that hires an independent

contractor is considered guilty until proven innocent. The

overwhelming bias of the IRS is to classify all workers as

employees until the company can prove otherwise. Even if

the company ultimately wins in tax court, the negative

financial consequences of the IRS attempting to reclassify

an independent contractor can be enormous. If the company

loses an audit because the independent contractor is

found to be a regular employee of the cl ient, the IRS can go

after thousands of dollars in back taxes and penalties - up

to and exceeding 41% of the money already paid to each

reclassified independent contractor.

The IRS is much more aggressive toward employers than

toward reclassified independent contractors because, quite

frankly, employers represent a higher potential return to the

IRS. At best, the most that the IRS will collect from a reclas-

sified contractor is the tax on disallowed business expenses.

Contractors Can Trigger an IRS Audit.

It's easy to put all the blame for reclassification in the lap

of the IRS and other government agencies, but self-

employed independent contractors can themselves pose a

significant risk to their client companies.


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1-19

Contractors can precipitate an IRS audi t when they decide

it is in their best interest to be an employee rather than anindependent contractor. What makes this so dic ey is the

inherently hostile alliance of a self-righteous worker with

an aggressive government agency. This might happen, for

example, when an out-of-work contractor decides to file an

unemployment claim against a former client. Independent

contractors can pay unemployment insurance on

themselves, but virtually none do. If the State Department

of Employment decides that an out-of-work contractor

really was an employee of the client all along, it will alert

the IRS to collect back taxes from the client for Federal

unemployment insurance, and this will trigger a wider

audit involving Federal and State withholding taxes as well.

Another risk arises when a contractor is injured on the job

and files a workers comp claim or state disability claim

against a client company. Carpal tunnel syndrome and back

problems are common ailments in technical and profes-

sional work environments. Workers comp covers

employees. It rarely covers independent contractors. In

some states, as in California for example, individuals who

are also independent contractors can take out state

disability insurance on themselves, but, again, virtually

none do.

There is also the risk that a contractor might damage a

client companys property or the property of others, or

injure an employee or visitor to the clien t company while on

the job. Many independent contractors do not carry general

liability insurance, so the liability could easily pass to theclient.

All of these factors place enormous pressure on companies

to avoid using independent contractors if there is any

question about their compliance with government guide-

lines.


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Certainly there are circumstances that clearly indicate that

a worker is an independe nt contractor, and there are

circumstances that clearly indicate that a worker is a

regular employee. But there is no bright line that distin-guishes one from the other. Instead there is a vast gray area

of ambiguity where no company dare venture because the

risk is just too great.

The solutions:

s Companies must make very sure that their contract

workers comply fully with the IRS common law factors

for independent contractors,

Or

s Make sure that their contract workers are someone

elses employees.

Employers of Record.

And this brings us to the subject of third-party employers

of record. A third-party employer of record employs

contract workers who actually work for another company.

They do so largely as a convenience to the client company

in order to mitigate the risk of reclassification.

Employers of record are really just scaled-up temp

agencies. Most operate as contractor recruiting firms that

match contractors with client companies. A few operate as

payroll firms or pass-through agencies that employ

contractors only after they have already landed an

Clearly an

Independent

Contractor

Clearly a

Regular

Employee

Vast

Gray

Area

Figure 1-5: A vast gray area of ambiguity lies between

independent contractors and employees.


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assignment on their own. Umbrella services are similar to

pass-through agencies, and they also offer better benefitsand tax advantages.

Employers of record give contractors the W-2 tax status

most appreciated by government agencies. They pay all

payroll taxes plus state and federal withholding, and

because they also provide general liabil ity insurance,

unemployment insurance, and workers compensation they

virtually eliminate most of the risks that may trigger an IRS

audit.

Because contract employees are bona-fide employees oftheir employer of record, the client company can treat them,

for the most part, like their own regular employees. The

company can control both the result to b e accomplished by

the contractors work, and also the means and details by

which that result is accomplished. In other words,

companies dont have to pussyfoot around agency

employees. They can treat them like everyone e lse on the

workforce.

