Is this multi-company employment relationship a usual practice?

Question

I was approached by a recruiter. After some discussion they said that the potential opportunity would be to work for a company we'll call Company A, and for the first 1.5 to 2 years with a client of theirs, which we'll call Company B.

This is not an arrangement I have worked in before. I then asked if, since I would be entering into a long term relationship with Company B, whether I would be able to speak with them before accepting any offer from Company A. The recruiter replied that I would actually be interviewing with Company B predominantly, after a quick chat with the CEO at Company A.

Having an interview with the long term client in this scenario makes sense to me. But the whole arrangement strikes me as odd. It seems more or less like I'm being picked up "off the street" by Company A and being rented to Company B. I'm not sure how to feel about that.

My question is, is this sort of employment relationship a usual practice? I'm a little confused about what the incentives are for such an arrangement, and what the different parties get out of it.

If there's a standard name for this kind of arrangement, (more specific than "consulting",) then I would also like to know what it is so I can try to find stories about what working in such an arrangement is like.

In case it's relevant, the job would be working in software development.

Answer 1

Yes, this is very standard. But realize that you won't have as many privileges with company B if you're working for a contracting company.

In some companies, contractors are seen as outsiders and second-class citizens. And yes, even if you're a full time employee of company A, you may still be considered a contractor at company B.

In other words, when there is a fully paid rafting/ski trip for everyone in your department, you may be the only person on your team who's not invited to it and who has to stay at the office and work. Or when the free daily shuttle service is over capacity, it's possible that only the contractors are asked to stop using that free perk, and arrange for their own transportation (at their own cost). I've witnessed this first-hand.

And in one company at least, I had someone come to my office and introduce themselves to everyone on my team, and that person was about to introduce themselves to me and shake my hand, but as soon as they saw my badge with a different color code around it (which meant that I was a contractor), they stopped themselves, they didn't shake my hand, and they very intentionally ignored me (just like if I was the Xerox machine repairman, which I was not).

Disclaimer: And before someone says that it's not like that everywhere. Yes, that's very true! In some cases, being an outside contractor can have its own perks too, if you're at a high enough level. For instance, if you're important enough, company A might offer you your own expense account and your own per day travel allowance. I do not mean to generalize too much.

In some companies, the entire staff may be hired through intermediary consulting companies/agencies. And in some other companies, your hourly cost as a contractor may be so astronomically high that, that you'll be given the VIP treatment.

With that said, most of the time, the contractor badge is usually not considered a good thing. And I've known people who categorically refused to even interview with intermediary consulting companies/agencies because of that reason.

Answer 2

Yes, this is totally standard in the software industry. This is one variety of being a contractor, sort of like working for a temp agency but less temporary (maybe).

I know in my industry (a different programming related industry) there are quite a few large companies who only hire this way - they basically outsource the HR/talent acquisition part to the agencies. Company B gets flexibility and less overhead on their side, Company A gets money. Since the benefits are much less than what Company B pays their direct employees typically, the total cost is less - and since it's a contractual arrangement, Company B can more easily manage workload.

If you go this route, make sure you understand what Company A is going to pay you and what the benefits/etc. are going to be. In the US, you should be a W2 employee for them - not a 1099 - and should get health insurance etc; in other countries it may be different. You'll probably get much less benefits than you would working for a company directly.

Typically this arrangement is beneficial for people who like moving about, as it's pretty common to have a 1 year or 2 year contract at most, and then you can find another contract through that agency - or a different one, if you decide. It's also helpful if you're having trouble finding a direct position, as the agency has a vested interest in staffing you somewhere, so they'll do their best to find a good fit. They take a good bit off the top - folks I knew often got about 80% of the total pay once they were experienced, but started at more like 50% - so it probably doesn't pay the best when you're starting, but as you get more experienced and they can bill more for you, it can pay pretty well.

Answer 3

Yes, this is totally normal. My company was hiring such subcontractors - so we were Company B in your example. But you should find out very carefully what all of this means to you, what benefits you have, how your hours are used etc. This can be very different than you used to.

An example: At my company, we had a subcontractor hire. We used him as a help, because we had an unexpected spike in the workload for one of the projects. He was paid hourly and was not considered our employee. This means no talking near cooler, very fast, time minimized lunch, no invites to any corporate events etc. We paid every his hour, so everybody wanted this to be very efficient. His hour was also expensive. I think his salary was crazy good, but his hours were agreed upon and flexible for us (but not for him) - so there were days when he worked only 4 hours a day or did not work at all (but maybe was working for another company). As I heard he was still very happy with the arrangement, and his total income was still higher than ours.

if you do not have a promise of 37-40 hours a week in a contract (or what is a normal workweek for you) - you should charge the same way as a freelancer - your rate should be much higher as your income might fluctuate.

Answer 4

Yes, this is quite common.

There are two main variations on it

(1) pure contractor, where the employee is an employee of A and that isn’t expected to change. While the employee may get a desk it’s always understood that they do not work for B and are not ever expected to. They may or may not be significant differences in how they are treated, but it will be distinct and clear.

(2) contract-to-hire, where B may eventually hire the employee. In contract to hire, there is frequently a time schedule to hire, and A may have significantly less benefits (but possibly higher hourly rate). Frequently these will only have the differences that are required by law (in order for legal liability for unemployment and other obligations to be assigned to A). Basically companies want a way to try out an employee before committing to them, and this allows them to do so. The longer the contract period the more likely there will be treated differently, but of course ultimately it comes down to the individual company and managers. It’s not uncommon for there to be an hourly pay cut to become a permanent employee.

You should clarify which you are dealing with, because there can be significant pay and benefits differences.

Answer 5

It is also worth noting that often time hiring on contract basis is a way to ensure you can more easily fire people without the risk of arbitration. It is also a way to employ people and give the impression that you are paying well but really because you give them nothing but there hourly rate they often get less.

Employers play a risky game with this strategy because if you decide to not to renew your contract you are entitled to ghost the hell out of them. You are not quitting your job, you never had a real job posting to begin with. You just did the work like you contract required. There is a fair amount of risk involved in having too crucial work be done like this.