2. Why companies employ IT contractors – A contractor's view

With flexibility and usually higher rates of pay (latest IT contract market rates here), you might think there is no incentive to consider anything other than freelance work.

Employers too, might be best served if they only ever hired skilled IT contractors who have amassed skills, knowledge and experience of working at different client sites. But there are, of course, the advantages of employing permanent workers.

Permies form the "base load"

Power generating and distribution companies use the term "base load." It refers to the generating capacity that is always working, covering the lion's share of consumption, slow to turn on and slow to switch off. It is generally cheap to run but not to change. It takes little consideration of daily fluctuations and certainly cannot respond to instant changes in demand such as that called for during FA cup final advertisements when the entire population of the UK switches on the kettle for a nice cup of tea.

In contrast, peaks and troughs in electricity demand are fulfilled by turning on and off more expensive power plants. Hydro Electric, for example, can be cold started within minutes to meet an unexpected event. By balancing base load with fast reaction, utility companies keep the lights on at night and the radios running during the day.

The permanent power behind the business

This "base load" is similar to requirements for permanent workers. Businesses must have permanent workers to fulfill the day to day running of the business, and to cover ongoing IT requirements like maintenance, support, and security. As well as this base load, there are skills pertinent only to the business in question, and the more specialised that business the more likely it will need to retain teams of IT staff between projects in order to keep continuity and knowledge.

However, for short term projects, or weekly fluctuations in work load, pre-trained, skilled contractors able to jump in at a moment's notice and do the job, are exactly what is wanted.

None of this is to say companies don't retain contractors in some long-term business critical functions. They do. But they would rather employ a stable, permanent employee willing to understand the business in depth. They just can't get hold of them. Companies do not want contractors learning about the business and then leaving after six months just when they begin to understand all the arbitrary, sector-specific knowledge. They would much rather keep the skills than have them walk out the door. So a contractor trades risk for better return.

Permanent IT workers are not necessarily cheaper

And despite many contractor beliefs to the contrary, the tendency for companies to avoid contract staff is not always about cost.

When a permanent employee is taken on there are lifetime costs to be considered, not simply the salary:

• Recruitment agent fee
• Gross salary
• Employees national insurance
• Office space
• Subsidies (coffee, meals, social events)
• Sick pay
• Holiday pay
• Maternity pay
• Pension contributions
• Administration
• Training
• Notice period
• Possible redundancy pay

Totting up the costs, even if a contractor is paid two or three times the permanent staff salary, it might still be good value for the company. The contractor benefits by being in control of his or her own costs – at the risk price of losing a position without notice – and the company benefits by having a well defined price, no long-tail costs to consider, and being able to hire and fire at will.

Permies do not permanently work.

In addition, when a project manager includes permanent staff in a project plan, it is usual to count them as only three quarters to half as available as an equivalent freelance due to all the extra burdens for permanent employment. Administration, company meetings, training, holidays etc. all take their toll on the time an employee is productive.

Permies lack experience

Even though permies might understand a business well they do not usually understand the techniques and methods from outside their area. They will not have seen as many implementations of a type of project or from such a broad perspective. All this will take a toll on their productivity.

Even though average salaries for programmers in UK are approx £35,000 at the time of writing, and in a good market contractors can expect to double or triple this amount for the right contracts in the right place and the right time, it's clear that permanent staff are generally no less expensive than contractors. It's just that most of the money a company pays for the privilege of employing permanent staff doesn't go to the employees.

William Knight