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Businesses United States

Silicon Valley's Dirty Secret: Using a Shadow Workforce of Contract Employees To Drive Profits (cnbc.com) 177

Posted by msmash from the closer-look dept.
An anonymous reader shares a report: As the gig economy grows, the ratio of contract workers to regular employees in corporate America is shifting. Google, Facebook, Amazon, Uber and other Silicon Valley tech titans now employ thousands of contract workers to do a host of functions -- anything from sales and writing code to managing teams and testing products. This year at Google, contract workers outnumbered direct employees for the first time in the company's 20-year history. It's not only in Silicon Valley. The trend is on the rise as public companies look for ways to trim HR costs or hire in-demand skills in a tight labor market. The U.S. jobless rate dropped to 3.7 percent in September, the lowest since 1969, down from 3.9 percent in August, according to the Bureau of Labor Statistics. Some 57.3 million Americans, or 36 percent of the workforce, are now freelancing, according to a 2017 report by Upwork. In San Mateo and Santa Clara counties alone, there are an estimated 39,000 workers who are contracted to tech companies, according to one estimate by University of California Santa Cruz researchers. Spokespersons at Facebook and Alphabet declined to disclose the number of contract workers they employ. A spokesperson at Alphabet cited two main reasons for hiring contract or temporary workers. One reason is when the company doesn't have or want to build out expertise in a particular area such as doctors, food service, customer support or shuttle bus drivers. Another reason is a need for temporary workers when there is a sudden spike in workload or to cover for an employee who is on leave.
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Silicon Valley's Dirty Secret: Using a Shadow Workforce of Contract Employees To Drive Profits More

Silicon Valley's Dirty Secret: Using a Shadow Workforce of Contract Employees To Drive Profits

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  • Reconcile... (Score:5, Interesting)

    by xxxJonBoyxxx ( 565205 ) on Tuesday October 23, 2018 @12:46PM (#57524805)
    From TFA:

    >> Contract workers tend to fill more "grind it out type roles" that need manpower or less senior roles

    >> workers with jobs in higher wages are more likely to have their services contracted out than jobs associated with lower wages. Such "alternative" work arrangements are becoming more common among older and more educated workers.
  • _everybody_ does this. It's a quick and easy way to get H1-B workers for one thing. It lowers tech wages too since you don't have long term employment. Plus it dodges taxes.

    Thing is, what are we (/. techies) gonna do about it? Nobody wants to vote for strong worker protections. It pisses us off when somebody abuses them. So we'd rather give them up for ourselves than risk somebody else getting them.

    If you want this to change you're going to need help from the government. By ourselves we're too weak.

    • Does not dodge taxes (Score:5, Insightful)

      by SuperKendall ( 25149 ) on Tuesday October 23, 2018 @12:53PM (#57524869)

      It lowers tech wages too since you don't have long term employment. Plus it dodges taxes.

      Hi, consultant here. I don't see it lowering wages, or dodging taxes.

      That's because if you want short term help, a company will mostly be paying HIGHER wages than they would real employees. And those employees (or a consulting firm) will be paying all those taxes you think are somehow being "dodged". Which is why the wages are higher...

      • Re: Does not dodge taxes (Score:1)

        by Anonymous Coward

        i do ninja work (contracted to fix one thing anderen go away) and see this all the time, employees with minimum wage are burned without compensation, work hours stealed and pinned down with micromanagement, staffing is the worst.

      • Re:Does not dodge taxes (Score:5, Interesting)

        by fluffernutter ( 1411889 ) on Tuesday October 23, 2018 @02:08PM (#57525355)
        I used to contract. At first I thought I was getting paid more, but then I found out I needed to pay an accountant $2K a year and health coverage for my family was easily $600/month. And I'm in Canada so that is basically for dental coverage. Add to that the stress of always having to worry about 'the next gig' and contracting definitely wasn't worth it for me.

