One of the highest costs to businesses is labor. Direct wages, benefits, vacation pay, pension vesting, health care and employment legal costs—they all add up.
Although smaller organizations aren’t bound by a number of federal laws that cover employment in larger companies, small-business attitudes reflect the real costs of the paperwork, compliance and audit costs that add a layer of additional cost overhead to employing people.
Hence the attractiveness of outsourcing.
The temptation is to cut the burdens and contract with someone else to manage the employment, if not to outright hire employees classified as contractors. Contractors are a single bottom-line expense, and many businesses feel the IRS has been particularly loose and vague about using them.
A single line-item expenditure for a contractor—plus a 1099 at the end of the year—is seductive because it’s convenient. Some organizations will contract with an employment company to outsource the perceived hassle of the overhead of accounting, training, and perhaps benefits.
Something onerous happens, however, over the longer term. The cost of employment has become so high that there are now armies of contractor companies within companies, that aren’t your fellow employees. They work for someone else, yet also for or with you. They’re a contractor, and a second-class citizen in your company. They arrive at the same time and often sit in nearby offices or cubicles, but their paycheck comes from somewhere else. Sometimes they have to pay their own taxes instead of getting them withheld—if they pay them at all.
Their benefits, if they have any, are unlikely to be as good as yours. After a certain amount of time, they’ll probably have to be hired or go away. Many organizations use “temp” agencies to help your company “audition” employees as the cost of turnover in hires adds complexity to human resources issues. A nice, steady track record, and perhaps that person will be hired. Often, that person is also hired for part-time work, rather than bring overtime, union issues and other complications for your company.
But now, we’ve got a burgeoning underclass of people who aren’t really employed. They’re part-timers. There is no insurance, no time off for parenting or parenting emergencies. No vacation time accrued. No pension benefits.
The job occupations run from adjunct professors at IUPUI and other local universities to manufacturing personnel at the myriad beltway companies trying to carve out a living in a tough economy. They, too, often live hand-to-mouth.
The downside to outsourcing to contractors is that you don’t get employees that are vested in the success of your organization. Indeed, if you’re an employer, you’re pushing your growth and staffing problems to someone else at the cost of the dignity of the people who could be your employees, but are not. You saved a little money, and made it easier to deal with employee termination, benefits management and the overhead that comes with employing people who are people, rather than the pawns of another company.
My unpopular proposal: If you contract labor for more than $1,000 with an individual in a year, you must employ them, withhold their taxes and make them part of your organization. The tax rolls will swell, and that’s not a bad thing when you’ve often placed 100 percent of the burden of withholding, disability insurance tax, and the gaps in income with people working for you.
It’s time to humanize them: Give them a job.•
Henderson is managing director of ExtremeLabs Inc., a Bloomington computer analysis firm. Send comments on this column to email@example.com.