The foregoing, however, does not mean that clientcompanies have free reign to treat contract workers with

less dignity and respect than their own employees. This is

made clear in EEOC Notice Number 915.002, 12/03/97,

Enforcement Guidance: Application of EEO Laws to Contingent

Workers Placed by Temporary Employment Agencies and Other

Staffing Firms, http://www.eeoc.gov/docs/conting.html:

Staffing firm workers are generally covered

under the anti-discrimination statutes. This is

because they typically qual ify as employees ofthe staffing firm, the client to whom they are

assigned, or both. Thus, staffing firms and the

clients to whom they assign workers may not

discriminate against the workers on the basis of

race, color, religion, sex, national origin, age, or

disability.
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The EEOC enforcement guidance makes clear that the

client must treat a staffing firm worker assigned to it in anon-discriminatory manner. The document also explains

that staffing firms and their clients are responsible for

ensuring that the staffing firm workers are paid wages on a

non-discriminatory basis. Finally, the guidance describes

how remedies are allocated between a staffing firm and its

client when the EEOC finds that both have engaged in

unlawful discrimination.

Contract employees may also be considered employees of

the client for the purpose of insur ing workplace safety. In aseries of compliance letters the Occupational Safety and

Health Administration (OSHA) of the US Department of

Labor has held that whether or not exposed persons are

employees of an employer depends on several factors, the

most important of which is who controls the manner in which

the employees perform their assigned work. The question of

who pays these employees may not be the determining

factor. Visit http://www.osha-slc.gov/OshDoc/

toc_interps.html, and enter the keywords and .

The compliance letters also state that when deciding who

should record work related injuries and illnesses of contract

workers the primary factor to be considered is who super-

vises these workers on a day-to-day basis.

Thus, the onus of responsibility for workplace safety falls

squarely on the client company, especially when it is the

clients own personnel who direct the contract employees

work activities.

Ironically, temporary help services are normally exempt

from OSHA recordkeeping requirements. OSHA classifies

the staffing industry as a low-hazard industry, and temp

agencies are not required to record injuries and illnesses on

the OSHA Log.
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Here is another caveat for the users of contract employees.

Companies must never use contract employees as asubstitute for their own regular employees, especially on

contracts lasting more than one year. Long-term assign-

ments beg the question of whether the client company is

simply using contract employees to avoid the cost of

government mandated entitlements and company benefits.

If the courts find this is the case they may invoke the

principle of coemployment.

Coemployment means that the worker is deemed the

employee of the agency for purposes of, say, wages, and the

employee of the client for purposes of certain employeebenefits . For example, in the class-action case, Vizcaino v.

Microsoft, the courts have repeatedly ruled that, for the

purpose of benefits, Microsoft is the common-law

employer of long-term contractors. The issue of

permatemps is discussed in detail at the web site for the

Washington Alliance of Technology Workers, http://

www.washtech.org/.

The Rise Of Client-centered Temp Agencies.Notice that the entire argument for third-party employers

of record is based on the needs of the client company and

not on the needs of the individual worker. This focus on the

client has led to the disastrous situation we have today in

which contractors are viewed universally as second class

citizens, more akin to migrant workers than to highly

skilled professionals.

I believe that contract employees are treated so poorly

because of two historical influences that are utter ly contraryto the well being of contract employees:

s The influence of permanent placement recruiting

firms.

s The influence of low-paying clerical and seasonal temp

agencies.
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Permanent Placement Recruiting Firms.

Permanent Placement Recruiting firms are undeniably

client centered, working on either a retainer or contingent

basis for the companies that engage their services. They

conduct active searches for mid to high level professionals,

managers and executives, and when they successfully fill a

job order their cl ients usually pay the recruiting firm

between 25% to 30% of the firs t year s salary.

A successful candidate becomes a regular employee of the

client company, and the recruiting firm has no ongoing

responsibility beyond, possibly, a 90-day replacement

guarantee.

Permanent placement recruiting is real hard work. And a

good recruiter can expect to place only one candidate per

month. An exceptional recruiter will place two or three

candidates. Recruiters usually keep about one-third of the

fee, while the remainder goes to the house to cover

overhead and owners profit.

In the mid 1980s, when executive recruiting firms firstbegan to expand into contract ing, they naturally continued

to view the companies as their real customers. By also

employing the contractor they satisfied the client s need for

a third-party employer of record, but they also satisfied an

important marketing need of their own. By employing the

contractor they maintained an ongoing relationship with

the client. This gave the recruiting firms continuous access

to the client for both their permanent placement and

contractor recruiting businesses.

Additionally, by combining both permanent placement

and contract recruiting, the recruiting firms could add

temp-to-perm (also called contract-to-hire) contracts to

their marketing arsenal. Now companies could try out a

potential new hire without actually having to hire the

individual.


