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I am aware that some bigger companies are reluctant to directly hire unincorporated independent contractors for shorter-term software engineering projects.

What happens is that instead they engage the services of the staffing agencies, where they pay 100–200$/hour to the staffing agency, which in turn pays the people it finds more like 50–100$/hour.

It is probably related to the fact that companies can be fined by the government for misclassifying employees as independent contractors, hence they may be involving a third-party agency for compliance reasons, since most talent out there is not actually incorporated individually.

  • As a Software Engineer Consultant in The Workplace, would you have more corporate doors open up should you incorporate?

    • E.g., does a manager in a big corporate entity has to go through preferred staffing agencies in order to procure talent without too much bureaucratic oversight that's usually involved in hiring a fulltime employee, or is hiring an individual consultant directly also always a possibility? Would being incorporated make any actual difference at this stage?

  • If one is the President, Owner and Lead Software Engineer at XYZ LLC, will they magically be able to get some extra reqs from the top companies that aren't posted on the publicly-facing jobs/careers portion of the corporate web-site, and submit the services of their company for consideration in fulfilment of such requisitions?

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    What do you mean by un-incorporated? There are multiple ways to run a business and incorporation is just one of them.
    – Peter M
    Jul 21, 2016 at 23:45
  • You seem to be asserting an answer to your question....
    – keshlam
    Jul 22, 2016 at 0:57
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    PLEASE don't cross post. freelancing.stackexchange.com/questions/4738/…
    – Xavier J
    Jul 25, 2016 at 21:49

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What happens is that instead they engage the services of the staffing agencies, where they pay 100–200$/hour to the staffing agency, which in turn pays the people it finds more like 50–100$/hour.

I'm not sure what agencies you work with, but the ones I work with don't get anywhere near that margin. The ones I have worked with (as a hiring manager, and as a consultant myself), get around 15 - 18%. Any decent sized company negotiates down the margin with their preferred staffing agencies.

As a Software Engineer Consultant in The Workplace, would you have more corporate doors open up should you incorporate? E.g., does a manager in a big corporate entity has to go through preferred staffing agencies in order to procure talent without too much bureaucratic oversight that's usually involved in hiring a fulltime employee, or is hiring an individual consultant directly also always a possibility? Would being incorporated make any actual difference at this stage?

Not likely.

The companies where I hired contractors always had preferred staffing agencies. If we wanted to hire a particular individual, we steered them to one of the agencies and brought them in that way.

We would never hire a lone wolf - incorporated, not incorporated didn't make any difference at all.

If one is the President, Owner and Lead Software Engineer at XYZ LLC, will they magically be able to get some extra reqs from the top companies that aren't posted on the publicly-facing jobs/careers portion of the corporate web-site, and submit the services of their company for consideration in fulfilment of such requisitions?

No.

Reqs aren't the result of magic. They are the result of a written request that makes its way up from the hiring manager to the next level up, out to Accounting and HR, and up again to the higher pay grades. They are the result of a budget, and approvals - not hocus pocus.

You could be CEO, President, and Chief Bottle Washer at your company and you wouldn't shake out a req that hasn't gone through the proper approval and isn't fulfilled by the preferred staffing agencies.

Sorry, your idea about becoming an "incorporated" developer as a way to snag more contracting dollars wouldn't work in any shop where I was ever employed. Perhaps there are companies out there who might see value in your proposal, but I haven't met them.

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  • "hasn't gone proper approval" -- so, how much easier or more difficult is it to get approval for a contracting req compared to the employee? I thought the whole purpose of contracting reqs is that they don't have to be approved by as many people as hiring full-time employees.
    – cnst
    Jul 22, 2016 at 2:34
  • So, why would you hire contractors rather than employees if both require same level of approval, and if most contractor hiring nowadays is done without any specific end dates, either?
    – cnst
    Jul 22, 2016 at 19:33
  • So, why is there a difference in budgets? Isn't the work done is often about the same? Since contractors don't get paid any benefits, are they effectively allocated a higher base salary than what employees would have? (Otherwise, why would anyone want to be a contractor, for doing same work, providing you the employer with the extra flexibility, yet getting the same base and with no benefits?)
    – cnst
    Jul 25, 2016 at 6:01
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Most larger companies have a well documented RFP/supplier intake process. While individual companies may not allow a sole-proprietorship in and would rather work with an LLC or C-Corp, they are simply looking for you to go through the process and become registered with the company. This process allows you the company to make sure you are on the up and up, checking things such as insurance, references, and finances.

Once you are a registered supplier with the company, only your work product matters. I have personally seen very "small" companies and sole-proprietorships do a significant amount of work for large Fortune 500 companies because they were the best at what they do.

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  • So, how do you get your foot in the door? Is it only through the personal connections with the hiring managers and people in the top? Would a mid-level consultant have any chance?
    – cnst
    Jul 25, 2016 at 15:39
  • Look for supplier intake processes or RFPs. Most larger companies have a process to become a contacted supplier.
    – Anthony Genovese
    Jul 25, 2016 at 16:01
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I think you're assuming the wrong reason for companies to hire from staffing agencies rather than freelance unincorporated contractors.

The reason they do this isn't to skirt laws pertaining to contractor vs employee. They do it because it's easier to call a staffing agency that they've used successfully in the past than it is to scour linkedin or advertise that a contract position is available which would only then require interviews.

Forming some form of corporation for yourself doesn't, in any way, solve the search problem, it just means they write your check out to your corporation instead of your name.

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You should know that the US Internal Revenue Service is now taking a hard look at "independent contractors," and finding that many of them are "statutory employees."

... I think that IRS is right, in most cases, and that it's been too-long in coming.

Quite frankly, I don't use my corporation (LLC) to do any contracting anymore:   "somebody has to hire me." That might be the company itself, or it might be a third-party. (They can "contract" with the company, but they have to "hire" me.)

I expect to receive salary and benefits, and my employer does all the necessary tax-filing and payroll paperwork.   Funds arrive by direct deposit.   Ordinarily, I work from my home.

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