Contractors Vs. Employees

As a manager in the software development field I'm faced with splitting my work loads across employees and contractors. I manage about 20 employees and another 20 contractors. In my day to day business, I'm constantly faced with the challenges of working with both and I find myself often wondering which is a better solution for doing this work. The answer that I came to may surprise you.

Contractors

First, contractors. There are many good things and there are many difficult things as well.

The Good:

• Can pick them up quickly.
• Can drop them quickly.
• Generally cheaper than an employee.
• Act as a pre-screening for new employees.

The Bad:

• Extra level of bureaucracy.
• Little or no opportunity to review their skills.
• Language barriers.
• Gap in experience level.
• Lack of project ownership.
• Turnover.
• Training.

The Details:

Contractors are great in terms of being able to pick them up quickly. I can contact our contractor task manager and have a new person here on site the following week. Likewise, if a contractor isn't working out I can again call the task manager and the following week they are gone (can drop them quickly). This quick turnaround has its negative side as well. I have to wonder how closely our contractor company is looking at these individuals to make sure that they meet the skill sets that I require. I'm given very little or no opportunity to review the skills

of the potential contractor. The contractor company gets paid to have an individual on site. It is in their benefit to get someone into the office as quickly as possible. To the contractor company, details such as if the individual provides the necessary skills can be worked out after the fact. This works well for them, but not very well for me. The main issue with this is that it generally takes some time before I can determine if the necessary skills are there or not. Due to the nature of my work, specialized configurations, custom software and various interfaces, a lot of training must take place to get the new contractor up to speed. Once training is done I have them work with a partner on assignments and then small assignments of their own which gradually turn into what the job truly entails. If it turns out that the contractor isn't going to make the grade, the contractor company still got one or two months worth of pay from me. Then I start the process over again and start training the next individual.

In financial terms, looking at the dollar amount that I spend for a contractor is generally cheaper than the dollar amount that I spend for an employee. Of course, in doing this, you have to consider all of the benefits that are paid to an employee which a contractor doesn't receive. However, other things should be considered as well, but they aren't so easy to calculate. The training and integration into the teams that I mentioned above takes a lot of time. If I lose two months of time for every new contractor that comes on board, that too should be considered. The same is true for a new employee, however, I don't see turnover with employees like I do for contractors. Contractors don't work out so I ask them to leave. On the other hand, contractors generally get salary increases by moving to new jobs and companies, not by staying where they are. So, I see a lot that get a year or so of experience and off they go. This adds to the cost of a contractor, but generally speaking they are probably still slightly cheaper than an employee. Given the size of my organization, I don't see much of the financial side in terms of budgets and salaries. Thankfully, there is another department that handles that.

Some other things that I've seen with the use of contractors is that there seems to be a gap in experience levels from the contractor world. I can easily contact my task manager and get an entry level developer. Likewise, it seems somewhat easy to get a senior level developer so long as I'm willing to pay the premium for this. However, finding a mid-level developer from a contractor company seems to be a bit difficult. I'm not sure if this is just because of the way that the contractor companies like to charge for individuals or if it has to do with individuals staying with a particular job until they can be considered senior level. I have noticed on occasion that a request for a senior level develop results in someone with mid-level experience. I've also noticed that the entry level contractors like to hang around longer to get more experience. Perhaps it is a combination of both.

Another thing that I've seen from contractors is a lot of individuals who are non-natives and have a tremendous accent or even minimal experience with speaking English. This is a huge problem because of the language barrier and no one can understand what they are saying. Likewise, you have to wonder if they understand what you and other team members are telling them. The first time I was presented with this situation, I didn't do anything about it because I believed it to be a racist move to drop the person from the contract. I later decided that was just a stupid idea on my part and I replaced them. If they can't communicate with the co-workers, there is no benefit to having them.

Perhaps one of the most difficult things with contractors is their lack of ownership in the project. Many contractors seem to be there to do exactly what they are asked and collect their salary. They aren't interested in looking at existing code and improving on it. They also aren't interested in ensuring that what they are doing is going to be flexible for the future needs and requests. A few things come into this, one being that they don't expect to be there long enough to have to deal with future request. Two is that they don't have the knowledge of the history of the project or a good big picture view to even be aware of what potential requests may come in the future.

On the other hand, one of the best things about contractors is that they offer a great place to select new employees from. Generally, whenever I have an opening for a new employee, I pick up one of our existing or past contractors. It provides a great way to pre-screen the individuals to see how they would perform as an employee.

The last thing worth mentioning which makes working with contractors difficult is the extra level of bureaucracy that is involved. Since officially the contractors don't work for me, I'm not supposed to discuss things with them such as salaries, problems, improvements, or even praises. All of that is to be handled via the contract task manager. I relay to him/her, and the contractor company handles it from there. This is especially a problem when there are communication issues amongst contractors. I've seen situations where there are obvious problems between two or more contractors and I can't do anything about without crossing boundaries and stepping on some one's toes. However, this can sometimes be good in knowing that I don't have to deal with an issue when it comes up. Just pass it on to the task manager and hope that they deal with it appropriately.

