Every few months, I have a conversation with someone who argues that working as an employee is more secure than a contractor. I disagree.
The idea that working as an employee offers any job security is an old paradigm. In the 1950s and 1960s, companies took care of employees and it wasn’t unusual for people to work for one organization for decades. These days, it feels like companies frequently restructure, declare bankruptcy, and hire and fire employees on a whim. I figure that if you manage to eke out a job as an employee at one company for three years in today’s economy, you’ve done well (especially in high-tech).
I recently worked with a woman who was terrified of losing her job. She asked me about working as a contractor. I explained some of the benefits but also the risks—namely, my job can be terminated with almost no notice and without severance. She couldn’t comprehend why I would choose working as a contractor. She craved security in a world that no longer offers any guarantees to any worker. After my contract finished in the fall, the company’s management promptly declared they needed to cut costs. As an employee, her position was eliminated and she was jettisoned. So much for job security.
For the record, here are some of the reasons I contract:
- Variety of work: In Canada, contract workers typically work on a large project for six months to one year. That means I am exposed to a lot of interesting projects in a compressed period. I’ve documented SharePoint implementations, software roll-outs, and industrial equipment in one year. I believe that being exposed to different projects, people, and technologies has made me a better writer. As a contractor, it’s sink or swim.
- The adrenaline rush. It’s stressful when you know your contract is coming to a close in four weeks and you have don’t have another lead. It’s also stressful when your client decides that it needs to cut costs and your services are no longer needed. But with that stress comes excitement. I’ve worked on contract for more than four years and have been working consistently, except for the occasional two- to three-week break.
- Higher income. I don’t receive paid vacation, health and dental benefits, or severance packages. Clients recognize this so are willing to pay more for my services. If you manage your money well, you can create your own severance package (essentially a financial cushion if you are between contracts) and put aside money for your retirement. In Canada, health and dental benefits are surprisingly affordable: I purchased a private health plan that covered my family for about $150 per month—hardly cost prohibitive. One caveat: I know that health plans in the U.S. are much more expensive.
- Preferred tax rates. As the owner of an incorporated business in Canada, I pay the small business tax rate of 13.5 percent on earnings. That means if I earn $100,000, I could pay $13,500 in tax. But in reality, small business owners can also write off their car costs, a portion of their mortgage, books and magazines, lunches and dinners that are related to work, health plan costs, and much more. So in reality, the tax rate I pay is less than 13.5 percent. In contrast, a Canadian employee can pay up to 38 percent in tax for the same $100,000.
On a related note, a report by Intuit argues that full-time opportunities may be harder to find in the future as companies rely more on “contingent workers.” Here’s an excerpt from the report: “Today, roughly 25-30 percent of the U.S. workforce is contingent, and more than 80 percent of large corporations plan to substantially increase their use of a flexible workforce in coming years…In the U.S. alone, contingent workers will exceed 40 percent of the workforce by 2020.”
Contracting, though, is not for everyone. You need to network with others, promote yourself, negotiate with clients, invoice, remit taxes to the government, and juggle the needs of multiple clients. Contractors frequently complain of anxiety and fatigue.
Will I ever entertain working as an employee again? Yes, of course. But if I do work as an employee again, it won’t be because of the promise of job security.