History of contracting - how stable is it? 9

[ExRanger]

Recently I've seen people in the aerospace field getting jobs as contractors doing FEA (this is what I do) for between 70 and 80 USD per hour plus time and a half for any overtime worked.

Do the math and you can see that in a 2000 hour work year, a contractor could gross at least $140,000 with no overtime worked unless he or she decided to take some vacation time.

Anyway - I am at a point in my career where I am looking at my options. Contracting is one. The excellent pay plus the tax benefits, and the opportunity to stay on the technical side of engineering are the plusses. What I am wondering about are the minuses. I thought I would put the issue up here in the hopes that a few folks who have been down this road would respond.

I am wondering if contracting is historically this lucrative, or if this is just a short-term phenomenon caused by the very strong aerospace market. Obviously supply and demand will set the rates people can get, but I have no idea what I could expect to get if I went into contracting for a number of years. Outsourcing comes into play these days - it may drive rates down. So to put my question concisely: is contracting consistently more lucrative than direct employment, even in recessions or tough markets? Assume I am willing to move around to find the best job.

Secondly, how do you see the future of this type of employment? Is it a growing trend or something that will fade in the near future?

I see it as a way to stay on the technical side of engineering and still make a good living, although it does involve some serious hardships.

Thanks very much for any comments.

 

[jistre]

I don't know if I'd say that contracting is necessarily more lucrative. I will agree that it allows more opportunity for an engineer to do without benefits that are unneeded and unwanted and pocket the difference. However, don't forget that in a full-time position, your salary is but one part of your compensation. To that, you have to add the taxes the company pays on top of what you do, benefits, insurance, vacation time, etc., etc.

In a contract situation, the employer should have roughly the same outlay of money as it would cost to hire a full-time employee. The difference is that the responsibility for paying those hidden costs rests on the contractor's shoulders. The company loves this because instead of hiring a full-time engineer and all of the support staff needed to handle the HR things that go along with benefits, they just pay the engineer and leave it up to that guy to decide which benefits are worth it.

 

[ewh]

The demand for contractors has historically been cyclical. While it can indeed be lucrative when demand is high, the down side is making sure you can weather the periods when demand is low.

 

[JMirisola]

Don't forget that you'll be paying your own taxes, which will take ~40% at that annual earnings. Then there's health insurance. Also,If you're doing FEA, I would assume that you'd need to have some sort of liability insurance, just for CYA.
I think that if you develop a good reputation and are able to expand your area via networking and word of mouth, you'll give yourself better than average chances of staying busy for a long time to come.

Jeff Mirisola, CSWP
SW '07 SP2.0, Dell M90, Intel 2 Duo Core, 2GB RAM, nVidia 2500M

http://designsmarter.typepad.com/jeffs_blog

 

[csd72]

You are looking at best case sceanario for your 200 hour work year.

Factor in sick leave, downtime and other outages and it works out considerably less.

One thing about contracting is that you have to be disciplined. Dont spend all your pay packet, you need to put some aside for continencies because you dont know when you might be off for 3 months.

That said I have met people who have contracted for their whole career.

csd

 

[debodine]

The previous posters have hit some of the highlights (and lowlights). I did contract engineering for about eight years. ewh is right on target about the demand being cyclical, so always stock away at least six months worth of paychecks just in case. After 9/11 the six months worth I had stored away was a godsend for surviving while trying to find work in aerospace again. (Aerospace is all I know and I am not young enough to start in a completely different field).

Three additional points I will share that I didn't see in the previous posts yet. All of these I will share from personal experience.

One, factor in separation from family or having to move your family with the work. (This assumes you have a family about whose proximity you are concerned).

Two, as much as lies within you, avoid making any enemies anywhere! The enemy you make of the direct engineer working at your side today may be the engineering manager at another company looking to hire a contractor the next time you need work.

Three, remember to NEVER take it personally when they let you go. When the project is complete, unless they have something else for you to move on to, you go from essential personnel to dead weight in one day. There is no slam in that, and just remember your ego will try to make something of it. Don't let it.

They may contact you in a year and ask you to come back, unless you stomp out the door madder than a wet hen and growling about being let go. I know you think I must be nuts, but I have seen inexperienced contract engineers react that way.

