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I am currently working as an external contractor in a technology company in Switzerland with a role of software test engineer. The current employment is hourly-based with a very competitive salary, even if only on 6-month long terms (which I do not mind).

Recently my line manager suggested to get employed directly with the company. They propose a cut of salary from what I get now by about 20%.

What is the reason? Why did hire me for this competitive salary in the first place? It is just the difference of short term contract and long term contract?

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    Nobody here can answer these questions for you, only you can work out whether you want the security of being employed directly vs less money. Commented Oct 7, 2023 at 8:36
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    At least in the UK, having an employee is more expensive due to tax and other costs. In turn being a contractor is more expensive for you for the same reasons, you have to pay those taxes yourself, put money in your pension etc. Your salary will generally reflect this Commented Oct 7, 2023 at 9:20
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    At my company, full employees make less in their paycheck than contractors, but have significantly better health benefits, as well as 401k. You should do some math on the overall compensation package in making your decision.
    – RC_23
    Commented Oct 7, 2023 at 14:38
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    w.r.t. "Why did hire me for this competitive salary in the first place?" - sometimes it is a matter of budget: contractors come out of a different account than full-time employees; a manager (or a company) may have money available in one bucket but not another; total cost of an full time employee including benefits and legal restrictions on termination (as other answers have explained) can also play a part, but so do things like tax laws (e.g., capital expense, human expense, operational expense) and so on.
    – davidbak
    Commented Oct 8, 2023 at 13:53
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    The advantage of getting a contractor instead of full-time employee is flexibility! You can fill short-term demands without commitment and terminate contracts easily if not required anymore. In many European countries, employee protection is very high and while I'm not sure about Switzerland in particular, you cannot get rid of an employee easily and have a long-term commitment to paying that salary over decades potentially. Just 20% less for a bunch of benefits which were mentioned in another answer sounds amazing.
    – kopaka
    Commented Oct 9, 2023 at 11:43

6 Answers 6

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I have no experience in Switzerland, but in Germany, being taken on board as an employee for just 20% less payout would be an amazing offer.

Take into account that you get paid days off that you surely don't have as a contractor. That alone makes up 10%.

In Germany, the employer will shoulder a big part of your health insurance and social security payments, that you have to pay in full if you are a contractor.

Sick days are no longer on you. You are sick? Well, welcome to paid sick leave.

Your taxes are so simple you may no longer need to pay an accountant.

Being employed means things like insurance and paying for tools is now your employers problem.

You will have better job security.

So all in all, at least in Germany, common wisdom is that if you want to make more money after taxes and all mandatory payments than an employee doing the same job, you need to earn at least +50% more as contractor, just to break even after all the extra costs contracting entails. And that doesn't even include the hassle of actually organizing all of it.

I have no idea what this rate is in Switzerland, but you may want to double check what benefits you actually get as employee that you currently have to pay for out of your own pocket because you are a contractor.

And then reevaluate the offer. Maybe it's still not enough. But it is not as easy as just comparing your two paychecks. You need to compare net results.

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    He is not an independent contractor. He works for an "external contractor company", so he should get sick days and vacation days and such as in any normal company already.
    – pipe
    Commented Oct 8, 2023 at 11:45
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    @pipe we don't know that. The external company may very well also be using the OP as a contractor and hiring them out to whoever needs their services. There is no reason to assume the OP is a salaried employee of the contractor company and it seems extremely unlikely that they would be since that would mean the contractor company would have to pay their contractors even when they were not on active duty.
    – terdon
    Commented Oct 8, 2023 at 12:20
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    @terdon: "it seems extremely unlikely that they would be since that would mean the contractor company would have to pay their contractors even when they were not on active duty" - I may be mistaken about that, but based on hiring events ("Kontaktmessen"), my past job searches, and the experience from my current job where we have colleagues from such external companies, I got the impression that this is indeed a widespread employment model. Yes, the external company has to pay their inactive employees, too, but up to a certain extent, that's presumably covered in their viability ... Commented Oct 8, 2023 at 19:55
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    ... calculations for the business. Their business activity is having a pool of skilled people who can be deployed at short notice, and finding companies who need some skilled people at short notice, then bringing these together, while receiving a certain fee for their services. Basically, most software companies that call themselves "Consultancy" and speak about "out-house assignments" seem to work like that, and they're sometimes HUGE. (And indeed, taking over one of the consultancy's employees is bound to some restrictions, e.g. paying a fee or waiting for certain amount of time.) Commented Oct 8, 2023 at 19:57
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    @BЈовић That is not too far off from what I used for Germany. The internet says in 2022 Switzerland had 254 working days, so 24 days PTO is close enough for me to my rough guestimate of 10%.
    – nvoigt
    Commented Oct 9, 2023 at 7:16
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As I have worked in Switzerland as an external contractor being paid by hour and got full time I feel I can answer this better than the other answers.

As a contractor you get to pay the "national insurance" (aka AVS etc) as well as into a pension fund all out of what you receive in your pay.

I won't mention health insurance as that is paid out of your wages/salary by all anyway.

However, when you are employed as full-time or even part-time then the "national insurance" and some other insurances get paid out of your salary BEFORE your earnings are taxed. Also the pension contribution is pre-tax and the employer usually matches what you contribute.

So, you can check with a Fiduciaire and check detail for exactly your situation but I think you will be better off overall with full time employment - at least I was.