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These firms tended to apply the same 30% fee structure to

their contractor placements that they also applied to theirpermanent placements. To that they added about 10% or so

to cover the employers share of payroll taxes, bringing the

overall margin to 40% of the billing rate. In some cases they

felt justified in taking 50% of the billing rate or more owing

to the added administrative overhead involved in

payrolling a contract employee.

Scaled-up Temp Agencies.The full-service contract employment agency, or

contractor recruiting firm, is an outgrowth of the familiar

temporary employment agency. Companies hire clerical and

seasonal temps to perform routine office chores, take

inventory, do seasonal work, and fill in when various office

staff are ill or on vacation . Before the rise of contract

employment temps were exclusively low-paid, hourly

workers filling part-time jobs that seldom lasted more than

a few days or weeks. Temp work was what you did to tide

you over while you looked f or that next real job. Tempingwas not your career.

True consultants, on the other hand, operate as

independent businesses, and they work on very different

types of temporary assignments. These career professionals

are solution providers who offer their clients project-

oriented expertise in the areas of marketing, management,

research, technology implementation, and other specialized

disciplines.

In the early eighties there began a trend toward

downsizing that accelerated the demand for highly paid,

career contractors. But unlike their project-oriented

colleagues, the true consultants, these new contractors were

increasingly called upon to perform routine, generic tasks

previously carried out by salaried employees.


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The climate for independent contractors -- both

consultants and generic taskmasters -- changed radically in1986 when Congress repealed safe harbor for technical

contractors working through third-party consulting firms.

The Revenue Act of 1978 had earlier established that

employers could appeal reclassification by the IRS if the

employers industry had consistently treated certain classes

of workers as independent contractors. But section 1706 of

the Tax Reform Act of 1986 changed that by amending the

Revenue Act of 1978 so that employers could no longer seek

relief through safe harbor for the following job classifica-

tions:

s Engineer

s Designer

s Drafter

s Computer programmer

s Systems analyst

s Other similarly skilled worker engaged in a similar

line of work

Almost overnight, thousands of independent contractors

found it necessary to convert from 1099 status to W-2 status,

as client companies grew increasingly fearful of IRS audits

that might reclassify independent contractors as employees

of the client.

A mass hysteria gripped employers, as the IRS begin to

reclassify technical contractors working through third-partyagencies. The IRS became more aggressive, and e mployers

began to discriminate against al l independent contractors,

even true consultants and one-person corporations.

Employers needed a fallback strategy, and they found it in

traditional temp agencies.


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Because client companies were already familiar with the

traditional temp agency model, it was only reasonable toadapt that model to technical and professional contractors.

The move was good for clients, and a boon to temp

agencies, but it was a disaster for independent contractors.

Applying a scaled-up version of the temp agency model to

independent contractors disenfranchised them from their

own independence. Contractors lost their tax write-offs,

they lost their participation in the contract negotiation

process, they lost control over the rates they charged for

their services, and as a final indignity they were reduced to

the status of captive employee.

Consider also the matter of unconscionably high fees

charged by certain unscrupulous contract employment

agencies. Ordinary temp agencies bill out their regular

temps at only $15 to $25 per hour on assignments that last

at most only a few days or weeks. Because marketing

expenses and administrative overhead have to be recouped

over a relatively short period, regular temp agencies have

to take a large cut of the bill ing rate just to cover expenses

and make a reasonable profit.

But contractors are not regular temps. They are highly

paid career professionals who frequently accept assign-

ments lasting months, even years. Scaling up typical temp

agency margins creates massive windfalls for contract

employment agencies. Agencies make more money per

placement owing to much higher billing rates, and they

collect those high margins over a period of months, if not

years, long after recouping their initial marketing costs.

Scaled up temp agencies earn an additional windfall when

highly paid contractors on long assignments exceed the

annual wage caps for Federal unemployment taxes ($7000),

State unemployment taxes (wage cap varies by state), and

Social Security taxes ($80,400 in the year 2001). Once the

wage caps for these taxes are exceeded, the employers


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share of payroll taxes drops by approximately 10% of gross

wages, and the agency gets a big raise. Temp agencies lovehighly compensated contractors on long assignments.

Self-employed, independent contractors can look forward

to significant savings in the employers share of payroll

taxes during the third and fourth quarters of each year, but

scaled up temp agencies invariably keep the savings for

themselves.