As long as I am thinking of it, let me share a fourth point. This is from personal experience too as I have seen this happen and watched contractors poison their future. A contract engineer is never hired to "change the corporate culture". There is rarely only one "right" way to accomplish engineering tasks. The way you did things at your last job may have no relation to how your current employer wants things. As long as what you are asked to do is legal and ethical and you are comfortable accepting responsibility for what you put your name on (and DON'T criticize what others do that bears their name), you will do fine. But a constant stream of "That's the wrong way to do that." or "But at my last work place we did..." can definitely rub some folks the wrong way.

If your opinion is ASKED, then certainly give the benefit of your experience but couch it in terms such as, "Well, you may want to consider..." or "Another way of looking at things might be to..."

Good luck whatever your decision is,

debodine

 

[ExRanger]

Thanks to all for the thought-provoking feedback.

To jistre: You comment that contracting pay should be equal to (direct pay + benefits) makes sense in that it seems like things should be that way, or close to that way, but consider:

A contractor gets a rate of $70/hour plus 1.5X that rate for overtime hours. Lets say he or she takes 4 weeks off a year for vacation/doctor's visits/sick time/etc. That means the contractor will work 48 weeks or 1920 hours of straight time a year. You'd be a fool not to take some overtime hours under this scenario, so let's say the contractor works 5 hours of overtime a week.

So we have $70/hour X (1920 hours) + $105/hour X (240 hours)

=$159,600 gross/year

There are tax benefits to contracting, but let's conservatively say that all taxes eat 40% of that gross. That leaves the contractor with $95,760. Let's also say the contractor is single and healthy and can get all his or her medical/life/disability insurace for $10,000/year.

So, conservatively, after all taxes, all vacation and missed work days, and all important benefits replaced, the contractor still nets $85,760. That's more than a lot if not most direct employee engineers gross in a year.

This may be unique to contractors working in Aerospace, but liability insurance and etc is all taken care of by the contracting house you work under. In other words, you do not contract yourself directly, but rather you are employed by a company that contracts your labor out to other companies and handles all tax withholding, liability insurance, and etc. They may also offer you a 401K retirement plan, and discount medical insurance rates.

Having written all that, let me say that I appreciate the advice and warnings you gave me. Especially to debodine - thanks for the voice of experience. I can see a real challenge in never making enemies in this tough business!

Its a tough decision that I'm making and this type of discussion helps a lot.

 

[ewh]

It seems as if you already have a good idea of the rewards available by contracting.
Another pointer is not to feel pressured or guilty to stay in a position longer than the period quoted when you started if there is somewhere else that you would like to work. Companies seldom if ever refuse to rehire a contractor with whom they have had a good experience, and chances are good that you will be able to go back to companies that you have contracted with in the past, as long as you leave on a positive note. I spent eight years contracting between the same four companies, and it seemed easier to return if I had previously left when they still needed me (but met the expected period of the contract), rather than waiting until the work dried up and I was laid off.

 

[IRstuff]

Your numbers are rather simplistic. A company with decent benefits normally counts somewhere between 25% to 50% of gross salary in benefits. So, hypothetically, your example rate equates to someone making roughly $120K+ salary.

Don't forget that you effectively are your own business development person, so you have to market your skills and sell your product on your own dime, which needs to be factored in.

Long jobs take you out of circulation, and short jobs require more selling and down time. These all have to be considered.

TTFN

FAQ731-376

 

[BJC]

ExRanger
When I was contracting (AKA "ob shopper"} I subscribed to CE Weekly

http://www.ceweekly.wa.com/

They have a page on why contract here.

http://www.ceweekly.wa.com/contracting_intro.html

Their magazine use to be essinetial for anyone in the contracting business. I think the internet and some cheap job shops have cut into their business.
Be carefull in selecting your "pimp" that is agency you use if you decide not to go it alone. Good ones can do your marketing for you and are worth having. Good shops use to be run by people who knew the business and everyone at various companies. The business had been invaded by large corporations. Twenty years ago you could call up a shop and tald to someone who knew as much about you job as you do. The large conglomorates hire people that were selling hamburgers last week. They are after money and have diversived to the point where they place engineers, street sweepers, bus drivers etc. Stay away from them.

One thing you do need is a good accountant who has experience with contractors.

