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I was told that some companies usually seek help from manpower agencies (and in particular when it comes to hiring programmers). However, I wasn't able to ask why.

I also noticed in some companies that for some specific teams, the programmers are contractual.

Why do many companies prefer to hire contract employees instead of employing them directly? What benefits would the company gain by doing that?

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It's a business decision.

Some companies prefer to have a highly variable workforce. This allows them to grow/shrink the teams rapidly based on project needs. It also relieves them of having to pay a "bench" of workers.

Having a mostly-contracted force of programmers means it's far easier to bring in new people, and it's easier to get rid of them. The problem of attracting talent is shifted from the company itself to the manpower agency. The problem of letting people go (and any subsequent severance obligations) is also removed from the company.

Particularly when the company's core competency is not software, this seems to be a growing trend.

Some very large companies in several business sectors have taken this approach. I happen to work in the financial services sector and have seen this happen more and more over the years.

I'm not saying that I think this is a good idea, or that programmers are anywhere near as fungible as some companies seem to believe these days. I'm just answering your "why they do it" question.

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    I agree, especially with the companies that aren't in the IT business primarily - programmers are easy to replace and outsource, so why would they want to do anything else? They will typically keep Architects and similar such that they can understand their own systems and keep a certain level of cohesion, but beyond that at a certain point they imagine IT as only needing routine maintenance and one-off projects - they don't want to have a large IT department at that point of time. – user2813274 Aug 15 '14 at 14:35
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    +1 for the "core competency" this is the primary reason for oursourcing a function. If I make widgets, I may outsource packaging, or distribution. If I am a telecom, then my IT systems are core as well as customer service, lines installation etc., those should be in house. Those bad customer service stories sometimes come from the fact that it is an outsourced task and it shoudn't be. Same for cable and satellite installers. – Bill Leeper Aug 15 '14 at 16:18
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Joe Strazzere's answer is very good, but there is another non-trivial point that needs to be mentioned.

The reality that a lot of project managers face in large non-IT companies is that it is frequently much easier to hire contractors. Given that the budget for a project is already approved, to hire a full-timer there are usually many more hoops that you have to jump through to get approvals from different people, HR paperwork, etc. Since hiring a full-timer is a decision that will impact more than just a given project and a single team (after the project is over - they will probably go on to work somewhere else?), many more people need to be involved. All this is much simpler when bringing on contractors, whose term of employment is conditional only on the budget of the project (assuming you're going through an approved agency that already does business with the organization).

Additionally, hiring a contractor is safer from a given manager's perspective - if you've made a mistake and you are unhappy with them you can get rid of them easily. For a full-timer you need to go through many rounds of paperwork, and there are legal dangers lurking if you make a mistake in the process.

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    It (paying for contractors vs salary) can also come of a different budget and it can also fiddle the revenue per employee figure – Pepone Aug 15 '14 at 19:17
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Budgeting can play a factor. In my last job I couldn't hire FTEs (full time employees) because there wasn't a budget for it but I could hire contractors. The company felt that allocating funds to a budgeting bucket was more effecient - especially offshore contractors. In some cases you can also terminate a contract for a contingency worker much easier that you can for a FTE if the person doesn't work out.

  • Can you please edit and explain what an FTE is ? Many readers won't know what the acronym stands for... – Radu Murzea Sep 1 '14 at 6:59
  • @RaduMurzea: It probably stands for "full time Employee". I took the liberty of editing it into the question. – sleske Sep 1 '14 at 12:36

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