Another way the temp agency model fails contractors is in

the relationship of the parties. Low-paid temp workers

readily accept the notion that temp agencies do them a

favor by giving them work. Regular temps are grateful that

they have any work at all, and this gratefulness engenders a

paternalistic attitude in agency staffers. In short, regular

temps are treated like children. Such a subordinate role is

inappropriate for highly trained career professionals,

including contract employees. Is there any wonder why

contractor recruiting firms are so condescending and

patronizing towards contractors?

Recruiting firms admonish both their contract employees

and their client companies from discussing billing rates on

the grounds that such information is proprietary. But thats

just so much baloney. A ha llmark characterist ic of profes-

sional service providers is full disclosure of services and

fees. When professional service providers withhold infor-

mation about service fees they stifle the very competition

that keeps quality high and costs low.

This is the real reason why recruiting firms maintain a

code of silence about agency rates and fees. Agencies

don't want client companies to know about the obscenely

high margins they earn and the ridiculously low wages they

pay to contract employees. And agencies especially don't

want client companies to know that they are paying the

agencies far too much for their contract workers.


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When companies and contractors both know the agency

margin they can both shop for the best possible deal.Competition will increase contractors pay rates while

simultaneously lowering what companies must pay for

those contractors. Unfortunately, many client companies

help agencies hide the billing rate from contract employees,

and in doing so they unwittingly contribute to unneces-

sarily high contract labor costs.

Whos The Customer, Anyway?

Traditional recruiting fi rms view the client company as

their primary customer because of the dual influences of

permanent placement recruiting firms, and low-paying

clerical temp agencies.

There is another reason why recruiting firms view the end

user as their customer. They point to the fact that they, and

not the contractor, own the contract with the end user,

and they point to the fact that the client company pays

money to the recruiting firm and not to the contractor.

Why do the recruiting firms own the contract? It's because

they are the employer of record, a relationship that is

required by the end users to protect themselves against IRS

reclassification. It is not because the agency is a true

consulting firm. It is not because the recruiting firm is

managing a project for the end user. It is not because the

recruiting firm is actually supervising the contract

employees. Recruiting firms own the contract because the

IRS and other government agencies want someone to collect

the taxes, and the end user doesn't want that job.

With respect to payment, there is no question that the end

user pays the employer of record. But, why do they pay the

employer of record? It is not because the employer of record

is doing the work. It is because the employer of record is

charged with collecting and paying taxes on behalf of the


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contractor. In other words, the employer of record is

collecting money on behalf of the contractor, for workperformed by the contractor.

If the end user would allow it, many career contractors

would prefer to qualify as IRS compliant independent

contractors and pay their own taxes, or do so through a

payroll service like ADP or Paychex, and enjoy the tax

advantages of self-employment.

Who owns the contract and who receives payment are

bogus reasons for viewing the cl ient company as the

recruiting firms primary customer. And they are equallybogus reasons for treating the contractor as a second-class

citizen - as littl e more than a high tech migrant worker.

The recruiting firm is the employer of record only as a

convenience to the client company, and for no other reason.

The primary functional relationship is always between the

contractor and the client company.

Remember the final scene in the animated movie A Bug s

Life when Flick, the heroic ant, finally confronts the evil

grasshoppers. As he rallies the support of the assembledcolony he exclaims, Ants don't serve grasshoppers. Grass-

hoppers need us! Indeed, if contractors could find a way to

bypass predatory recruiting firms, the rec ruiting firms

would go broke. Contractors don't need recruiting firms.

Recruiting firms need contractors. That is why the recruiting

firm's real customer is the contractor and not the client

company. As Flick the ant proclaims in A Bugs Life, Nature

has a certain order. The ants pick the food. The ants keep the

food.

Ha i ku fo r Con t r act Pro fessi ona l s

Greedy Recruiter,

Independent Contractor:

Grasshopper and Ant.


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The Job Matching Function And The Employer OfRecord Function.

The recruiting firms get away with hiding the billing rate

because they control both the job matching function and the

employer of record function. Recruiting firms negotiate the

bill ing rate and other contract terms, they invoice the enduser, they collect the revenues, and they pay the contractor

what they feel like paying. At no time does the contractor,

who is actually performing the work, participate in this

Client

Company

Contractor

Customer is

The Client

Outside Recruiting

Firms

Temp Agencies & other

Staffing Agencies

In-house Staffing

Management FirmsCaptive Gatekeepers

& Screeners

Prof. Employment

Orgs. (PEOs)

Staff Leasing

ClientSeeks

Contractor

Contractor

Seeks

Client

Customer is

The Contractor

Employers of Record

Pass-through Agencies

& Umbrella Services

(e.g., P.A.C.E.)

