Employees, Contractors, Consultants…
What’s the Difference?
There are a number of ways your company can build its workforce. Here’s a snapshot of some of the terms you’ll hear throughout the process, depending on which method or combination of methods used to acquire talent:
a.k.a. W-2 employee, in-house employee, direct hire employee, direct wage employee, full-time employee (FTE)
Hiring and retaining an in-house employee workforce is a great way to build a cohesive team at your company. Whether they’re full-time or part-time, exempt (salary) or non-exempt (hourly wage,) your employees know the business, their coworkers, and the company mission. Hiring your own employees requires on-staff specialists to handle recruiting, payroll, and other Human Resource tasks, though these duties can be outsourced to professional search recruiters and payroll services companies.
Employees are hired by the company, take direction from the company, and are paid by the company. When they are paid, the company processes paycheck withholding deductions and pays Federal and State employer taxes. If layoffs are necessary, employees can file for unemployment, which will increase the company’s unemployment insurance.
“The key is enlisting the most qualified and motivated people that are available to you”
a.k.a. Temporary worker, temp, consultant, contractor (usually incorrectly)
Contingent employees, hired by a staffing firm and deployed at your business, provide unmatched workforce flexibility. Contingent employees can handle any of the tasks of in-house employees, and allow your company to easily increase and reduce staff size for seasonal ramp-ups and short-term projects. Contingent employees, whether full-time or part-time, are hired for a fixed duration, though their service may be extended if all parties agree to the extension.
Unlike in-house employees, the employer of record for contingent employees is the staffing firm. Contingent employees are hired by a staffing firm, take direction from the client company, and are paid by the staffing firm, which handles paycheck withholding and pays Federal and State employer taxes. While sometimes called “contractors”, they do not have a contract with the client company, and the client can request termination of service at any time.
Temp-to-hire arrangements allow a company to “audition” an employee before hiring them for their in-house team. These personnel begin work as a contingent employee for a defined duration, with the expectation that they will be converted to in-house employees if the company is satisfied with their performance during the contingent period.
a.k.a. Contingent employee, SOW consultant
A consultant, in broad terms, is any person brought in to provide specialized services for your company. Consulting firms and staffing companies may provide Statement of Work (SOW) consultants, who perform work under an SOW agreement. This term is sometimes used interchangeably with “contingent employee,” though most commonly for professional-level work such as IT, Engineering, or Management Consulting Services.
Statement of Work (SOW) Consultant
These workers provide service under a SOW arrangement. SOW agreements are generally negotiated as a fixed price contract for specific project deliverables, including products and services. SOW agreements can provide complete project teams for a predetermined price, and are sometimes used to bypass hiring freezes or internal contingent employee restrictions in order to get projects completed.
SOW consultants are paid by the SOW provider, which processes paycheck withholding deductions and pays Federal and State employer taxes, or employs the consultants as Independent Contractors.
a.k.a. 1099 worker, I.C.
Independent contractors negotiate directly with a company to complete a project, with the scope, timeline, and cost clearly defined in the contract. Because they are not hired as employees, they cannot be managed as employees. The IRS uses three broad categories for determining independent contractor status: Behavioral, Financial, and Type of Relationship. (Click here for more information from the IRS website.)
The company does not withhold taxes or pay federal and state employment taxes. Independent contractors are responsible for all applicable taxes. Misclassifying employees as independent contractors exposes companies to potentially costly fines and lawsuits. To learn more about the complexities of these arrangements, download our whitepaper, Mitigating Risk with 1099 Contractors.
As we say at Volt, business runs on talent, so the key is enlisting the most qualified and motivated people that are available to you, no matter what method you use to get them.
The ABC's of Staffing
The Staffing Industry is continually evolving, creating new services to better suit client needs. Here are a few of the most common industry acronyms:
MSP: Managed Service Provider
(also: Managed Service Program)
A company that takes on primary responsibility for managing an organization’s contingent workforce program, usually including overall program management, reporting and tracking, supplier selection and management, order distribution, and consolidated billing.
VMS: Vendor Management System
Software that enables a business to manage and procure contingent or direct-hire labor from one or many providers, including order distribution, consolidated billing, and detailed reporting.
VOP: Vendor on Premises
On-site coordination of a client’s contingent workforce through an exclusive agreement with a staffing provider, ensuring immediate point of contact for client and contingent employees.
PEO: Professional Employer Organization
A staffing company that assumes specified employer responsibilities and associated risk for all or part of a client’s workforce. Employees are employed by the PEO but work under the direction of the client organization.
HRO: Human Resource Outsourcing
The outsourcing to a third-party vendor of all or part of the HR business processes.