The other site to earmark is

http://roadtechs.com/

The site used to be called Roadwhore which shows how contractors though of themselves. Go anyplace, do anything for money. Google Roadwhore and you get to the roadtech site.
One reason companies hire contractors is the accounting aspects. As a contractor you time is chargeable to the project just like rivets in a wing. An employee is an different kind of expense.
IME the most sucessful contractors become technical experts in an area and continually add to their knowledge. They develope a good reputation and get top rates.
When some needs help on a project and they know of a "top hand" in that field they don't quibble about money.
They know that nothing cost a much as cheap help.

 

[RDK]

Just remember that doing contract work means that you are the easiest person in the organization to be laid off in a down turn or corporate reorganization or at the whim of someone else.

The higher hourly rates for contract people are to offset the down time between contracts. If you are good and can get other contracts easily then the down time is not that great and the increase in salary is real and stable over the long term.

On the other hand the converse is also true.


Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[ExRanger]

For those who once did contracting, but no more...did you go back to being direct? If so what made you decide to do that?

IRStuff, as you say my numbers were simplistic - I agree.

Your figure of a comparable salary for a direct employee, $120K, is a long ways off for me if I stay as a direct employee, and I might never get it unless I become a manager. I don't see that as a very attractive proposition.
This kind of "writing on the wall" is why I'm starting to look around now.

Thanks again guys for all the additional comments.

 

[ewh]

I left contracting when I realized that a stable home life was more important that the big bucks, and I enjoy the intangible benefit of being more of a permanent part of the enterprise (though job security seems to be a thing of the past). "Work to live" vs "Live to work".
That said, if something were to happen to this direct job, I would seriously consider contracting again.

 

[BJC]

Some contractors I worked with did so for the free time. I have know some that had farms and used the time to do things there. Some like to travel, ski, fish, etc. Some lived ( or had cabins/houses ) in places where the rest of us just go for vacation.
IT was a case of woking to live no living to work. The picked or fell into a line of work that let them work less.

 

[IRstuff]

The $120K would only represent the best case scenario of a full-time job for 1 year. That could mean a 4-month layoff after the job, which would be a 33% drop in income the next year. If there were a lot of short jobs, you'd still be potentially looking at only 66% of that value after a year.

I think that you need to consider the worst case, and if that's still attractive, then you can go for it. If the worst case never materializes, then you're that much better off.



TTFN

FAQ731-376

 

[JsTyLz]

You can make big bucks working full time as well. In today's business climate the only way to move up is by changing companies. At least in the automotive industry.

 

[debodine]

ExRanger:

To answer your question, "For those who once did contracting, but no more...did you go back to being direct? If so what made you decide to do that?"

Two things: First, I wanted to be home with my wife more often (we have the empty nest, but my wife does NOT really enjoy moving around the country much), and second, I was in a contract that placed me about 30 minutes from my granddaughter and I really didn't want to leave the area again.

However, just like ewh said, if something happens to this direct job, I can contract again without hesitation but I sure would miss my granddaughter!

debodine

 

[BJC]

RDK
said "Just remember that doing contract work means that you are the easiest person in the organization to be laid off in a down turn or corporate reorganization or at the whim of someone else."

True enough but I have seen directs go down the road while he contractors stayed on the payroll. Sometimes contractors were directly chargable to the capitol cost of a project, sometimes they were more productive and sometimes the deadwood had to go. If you saw a lot of directs moved to a project that everyone knew was in trouble the next move was obvious to everyone but the ones that should know.
There is no such thing as a real job anymore ( if there ever was).

 

[GregLocock]

"For those who once did contracting, but no more...did you go back to being direct? If so what made you decide to do that?"

In my case

1) the money wasn't a whole lot less once I factored in leave, a good pension scheme, sick pay and so on.
2) I really enjoyed the job and the country club is a nice place to work.
3) as a contractor you get left out of the interesting part of projects- the start
4) I like office politics
5) As a senior engineer I get to choose which projects I work on, as a contractor I got whatever was left.


Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[GregLocock]

Oh, and I forgot the most important one.

career progression.

A contractor is hired for what you know. You won't be hired to learn anything new. After 3 years in my job I asked for, and got, a move into a ocmpletely new area for me, which has been the best move I've ever made.





Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.