Stand-alone Marketing

Services

Marketing Agents

(Talent Agents)

F ig ur e 1- 6: W ho s the customer?


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process. Because the recruiting firms keep contractors out of

the loop contractors are kept ignorant of the very infor-mation they need in order to succeed in their chosen career.

Recruiting firms tie the job matching function to the

employer of record function. They will locate a new

assignment for you, but in order to take the assignment you

must become their employee. Even if you retain your status

as an independent contractor, the recruiting firm stil l holds

you captive by refusing to disclose the billing rate, and they

will keep you from signing a direct contract with the end

user. In most industries tying is an ill egal restraint of trade -

an anti-competitive practice. For some reason it is stilltolerated in the technical and professional contracting

industry.

If contractors could split the entirely separate functions of

job matching and employer of record, they would once and

for all have open access to the billing rate, and they would

finally know what the agencies are charging for their

services. At last, contractors could make reasoned decisions

based on the qual ity of service and on price. They could

choose to work with an agency based on value delivered

rather than on who controls the information.

Ethical business people and professional service providers

practice full disclosure. Scamsters, shysters and con artists

do not. Thats why we call them scamsters, shysters and con

artists.

Many contractors derisively call outside recruiters

pimps, but that is not entirely fair. Even prostitutes know

the billing rate.

Job Matching As a Separate Function.

Mark Maguire works for the St. Louis Cardinals, but his

sports agent works for Mark Maguire. If Mark ever thought

that his agent worked for the Cardinals he would fire him in

a minute. Why? Because taking money from the Cardinals


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would be a basic conflict of interest. Mark Maguires agent

helped Mark negotiate a deal with the Cardinals, and heprobably takes 10% of Maguires salary, and 10% of the

money Maguire earns from having his picture on boxes of

Wheaties.

Tom Clancys books are produced by his publisher. His

literary agent sets up the book deals and promotional

events. The agent probably takes 10% of the royalties. If

Clancy thought his agent was cutting sweetheart side deals

with the publisher he would fire him faster than you can

say Hunt for Red October.

Tom Cruise (remember Jerry Maguire?) has a talent agentwho negotiates movie deals. He probably takes 10% of what

Cruise earns. If Tom Cruise thought that his agent repre-

sented the movie production companies, Tom Cruise would

dump him in a Hollywood minute.

Sports agents, literary agents, movie agents, and other

ten-per centers all work exclusively for the talented profes-

sionals they represent. Why? Because the ta lented profes-

sionals want i t that way. They won't permit a conflict of

interest. Why then should contract professionals allow a

conflict of interest? It goes back to the dual influences of

permanent placement recruiting firms and clerical temp

agencies. But, those shopworn models are inappropriate for

a new paradigm of technical and professional career

contractors. Contract professionals need their own

marketing agents who view the contractor as their exclusive

customer.

Stand-alone Job Matching.Marketing agents do stand-alone job matching. They

introduce their customer to prospective end users . Once a

match is made, the marketing agent backs out of the loop.

The contractor is then free to negotiate a direct contract

with the end user, or alternatively to employ the services of


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a separate, third-party employer of record. Marketing

agents might charge a flat rate, but like other talent agentsthey will probably charge about ten percent of the bill ing

rate.

Stand-alone job matching is something that even full

service temp agencies might o ffer as one of several

unbundled services provided on an a la carte basis.

Marketing agents dont own the contract, and they do not

handle the contractors money. This separation a llows the

contractor to participate fully in contract negotiations and

in setting the billing rate.

Marketing agents are sorely needed to support sel f-reliant

independent contractors, and to complement stand-alone

employer of record services like P.A.C.E., http://

www.pacepros.com, and other umbrella services and pass-

through agencies.

Marketing agents will appear only when contractors

create market demand by refusing to work with traditional

recruiters, and by working exclusively with brokers thatoffer stand-alone job matching.

Fortunately there are virtually no barriers to entry for

marketing agents. Anyone can set up interviews with client

companies and hiring authorities. All they need is a phone

and a Rolodex.