        • I'm sure I am not understanding something correctly, but I was under the impression healthcare in Canada was free. How is it you spend $600 a month on healthcare? I could see if you had premiums, were actively going to physical therapy multiple times a week and had numerous prescriptions you needed to fill, but isn't that part of free healthcare that Canada provides?

          I only ask because while I only have my wife and I to cover, she does go to PT bi-weekly but we don't spend half as much on healthcare. We don'

          • Dental is not covered in Canada so you need coverage for that. Also, health coverage will do things like top you up to a guaranteed private room in the hospital, coverage for financial loss while ill (beyond employment insurance), things like that. But the biggest cost is dental coverage for sure.

            • $600/month for dental is insane. Because it's usually negotiated separately here in the states, the uninsured cost comes out to $600... in a year. And that's if some non-surgical work needs doing (fillings, etc). So unless you have a family of 12 you might be overpaying a smidge there...

              • three sets of braces, three root canals, an implant in the future.. it's paying off for me.
                • Oh and a porcelain crown. Those are ridiculously expensive.

                  • Ah, at least you're getting your money's worth. I've gotten a lot of work done (wisdom teeth removal, caps, fillings) now that it's included with my current job (no additional cost or co-pays). The 5 years of deferred maintenance before then took a toll on the 'ol chompers, though (I couldn't even afford the low out of pocket).

      • I got nearly 30% raise to go permanent. After 15 years of contracting.
        They're lying to you.

        • At most of the places I've contracted for, I know what the employees make and know what I make.

          I assure you, I make more than the employees - sometimes am offered a permanent position, but it's always at a lower rate because I would get "benefits".

          I don't doubt what you are saying but it really means you should have set contracting rates a lot higher, or increased them through the years.

      • not a contractor. Most contractors are really full time employees. They're doing work critical to the business on a routine schedule. Companies hire them explicitly to get out of paying unemployment insurance, health benefits and payroll taxes.

        The problem isn't actual contract gigs or consultancies. The problem is when the company hires contractors to do stuff like tech support of key, long running products or monitoring of base systems. That's the bulk of your "contractors". It's the IT equivalent of U

    • Re: (Score:3, Insightful)

      by ShanghaiBill ( 739463 )

      It's a quick and easy way to get H1-B workers for one thing.

      The US issues a fixed number of H1-B visas each year. Whether those people work as direct employees or employees of a contractor makes no difference. The number is the same.

      It lowers tech wages too

      No it doesn't. It increases wages. It lowers non-wage benefits.

      you don't have long term employment.

      Many of the people discussed in TFA are regular W2 employees working for a contracting company, not individual contractors.

      Plus it dodges taxes.

      No it doesn't. The taxes net out the same. It just shifts who pays them.

      Nobody wants to vote for strong worker protections.

      No, not stronger, nor better. Just different. In many ways, 1099 workers

    • Lower wages? I guess pulling down $200+/hour lowers the wages of the rest of the team?

      • Re:Um... it's not just Silicone Valley (Score:5, Interesting)

        by Waffle Iron ( 339739 ) on Tuesday October 23, 2018 @04:08PM (#57526131)

        LOL. Do you really think that Google contracts out more than half of its workforce so that it can pay them anywhere near $200+/hour?

        • I dunno - maybe they do? When I was consulting 30+ hours a week at Microsoft in the mid 2000s I was billing $175/hour. So I'd assume that well over $250/hour would now be fine, given inflation and the tighter labor market. Or maybe they are mainly contracting out "menial" jobs like CSR, janitorial, etc.

          • Right. I'm sure that more than half of Google's workforce is pulling down $400K per year.

            The place must be like Lake Wobegon, where all the women are strong, all the men are good-looking, and all the workers are in the top 1%.

            But back to reality. Here's a hint for you, which you would probably already know if your story were true: Most contract employees work for middlemen and make jack shit.

    • _everybody_ does this.

      For the past 30+ years, all the local manufacturing jobs use "temp agencies" for new workers. They do get hired on as real employees after 90 days. But it is generally not possible in many trades to participate in the economy as an employee without first being a contractor. And you might have to stand out as a great and loyal worker while merely a contractor to even get considered as an employee.