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  • I will be better off... with what?
    – Alex
    Commented Oct 9, 2023 at 4:44
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    @Alex see edit made it so much more obvious now.
    – Solar Mike
    Commented Oct 9, 2023 at 5:15
  • I'm thoroughly puzzled how OP can be contractor in Switzerland and not know this? (Nor the general business related questions of billable vs. not billable hours and costs etc.) Commented Oct 15, 2023 at 22:11
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Why did hire me for this competitive salary in the first place? It is just the difference of short term contract and long term contract?

Close but no cigar, this is the differences between being a contractor and an employee.

When you contract you almost never bill 365 days of a year, at least not at the rate you wish you did (bar very few top of the line people who literally have a queue of people begging for their time of day, and willing to pay the asking price). So there's downtime, which is spent looking for more work, and there's never a guarantee that the well won't dry out at any moment. Thus, for all this effort, and risk, and short term availability, contracting tends to pay more. Can be a lot more.

But also you are not really part of the company, you have very little protections and benefits beyond what's in your contract (bar local laws, which may actually strike some of the protections in your contract too, it works both ways - good and bad). You also are unlikely to reap benefit of company success, while in case of sale the C-levels may fight to get all employees paid a bonus, contractors generally just get a firm handshake. Similarly your growth option within the company are going to be limited as you are there to do a job.

On the other hand as employee you are entitled to benefits, protection, stability, growth opportunities and in some form benefiting from the company success you help build. So while the compensation in direct cash tend to be lower, there are other factors to consider; it's nice peace of mind to know that no matter what happens your work life is covered for X months no matter what happens, on top of the savings you got.

To get to your question

Should I consider the same work for 20% less salary?

This isn't the same work, they offered you transition from being a contractor to an employee. And as you've already found it has a downside, as while you got this extension of contract, how likely is the next one is anyone's guess. Maybe you will get another as lucrative after, and maybe you will have to work for half or less of what they are paying you know. No one can know, but that's one of the downsides of contracting.

So what to do?!

Talk with them like you did with us here. Explain that you don't understand the situation, or the difference, why would it be beneficial to take a "pay cut" (I would check the numbers on that too, as contractor you usually have higher tax burden than as an employee, the gap may not be as big as you think) and have an honest and open minded chat. Then make a decision accordingly, but you will have to get your head beyond the numbers, as there's more to what they've offered you.

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    @HappyIdiot unless you are doing something illegal, companies do not magically disapear into insolvency so I am not sure how would those jobs vanish at any moment? Speaking strictly of european countries here, no idea what crazy stuff they do over the pond.
    – Aida Paul
    Commented Oct 8, 2023 at 16:02
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    @HappyIdiot except you are not allowed to just lay off everyone, at least in europe. Similarily operating a company that's insolvent is illegal. While the laws may be different somewhere else, in europe, in general, this is pretty stable and reliable thing employees do not need to worry about too much, bar few exceptions.
    – Aida Paul
    Commented Oct 8, 2023 at 16:38
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    @Happy Idiot Switzerland does not operate some of the more "interesting" employment laws that are found in the USA like "At Will"...
    – Solar Mike
    Commented Oct 8, 2023 at 17:59
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    @HappyIdiot feels like you should post your own answer, as this i getting extremely off topic
    – Aida Paul
    Commented Oct 8, 2023 at 20:29
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    @Happy: While it's true that small business can fall early and often...and a company that accepts contracts from other companies can do well with longevity...the contract position for an employee is much more likely to fall apart and its entitlements be downgraded during slower periods than a full employee. Even quick situations of "The company is bought out, and then we're all let go" is much easier to spot ahead of time than "Your contract is up, and we're not renewing it.". Commented Oct 13, 2023 at 23:18
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Should I consider this proposal?

Of course you should consider this proposal. This sort of thing happens all the time. I've brought very good contractors on as employees before.

They are signalling that they want to keep you around for the long term rather than just the next 6 months, but your contractor rate is too expensive. That's clearly a signal that they like your work.

Think of it as a new job offer. Would you want to work to work for this company long term, rather than for just 6 months? Would the proposed salary be acceptable, or close to acceptable?

If yes, either accept their offer or propose a new salary that is a little more than what they are offering but less than your 6 month contractor salary.

If no, thank them for the offer, work out the remainder of your 6 months, then find your next job elsewhere.

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First, remember that the contractor is running a business. The fee being paid is not just the take-home pay, but also to cover costs of running the business.

A second reason is that contractors charge by the hour. This is also the reason that my previous employer tried to move its own employees from casual to salary: Because they could get try to get you to work lots of hours and not have to pay by the hour.

Another reason is that it is expected that the contractor is an expert in what they do, or at least, significantly better equipped than a typical employee. Therefore, the expectation is that a contractor will not need to spend time (i.e. money) being trained up to do the job. For that expediency, a premium is paid.

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Is the Question really why an employee would be paid less than contractor, and that's all there is to it?

If that's the case, the contractor is a short-term substitute, often hired in an emergency… 'We must have someone to do this job, even if it costs (a lot) more than we'd really like to pay…'

Using the more expensive contractor for a short while gives the organisation vital time to find someone more amenable to the terms and conditions on offer in the long term.

Whether that's at all reasonable is a wholly different thing.

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