Independent contracting vs staffing agencies
November 26, 2012 9:47 PM   Subscribe

I'm thinking of moving from a contract with a staffing agency to an independent contract. What are the benefits or drawbacks I might have to deal with? I know taxes are different and I'm planning to invest in some software to help with quarterly taxes. I'll be in the same position at the same company, but I'll be representing myself and a staffing company won't get a cut.

I work at a very large company which hires out many contractors through various staffing agencies. They also give the option for contractors to represent themselves, but it's not something I've looked into before now.

I recently found out that the staffing agency who my contract is through takes a higher cut of my paycheck than others; this means I make several dollars less per hour than people who have just been hired with less experience. Frustrating!

My options, as I see them, are to switch to a different staffing agency for the remainder of my contract (several months), or go to an independent contract and deal with my own taxes.

Since insurance isn't an issue, I'm really wondering what the benefit is either way. As far as I can tell, the staffing agency is really not benefitting me at all. What's good or bad about independent contracting? What would be the point of staying with an agency?
posted by lockstitch to Work & Money (5 answers total)
The staffing agency probably has a contract with the company that stipulates that they can't use your services without either going through them or paying them a hefty "finder's fee" or commission. Additionally, if the company you work for already has a contract for many months, then that contract is not likely to be your contract--it is a contract between the staffing agency and the company, and the company likely can't just say "oh well sorry we'd like to do something else then, bye" or else there would be no point to a contract.

Even if they don't have to pay a commission or finder's fee for you, they might be required to accept a reasonable replacement from the staffing agency in your place in order to finish out the contract, which would make you redundant.

Your best bet might be talking to other staffing agencies or looking into contracting on your own, but you would probably not be able to continue contracting for this company unless they love you so much that they'd be willing to deal with everything I mentioned above.
posted by the young rope-rider at 9:58 PM on November 26, 2012

As always on these posts, it's important to note that "contract" is a term of art as far as your employment. There is no contract re: your employment, at least not one that involves you. In all likelihood you are a W2 employee of the agency. It's at-will employment like any other: you can quit at any time or be fired at any time for any reason that doesn't break the law.

However, the young rope-rider is right that all employment agencies have agreements with places they work with that say they can't employ the person except through the agency for [x] months. Otherwise, the company could use the agency to find people, have them quit the agency after one day, and go into business with the employee directly. The agency would never make any money that way.

So you probably can't do this unless you leave the company for six months or so. If you do do this, and you're transitioning to 1099 instead of W2, one of the major gotchas is that you lose eligibility for unemployment when between gigs.
posted by drjimmy11 at 10:16 PM on November 26, 2012

Note that when companies convert temp employees to "perm," they typically owe the agency a substantial fee. As above, this is to keep them from simply having the agency do the legwork of finding someone, then immediately cutting out the middleman.

In these cases, the employer is motivated to pay the fee because they are getting the person "permanently."
posted by drjimmy11 at 10:18 PM on November 26, 2012

this means I make several dollars less per hour than people who have just been hired with less experience. Frustrating!

If this is really the case, and you feel like you're good and they'd want to retain you, your best bet is to just ask for a raise. Let the company worry about being charged a high surcharge by the agency; that's their problem, not yours.

However, before you go down this path, be forewarned: big companies tend to not give a shit. Even if you are good, they might still just dump you and get someone cheaper. And if the agency starts to see you as a troublemaker, you may never get work from them again. Also keep in mind anyone and everyone may be lying to you and will continue to do so.

In reality, you're probably kind of stuck. Sorry. If you have a really really great amazing boss who you trust to the ends of the Earth, I would ask him or her what you should do. Definitely talk to someone at the company, if you can trust someone there, before going to the agency. The agency is never your friend, ever ever ever ever ever.
posted by drjimmy11 at 10:26 PM on November 26, 2012 [2 favorites]

The benefit of working as a 1099 is that you are running your own business. You work from your office, you use your tools, you make decisions that affect your profit and loss. Want to work in your pajamas in your home office? Done! Want to use X software instead of Y software? Yup! Want to hire people to help with your workload, and take on several different companies as your clients? Absolutely!

There's the flip side to all this, too. Want to work in your PJs, and thus neglect the sales and marketing aspect of your job? Well, that's bad for business. Want to hire people... and be involved in payroll and benefits and hiring/firing? Maybe you like that, maybe you don't. Want multiple clients, but the up-and-down nature of the industry means that some days you have a lot coming in, and then sometimes you have very little -- can you manage the company's financials?

If none of this sounds like what you were thinking "going independent" means, then I suggest you look at the IRS guidelines. They are serious. They will audit you and your client if you are a W2 dressed in 1099 clothing. You can read up on the difference between what you're doing now (W2 of an agency) and what you're thinking of doing (1099) in the IRS Publications 15-A, Employer’s Supplemental Tax Guide.
posted by Houstonian at 4:37 AM on November 27, 2012

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