    • Re: (Score:2)

      by fermion ( 181285 )
      And it is nothing new. In 2000 MS paid like $100 million to workers who sued the in around 1990 for miscatogorization of thier job. MS hired temp workers and contract workers to do what normally would be full benefit work. This is different from amazonn subcontracting to protect itself from liability. We will see if it is the same as Uber drivers.

      Contract work has specific requirements and can be useful and lucrative. I have made good money in contract work. However many young managers do not know the l

  • They use us like a toilet then throw us away (Score:2, Insightful)

    by Anonymous Coward
    Ever want to know what it feels like to be a $20 whore? Get involved in one of these 'contracting' deals. They have no investment in you, you're paid what you're paid, and if you're stupid enough to let them alter the deal so you hang around longer than 6 or 12 months, you'll NEVER get paid another penny more, no matter how much the economy changes in the meantime, and if you complain too much, all it takes is a phone call and you're FIRED, with no consequences for them, they'll get another $20 whore in you

    • Re: (Score:1)

      by Anonymous Coward
      California is an at will state. Full time employees can be fired just as easily as a contractor. If you want a raise, change jobs.

      • Full time employees can be fired just as easily as a contractor.

        Legally, employees can be fired for almost any reason, or for no reason, at any time. But psychologically it is difficult to sit down with a worker who has a family and a mortgage, and tell them to their face that they are fired. So managers tend to avoid or delay firing people, even when it is against the best interest of the business.

        It is much easier to just let a contract expire.

        If you want a raise, change jobs.

        Indeed. A typical annual raise is about 5%. In tech, the median salary boost from changing jobs is about 20%. To maximize

        • Full time employees can be fired just as easily as a contractor.

          Legally, employees can be fired for almost any reason, or for no reason, at any time. But psychologically it is difficult to sit down with a worker who has a family and a mortgage, and tell them to their face that they are fired. So managers tend to

          ... hire HR staff to do that part. Once they decide you're out the door, telling HR should mean the person making the decision doesn't have to deal with the full psychological stresses. And the HR person isn't the one making the decision, so they shouldn't feel the same stress; it is already decided and out of their hands. They're just doing the paperwork.

      • Re: (Score:2)

        by Bobartig ( 61456 )

        While true, companies are still usually composed of humans making decisions. Companies are less likely to fire permanent position individuals because they've typically been through more vetting, training and personal development, tend to carry more responsibilities, and the company has invested more in them. This is not rational behavior, mind you, just another form of sunk cost fallacy, but it still plays a part. Companies tend to work much harder to 'make it work' with perm employees than the contractors

    • Funny, I make quite a bit more than $20/hour (between 10 and 15X that rate). I guess maybe I'm a high-priced escort, not a whore? I also get a pick of contracts, decide when I want to work, get to do quite a bit of work from home, get paid to travel to my client (including hotel, Lyft, air, food), and have zero issues with corporate politics. And when I tire of a place, I just leave - and take a different contract, to learn new skills and further increase my bill rate.

    • "My rate is increasing ______ starting on the __th day of ______ month."

      Done.

      What you need is to do is take a class on negotiation at the local community college. As a contractor, you're in charge. If you're not, you're doing it wrong.

      • Presumably the rate is in the... well, contract. A well run business will have a plan to counter such tactics at contract renewal time.

        Of course not many are that prepared, and it's entirely possible they were either foolish enough to allow the rate to be variable, or (more likely) are royally screwed if they don't renew your contract, and yes at that point you have them by the balls.

        • Well, if they aren't smart enough to make the increase happen at contract renewal time, they should really think about getting a "real job." lol

    • If the client likes you they can have the contracting company over the barrel. It can be as simple as "well, we really like person X. The previous people you sent were borderline useless. If we can't have him, maybe we don't need this position at all". Halving their cut to increase person X's pay makes more business sense than calling client's bluff...