Marketing agents dont invoice the end user, they dont

collect from the end user, they don t have to process payroll,

they arent responsible for paying taxes on behal f of the

contractor, and they arent responsible for guaranteeing the

contractor's performance. In fact, they don t do any of the

tedious back office tasks of an employer of record. All they

do is set up interviews and then collect their ongoing fee

from either the contractor or the contractor's employer of

record. What could be simpler?
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One would think that the really smart recruiters might see

the value in this risk-free set-up and start working forcontractors as marketing agents. That would be a verygood

thing for contractors.

Online Job Matching.The Internet is overrun with job boards and resume banks

that charge recruiting firms to post jobs and to search their

database for resumes submitted by contractors and out-of-

work employees. These agency-sponsored web sites have

been the mainstay of the recruiting business for the past

decade. They are the grease that lubricates the giant engine

that has propelled this runaway train of contract

employment.

At long last, we are beginning to see the emergence of web

sites that cater primarily to client companies in direct

competition with predatory recruiting firms.

To the extent that contractors embrace client-sponsored

job matching services, the competit ive marketplace will

force recruiting firms to rethink their obscenely high

margins.

Hopefully, client-sponsored job matching services will

drive predatory recruiters out of the contracting business in

the same way that other online services have reduced the

ranks of high-priced stockbrokers and travel agents.

Complementing these online matching services will be

marketing agents who work exclusively for the technical

and professional contractor. They will offer stand-alone job

matching as a fee-based, personalized alternative to free

online job searches. They won t be free, but they will charge

much less than the obscenely high margins levied by

predatory recruiting firms.


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Employer Of Record As a Separate Function.

True consultants market their own consulting services.

Many contract taskmasters are equally adept at marketing

themselves. Why, then, should they pay for the marketing

overhead of a full-service agency just because their client

wants them to have W-2 tax status?

Fortunately, they dont have to use a full-service

recruiting firm as their employer of record. They can use a

pass-through agency or an umbrella service.

s Pass-through agencies:

Pass-through agencies employ the contractor only

after the contractor has first landed an assignment.

Pass-through agencies have no commissioned

recruiters and no marketing overhead so they can

easily operate on a gross margin of 20% or less

(although some may charge as much as 25% of the

bill ing rate).

In other words, a contractor that uses a pass-

through agency should receive at least 80% of the

bill ing rate .

In all other respects a pass-through agency is

similar to a t raditional temp agency.

s Umbrella services:

Umbrella services are similar to pass-through

agencies, except that umbrella services use sophis-

ticated accounting procedures to set up each

contractor as an independent business unit within alarger corporation.

Umbrella services charge no more than 5% of the

bill ing rate plus the actual cost of the employer's

payroll taxes to confer W-2 tax status to their

contract employees.


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The actual gross margin of an umbrella service i s

only about 15%, and it gets significantly less overtime as year-to-date gross wages exceed the

unemployment insurance and Social Security wage

caps.

Contractors who work through an umbrella service

realize significantly higher net earnings and

superior benefits when compared with traditional

agency temps.

Umbrella services offer very aggressive tax-deferred

retirement plans with pre-tax contributions as high

as 25% of gross wages - up to $30,000 per year.

Umbrella services reimburse their contract

employees for work-related expenses with tax-

exempt dollars just like a self-employed

independent contractor.

The Professional Association of Contract

Employees, a.k.a. P.A.C.E., has a web site that

explains this innovative concept in detail, http://

www.pacepros.com/.

Because pass-through agencies and umbrella services

charge a fixed percentage of the billing rate they are

explicitly full disclosure, and competition operates freely to

keep the quality of service high and the cost low. Moreover,

there is never any question for whom the agency works. The

agency works for the contractor.

Isn't the customer the person who requests the service, and

isn't the customer the person who pays the bill? Splitting the

job matching and employer of record functions makes it

clear that the contractor is the agency's real customer

because spli tt ing the two functions makes it clear that

ultimately the contractor is the one who pays the bill.
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Why the Competitive Marketplace Will Eventually

Replace Temp Agencies With a Better Model.We have seen that the contractor recruiting industry is

completely upside down when it comes to ethical and

professional standards of conduct. The industry operates

with a built-in conflict of interest that pits recruiting firms

against the contractors who are their real customers. Unlike

all other professional talent agents, indeed all other profes-

sional service providers, contract employment recruiters are

the only professionals that hide their rate structure. The

contractor recruiting industry is the only industry that

operates under the premise that their real customer isalways wrong .

