Hired guns: Page 3

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First of all, the competition among IT brokers to find, sign, and keep contractors with hot skills is beyond fierce. It's gotten so bad, say some, that what was once considered downright unethical has become standard operating procedure in some communities. Such as brokers luring contractors away from competitors. The NACCB sets out standards of ethical business practices, including a ban on inducing workers to breach contracts, on soliciting other company's workers, and on enforcing unreasonable non-compete clauses. The organization has no power to enforce compliance, however.

Lessons learned about using contract workers
Check a contract worker's skill set yourself to avoid a mismatch.

Use contractors as contributors to a project rather than as team leaders.

Create a roster of "preferred vendors" that know your business and have proven ability to provide quality staff. Review this roster semi-annually.

Build relationships with your best contract workers that will last beyond the terms of the contract. They may agree to come aboard as full-time staff, or point you toward other high-quality people.

Consider adding "lease-to-hire" terms into contracts that would allow you to hire a worker as a full-time employee at the end of the contract. Be sure to negotiate any applicable agency fees up front.
"In certain parts of the country, where the market is especially vicious, like San Francisco and Washington D.C., poaching workers happens all the time," says one expert.

"One of the most difficult scenarios for the IT manager is when a contractor wants to switch agencies but keep on working for the same company he or she has been contracted out to," says TeCS Management's Krengel. In such a hot market, contractors are tempted by the prospect of more money at agencies willing to reduce their margins. "It's a lose-lose situation. The contractor gets put through the mill, the agency loses an asset, and the IT department often gets caught in the middle," she says.

NBX's Carr says he's also heard horror stories of contractors who leave in the middle of a project to pursue a better opportunity. Still, he believes that's rare: "People who don't live up to their end of the bargain won't have much success over the long run. This is a small industry and word gets around. Contractor or regular employee, your reputation precedes you."

Another warning from the trenches: Heavy reliance on contract workers, especially when their existence in an organization is owed primarily to corporate downsizing, can demoralize regular full-time staffers.

According to Brad Green, staffing manager at a large West Coast entertainment conglomerate, a shift in corporate philosophy resulted in one-third of his IT staff being replaced by short-term contractors. Almost immediately, he noticed a heightened sense of insecurity among those IT staffers kept on. "The use of contractors fuels resentment, especially when there are offshore contractors willing to work for less than the average American," says Green.

Finally, keep in mind that short-term fixes can have long-term impact on the bottom line. If you lose track of the number of contract workers or the quantifiable benefits they're providing to your business, you may be spending more than you ought to.

"Too many organizations are confused about the market value of good IT professionals," agrees Williams Controls' Aronson. That confusion leads management to deny adequate funding for key IT positions, he says, only to result in overspending on supplemental contract staff. "You can easily spend as much money in four months on contractors as you would in a year for a full-time employee," he adds.

"If you're using contractors in a position for longer than a year, there are compelling reasons to reevaluate your situation," concludes Gartner's Tunick-Morello. "You probably ought to train a full-time staffer to do the work, or else remove the job from your portfolio altogether." //

Stephanie Wilkinson is a freelance writer based in Lexington, Va. She can be reached at stephw@cfw.com.

The price of independence

Ever since 1996, when the Ninth Circuit Court of Appeals in San Francisco forced Microsoft Corp., of Redmond, Wash., to pay hefty benefits to a group of self-employed technical writers working there on contract, the corporate world has become much warier of employing independent contractors.

In this case, because they had worked a significant amount of time at Microsoft as employees before becoming contractors for a staffing agency, which in turn hired them out again to Microsoft, the government ruled that Microsoft was in essence the writers' employer and thus owed them such benefits as health insurance and stock options. Because of the way the tech writers' contracts were written (that is, with some unforeseen legal loopholes).

"There are so many rules governing independent contractors that it's easy to put a foot wrong and be held liable by the IRS," says Brian Korsmeier, former director of technical contract resources for a major West Coast utility. "If you're giving a contractor a 1099 form, the government might come after you and say you're that person's employer and you're obligated for their benefits and withholding. That's why most companies prefer to hire only workers who are W-2 employees of another company. It's one of the best protections you can have."

But it's no guarantee. It remains up to the IRS to determine whether a person is an employee or a nonemployee, no matter what form--a W-2 or a 1099--is submitted.

To combat this and other tax-related issues, the National Association of Computer Consultant Businesses (NACCB), based in Greensboro, N.C., has been lobbying Congress to pass legislation that would install greater protection from unreasonable tax rules for incorporated or LLC (limited liability company) contractors. In addition, says NACCB spokesperson Don McLaurin, new legislation is needed to prevent the IRS from attacking staffing firms that broker out the services of such contractors.

This legislation is needed because ever since provision 1706 of the Tax Reform Act of 1986 took effect, staffing agencies have come under heavy fire from IRS auditors. That provision, in essence, removed an earlier tax provision that protected staffing agencies from liability for back taxes for contractors the IRS determines are actually employees. Craig A. Etter of Greenberg, Traurig is a Washington, D.C., based lawyer who defends such staffing firms. He says his firm alone has represented over 60 staffing firms in the last 10 years.

Current IRS laws that determine who is an employee and who is a contractor, says the NACCB's McLaurin, are based on antiquated rules established in medieval England.

"Not only were [the rules] created prior to the Industrial Revolution, they are only applied today to computer professionals," he says. "Lawyers, architects, and similarly skilled professionals are not put to the same standard."  -- SW


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