Employees

Now for the employees. The same fact that contractors have good and bad things is true with employees as well. Employees are not all wine and roses. Here are some good and bad things about employees:

The Good:

• Generally in for the long haul.
• Easier to motivate employees.
• Have more ownership in the project.
• Performance Ratings

The Bad:

• Difficult to move them off project.
• Drama, drama, drama
• Boredom
• Performance Ratings

The Details:

Employees tend to be much more successful than their contractor counter parts. I believe this is the case because they tend to be on the project for the long haul. This gives them additional knowledge of the history of a project as well as experience with the trends and best practices. It is also the case because I can, and tend to be, very selective with my employees. I make sure that they have proper experience and skills before picking them up. In many cases, I select a new employee from my contractor pool, picking out the most successful. This works very well for me.

However, being in the the long haul has some side effects as well. First, if you have an employee who isn't quite cutting it, being in for the long haul is the last thing you want from them. In my company, firing individuals isn't something that comes easy. It is more likely that an individual who isn't working out just gets moved to another area where they are a better fit. This is because my company tends to want to find the right opportunity for everyone and that is a good thing. However, it isn't always easy to move these people off of the project. I have to get buy in from the group that is receiving this person, and everyone knows that the most valuable players aren't being traded. The other downfall to being in for the long haul is that people get bored with what they are doing. Eventually an employee is going to want to do new and different things. I tend to start seeing this at the two to three year point. The good thing about this is that, for an employee, I can plan for this to happen and have some opportunities ready.

Employees tend to be better motivated than contractors. This is in part due to some of the benefits that employees receive. At my company there is an awards program that only employees are eligible for. I also am able to work directly with employees instead of having to go through the extra layer of a task manager. That means I'm aware of individual issues and I can deal with those without having to involve more people that absolutely necessary. The other thing that helps with motivation is that employees get a performance rating for each year. While this is a pain in butt for managers (it sure is nice not having to do them for contractors), it seems to work fairly well with the employees; that is, until they get a rating that they don't like. This is where the drama starts to come in. I mentioned before the extra layer of bureaucracy that I have to go through for contractors. That bureaucracy saves me from having to deal with the drama issue for contractors. However, employees are people and people get their feelings hurt if they aren't selected for a promotion, award or a particular assignment. Sometimes it isn't that they didn't get selected, but that a particular other person did get selected. This, while often petty, affects morale and work ethic. As a manager, it is less than desirable to have to deal with this, but it is a fact of the job.

The best thing about employees is that they take ownership in the project much more so than a contractor does. Our employees get overtime for working beyond eight hours and most contractors don't. I'm sure this is one factor in that. In addition, the other pros listed above contribute to employee ownership. Someone who is and has been part of a project for a longer period has much more invested in it than a contractor who expects to be in the job only until the next opportunity comes up. Also, someone who has the history of the project is pulled into more of the decision making and gets to be involved in more parts of the project than just receiving individual assignments. This can have a huge impact in ownership as well.

Outcome

So what is the outcome of all of this? Are contractors better or are employees better? In actuality it is a hybrid of the two that is the best option. By far, one of the best benefits of the contractors is the ability to use them as apre -screening process for new employees. Doing this not only ensures that your employees are the best of breed, but also creates motivation for some of the contractors. If they do a good job, perhaps they'll be picked up as an employee. This approach also helps to prevent the situation where you get an employee who isn't cutting it and prevents you from having to look for a place to put that individual.

Given that you'll be working with both contractors and employees, there are some things you can do to minimize the cons of both sides.

For Contractors:

• Look for early warning signs - If you see early warning signs that a contractor doesn't have the skills that you need, move on with getting a replacement right away. Don't waste any more time with them.
• Don't hesitate in dropping contractors from your task. If you believe that a contractor doesn't belong on your team, don't get hung up with the idea that they are being fired and will lose their job. This is the reason why we get contractors, so they can be removed when they aren't needed.
• Make sure your skill requests are clear and very detailed. Even though you can't screen your contractors before they are brought on, you can make sure that your skill requirements are very clear and detailed. This should help with making sure you get the right people. Also, don't be afraid to ask for a resume for the person that is being brought in. Even a few days ahead of time will allow you to get an idea of what you can expect.

For Employees:

• It's not personal - Well, to some degree business is personal and it always will be, but remember what your job is, to keep things moving forward. If an employee isn't working out, talk to them about it right away. Most employees want to do a good job just as much as you want them too. If things aren't working out, most employees are open for going to another area that may be a better fit.
• Plan ahead - Don't be surprised when an employee comes to you and says I want to do something else. People get bored with doing the same thing. Plan ahead to expect that and have some alternatives in mind for the likely suspects. The most important thing here is for the employee to feel like you are working with them and not that you just aren't open to the idea of making a change for them.
• Be open - In dealing with all of the drama of your employees, the best approach is to be open for them to come to you. A lot of the time people just want to say what they are thinking. Just sitting down with them, hearing them out and offering some simple response which ensures that you understand their feelings is all that they need.