Fortunately, environmental forces are rapidly converging

that can put this industry right side up. That s the good

news. The bad news is that the convergence of environ-

mental forces is not enough. Contractors themselves must

create the market demand that will reform this industry.

Contractors must first break the enfeebling shackle s of their

former masters, and reclaim control over their own careers.

What are the converging environmental forces that willhelp bring down the predatory recruiting firms? Here are

the main ones as I see it:

s Corporate HR departments are getting more

aggressive.

s Career pages on corporate web sites are getting more

sophisticated.

s The rise of hourly-paid contract recruiters.

s Contractors are getting smarter and more assertive.

s Online forums and discussion groups.

s Agency-supported job-posting sites are discovering

the client.

s The rise of free agent portals.

s Readily available online rate and salary information.


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s A new breed of contractor-friendly recruiting firms

and employers of record.

Corporate HR Departments Are Getting More Aggressive.

At least 50% of personnel search activity by corporations

will soon be handled internally without the need for

external recruiters according to a report by Thomas Weisel

Partners, a well-respected investment bank with numerous

ecommerce investments. You can read the Executive

Summary of the Thomas Weisel Partners Whi te Paper, titled

eCruiting: From Job Boards to Meta Markets, at http://

www.tweisel.com/client/index.html.

Some have suggested that within the next 2-3 years

corporate online recruiting (and possibly another business

cycle downturn) will permanently eliminate over one-third

of all external recruiters.

In-house corporate recruiters are in direct competition

with outside recruiting firms, and they are doing what it

takes to identify potential talent. Here is an example ofwhat I mean. At a recent wor kshop for corporate recruiters

a technical guru in the HR department of a major software

company revealed that their corporate servers identify the

IP address of every visitor to the companys web site. If the

IP address belongs to a competitor the web site displays a

special career page designed to recruit that competitors

employees. Pretty clever, eh?

Companies are also hiring consulting firms to teach their

HR staffs how to use sophisticated software to mine the

Internet for job candidates. Of particular interest are pass ive

candidates. Passive candidates are employees who for one

reason or another are not actively looking for work. They

may have posted a resume on the Internet, or their company

has posted their name and e-mail address on a corporate

web site. Chances are, if your name, job title, and e-mail
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address appear anywhere on the Web you have been added

to the candidate database of one or more potentialemployers.

You may have noticed that some companies advertise

career opportunities on national television. But, enterprise

application software giant PeopleSoft wins the prize for

most aggressive job-related advertising. The HR

department (not PeopleSoft, mind you, but the HR

department itself!) at one time sponsored a major tennis

competition at which the HR department advertised jobs at

PeopleSoft on national television. Currently, PeopleSoft, the

company, is sponsoring the career of PGA golfer GaryNicklaus, up-and-coming son of golf legend Jack Nicklaus.

PeopleSoft understands that its prospective employees and

software customers play upscale sports.

Career pages on corporate web sites are getting more

sophisticated.

The PeopleSoft web site, http://www.peoplesoft.com/,

illustrates how corporations are becoming ever more

sophisticated at marketing their career opportunities

directly to job candidates and consultants.

The Careers link takes you to the PeopleSoft employment

section where you can search jobs by job category, job title,

and location. Borrowing a trick from e-commerce web sites,

PeopleSoft lets you fill an electronic briefcase with up to

five jobs and then submit your application online. Another

page lists upcoming job fairs, recruiting events, and parties.

The Events page recently proclaimed: We throw a hell of a

party. We just had a kick-out-the-jams, swing-till-dawn

recruitment event at the Metreon in San Francisco with

Lavay Smith & Her Red Hot Skillet Lickers. If you're inter-ested in getting the scoop on our next event, give us your e-

mail address and we'll keep you posted.

The Benefits page promotes flex time, casual dress, and

free PeopleSnacks three times a week. The company

provides a free shuttle service, money to pay for public
http://www.peoplesoft.com/http://www.peoplesoft.com/


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transportation passes, and a guaranteed ride home if you

have to leave early or work late. The PeopleStore sellscool, high quality PeopleSoft merchandise: baseball caps,

golf balls, key chains, boxer shorts, and much more. New

parents receive a PeopleBaby package, complete with a

PeopleBaby T-shirt, a Growing Child magazine

subscription, and a card from Dave. (Dave's the hip boss of

PeopleSoft.) The Benefits page invites new employees to

have Lunch with Dave. (Yes, lunch with Dave is an

official company benefit.)

