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What practical, day to day differences are there for work between contractors and W2 employees, specifically for software engineers?

I know that contractors are paid differently and they don't get insurance. I'm not asking about that, but instead, how much does it alter your day to day?

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    And this list will change depending on the level of being a consultant vs contractor. One client saw using my own computer as a sign of "professionalism" while other clients insisted on me using their equipment.
    – David R
    Commented Aug 22, 2023 at 14:01
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    It's a valid question, even if its phrasing assumes things that are not always true. Upvoted for that reason
    – keshlam
    Commented Aug 22, 2023 at 15:11
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    Due to the many downvotes, I'm removing the controversial section. Check the edit history if you want to see it. Downvoters are encouraged to undo their downvotes, because the reason for their downvote is now fixed. Commented Aug 22, 2023 at 15:59
  • what are W2 employees? what does W2 stand for?
    – Elerium115
    Commented Aug 25, 2023 at 14:18

4 Answers 4

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The difference is your paycheck, your benefits, sometimes your tax status, your term of employment... All the things other than actually doing the job. You are also usually expected to have a higher skill level than they might be able to afford otherwise, or a specialized skill that they only need briefly, which is why they didn't just hire someone.

Obviously you have to be good at quickly coming up to speed on a project you've never heard of before. And you have to be good at promoting yourself, and you have to start looking for the next assignment to take long before the current one ends.

Part of the reasons contractors get higher pay is that they pay for taxes and health insurance and time off and so on out of their own pocket. It's also because you have to assume that you will spend a significant amount of time without income between engagements, unless you can keep them lined up and ready to go in quick succession (which may interfere with extending the current engagement)... so your hourly pay has to be higher to maintain the same standard of living. But not so high that people feel they can't afford you.

If you're contracting, you're essentially running your own business, with all the complications associated with that, including the risk that folks buy from someone else.

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I would offer a different perspective on some of your points:

  • "Contractors can use their own computer" - depends on the size of the company and whether or not you are in the office some of the time. Many companies care a lot about what equipment (and software) is connected to their network and would rightfully dictate what machine is used. In those cases, they may provide equipment for the life of the contract
  • "Contractors are not required to attend" - might rephrase this as contractors are not allowed to attend. When I was contracting , I wish I had been able to attend some of those meetings to understand how the company was doing and what their short/long term strategy was. Those details impacted my future.
  • "Presumably the contract itself actually matters" - the contracts for W2s matter, they just usually include language that allows the company to change their mind on assignments. Companies are careful not to break their contracts as software engineers are expensive and hard to replace.
  • "The salaried people sometimes treat contractors as second-class" - I've seen too many managers who treat their own employees this way. I haven't seen skilled contractors disparaged any more than skilled employees and the same for under-performers. As far as "important work", they are going to give that work to the people with a vested interest in success. Also, these are often growth opportunities, why would they give them to someone with a only a temporary commitment to the company.
  • "Contractors must constantly fill out time sheets", how else would they be able to pay the contractor. It may be tedious, but I'm not sure how else to handle this, it's just part of the business. Employees also have to do this sometimes to allocate their cost across various funded projects and cost centers, especially if they work on projects for external clients..
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    Given there are more down-votes than up, it would be nice to understand what people believe is wrong here. These are from my experience as an independent consultant, employee of a consulting firm , manager of contractors on an outsourced project and manager of a team with added contractor resources.
    – cdkMoose
    Commented Aug 21, 2023 at 21:24
  • I upvoted you. You're a bit more absolute in some of your answers than I think is warranted; I wasn't going to quibble about that since I think between us we have it covered. I suspect that some downvotes are coming from the same people who downvoted mine; they have romantic fantasies about contracting that we are quashing. Nothing will keep a job from being a job, and when contracting everything gets negotiated every time. Plus having to continuously be lining up your next gig. Plus having to do a lot of the stuff that companies have someone else do. Different, not necessarily better.
    – keshlam
    Commented Aug 22, 2023 at 0:14
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    Thanks @keshlam. I didn't meant them to be absolutes as much as just real cases on the other side of the coin.
    – cdkMoose
    Commented Aug 22, 2023 at 13:52
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In my part of the world, there is another huge advantage to being a contractor. Because I run as a business (actually I formed a company to do contract work), I can claim all sorts of expenses such as

  • Car purchase (depreciation)
  • Car fuel and servicing
  • Computing Equipment
  • Mobile Phone costs and bill
  • Internet costs
  • A portion of Power and Gas costs
  • A portion of house and contents insurance costs
  • Finally, as I am registered for GST (equivalent to VAT), I get this back for all my expenses. So all my costs are 15% cheaper.

The end result is that I pay a lot less tax.

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What practical, day to day differences are there for work between contractors and W2 employees, specifically for software engineers?

I know that contractors are paid differently and they don't get insurance. I'm not asking about that, but instead, how much does it alter your day to day?

The big difference is in levels of responsibilities. As a contractor I can't tell somebody else to do something. I can ask. I can tell my client what I think needs to be done. But if another contractor or an employee doesn't think my ask is important to their set of tasks, there is little that I can do.

My relationship with the client is dictated by the contract, which I probably haven't seen if I work from another company and the contract is between the two companies. That contract defines my roles and responsibilities.

In the original version of the question there was a list of supposed differences, but in reality the differences between employees and contractors can range from subtle to massive. Both may be allowed to bring their own device, or neither. Both might have to attend meetings, or the two groups can have separate meetings.

One suggested difference is time cards. In my experience everybody: salaried employees, hourly employees, offsite contractors, onsite contractors, have to fill out time cards. This is done to account for vacation, and sick leave, but also to document what project they are working on. In a few situations, I was unlucky to be required to fill out two time cards: one for my employer, and one for my client. Those situations were examples of accounting at the customer wanting to be able to track pay expenses everyday.

One difference is related to social events: the employee can be allowed to charge a special code when there is a company required social event. But contractors aren't allowed to do the same, unless their employer gives them am overhead charge code that reduces the profits of the contract. Or they can take leave. Or they can just not charge for those hours.

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