A page on Corporate Culture emphasizes the Fun Factor

and the contribution of individuals. A dedicated Collegepage pitches PeopleSoft to college grads, and promotes paid

co-op internships.

Job candidates and consultants visiting the PeopleSoft

Career Opportunities page can even link to a Recruiters

page that lists the names, e-mail addresses, and areas of

specialization of approximately forty in-house PeopleRe-

cruiters.

As the PeopleSoft Career Opportunities pages so

abundantly illustrate, companies are becoming increasingly

sophisticated in their approach to recruiting talented

professionals. I suspect that we will see the day soon when

contract professionals are contacted directly by aggressive,

in-house corporate recruiters as often, i f not more often,

than by outside recruiting firms. This will be a good thing

and a welcome development.

The Rise of Hourly-Paid Contract Recruiters.

Contract recruiting is growing by leaps and bounds.

Companies are learning that it is almost always cheaper to

hire a contract recruiter by the hour than to go through an

outside agency. Because of this, it i s quite likely that when a

contractor calls the HR department of a potential client that

the person who answers the phone will be a fellow


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contractor. Contractors share a common bond, and that can

only bode well for contractors looking for a newassignment.

Contractors Are Getting Smarter and More Assertive.

At long last the contracting industry is maturing and

growing wiser, and there are more old pros who know the

ropes. Savvy contractors know how to deal with outside

recruiters, and they also know how to avoid them

altogether.

Experienced contractors are more likely to have a

powerful professional network of former colleagues,

coworkers, and client contacts. They know that a well

maintained professional network generates a full pipeline

of high-paying and challenging assignments. That is why

experienced contractors devote special attention to the care

and feeding of their professional network.

Savvy contractors are comfortable picking up the phone

and calling client companies directly to set up interviews.

They are unwilling to turn over this important function to

an outside recruiter who will take 20% to 30%, or more, off

the top for simply making a few phone calls. Savvy

contractors appreciate the value of money and time, and

they spend both wisely.

Online Forums and Discussion Groups.

Newsgroups, specialized e-mail lists and discussion

groups have been around for years, but they are not readilyavailable to everyone, and they can be rather cliquish. One

online forum, however, stands out as the single most

popular source of real-time information for independent

contractors and contract employees. It is Janet Ruhl's

Computer Consultant's Message Board, http://

www.realrates.com/bbs/.
http://www.realrates.com/bbs/http://www.realrates.com/bbs/http://www.realrates.com/bbs/http://www.realrates.com/bbs/


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Janet Ruhls Message Board has educated more contractors

than any other online resource, including The ContractEmployees Handbook. The Message Board is a place where

contractors can communicate with other contractors, or just

lurk on the sidelines soaking in the wisdom of experienced

pros. Janet Ruhls web site also hosts a job matching

database of contractors and projects, as well as the web s

most extensive and reliable database of rates and salaries.

Janet Ruhl s Message Board is a major force awakening

contract employees to the abusive practices carried out by

predatory recruiting firms. To the extent that knowledge is

power, Janet Ruhls Message Board gives contractors the

power to take control of thei r careers, and deal effectively

with agencies and clients alike.

Other online forums pale in comparison to Janet Ruhl s

Message Board, but they are nevertheless worth checking

out:

s Contract Employment Weekly, http://

www.ceweekly.com/

s Contract Employment Daily, http://

www.cedaily.com/

s RoadWhore, http://www.roadwhore.com/

s CPUniverse Forum, http://www.cpuniverse.com/

forum/

Agency-Supported Job Posting Sites Are Discovering

The Client.

The first online job boards for technical and professional

contractors were supported almost exclusively by outside

recruiting firms. For example, job-matching sites like

DICE.com charge recruiting firms several hundred dollars a

month to post job specifications in a searchable database.
http://www.ceweekly.com/http://www.ceweekly.com/http://www.cedaily.com/http://www.cedaily.com/http://www.roadwhore.com/http://www.cpuniverse.com/forum/http://www.cpuniverse.com/forum/http://www.cpuniverse.com/forum/http://www.cpuniverse.com/forum/http://www.cpuniverse.com/http://www.roadwhore.com/http://www.cedaily.com/http://www.cedaily.com/http://www.ceweekly.com/http://www.ceweekly.com/


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In the

contractor employees handbook

Documents