  • In my experience, it's a management problem (Score:5, Insightful)

    by jeff4747 ( 256583 ) on Tuesday October 23, 2018 @12:55PM (#57524885)

    The vast majority of the times I've seen a company use contract workers, it's a management problem.

    Manger has work that needs to be done, and all existing employees are busy. This work is not some sort of short-term bump in the road, there will be work for years.

    Manager asks for another employee.

    Executives and/or HR say "No", because it would violate some arbitrary rule on number of employees or number of direct reports or something similar.

    However, the manager is allowed to hire a contractor at 150% the cost of an employee, because that doesn't violate the arbitrary rule. Contractor ends up as de-facto employee, and everyone desperately hopes that doesn't bite them in the ass.

    • Re: (Score:2)

      by Kjella ( 173770 )

      The thing is it solves everyone's problem in the short run, on the false premise that during this time with extra resources you'll become more efficient so by the end of the contract they'll be redundant. The manager gets staff to fix the immediate problem. Manager+1...n didn't sign off on a permanent expansion. Kick the can down the road and hopefully it's not your problem next time.

    • Manager asks for another employee.

      Executives and/or HR say "No", because it would violate some arbitrary rule on number of employees or number of direct reports or something similar.

      However, the manager is allowed to hire a contractor at 150% the cost of an employee, because that doesn't violate the arbitrary rule.

      The rule isn't arbitrary. The employees only have to follow directions, and you need somebody giving those directions. A contractor is, or should be, or at least might be, an independent expert who doesn't need a lot of directions. They only need documentation of the business and technical needs of the project. That's why paying them more than an employee is allowed, even when the manager already is giving directions to the max number of people they're considered able to supervise.

      As a contractor, I'm respo

      • A contractor is, or should be, or at least might be, an independent expert who doesn't need a lot of directions

        And here's the point where you didn't read the last sentence in my post, making everything you're talking about here moot.

        • A contractor is, or should be, or at least might be, an independent expert who doesn't need a lot of directions

          And here's the point where you didn't read the last sentence in my post, making everything you're talking about here moot.

          Nope. That's how weak your claim was; it is refuted merely by my opinion! Whoopsie. lol You choose your words, don't bother trying to choose mine. That's a task for some sort of pushy Sisyphus. I'm not sure what you'd get out of it, but I know you'd be systemically prevented from ever having success.

          In the end though, you probably just didn't comprehend what I said, so you didn't comprehend that rather than mooting it, it was a basic premise repeated in my words. Notice that I said, "That's why paying them

    • it's a tax/benefits dodge. The 150% cost is still less than paying the various benefits and taxes to the employee. For one thing contractors don't have unemployment benefits. Plus upper management likes being able to fire on a moments notice if they need a quick stock bump. Most jurisdictions require a few months notice.

      • The 150% cost is still less than paying the various benefits and taxes to the employee

        The 150% includes that. It's not like the staffing firm does not have costs when their employee works as a contractor.

        Plus upper management likes being able to fire on a moments notice if they need a quick stock bump. Most jurisdictions require a few months notice.

        Zero in the US do. And since Silicon Valley is the subject of the story, US rules would seem to be the most relevant.

  • They aren't the root of the problem. (Score:5, Interesting)

    by bistromath007 ( 1253428 ) on Tuesday October 23, 2018 @01:08PM (#57524963)
    I am one of these contract workers. I like it fine. I'm getting a better rate per hour than I ever did in any other job, I work from home, and I have complete control over when and how much I work. I suspect my client is willing to put up with this precisely because I don't cost them anything when I'm not working.

    However, I like it fine because I'm disabled. I get government money to help me along when my paycheck isn't enough, and I get (currently) zero copay healthcare from the state I live in.

    People worry quite alot that small businesses are dying, because many kinds of them are. The "mom and pop" store can't do shit against Amazon. The thing is, Silicon Valley startups are also small businesses, and the fact they sometimes manage to sucker in venture capitalists sometimes doesn't make them not small businesses. They're 3-5 dudes who know how to code who have an idea about how use code to make something easier or more marketable. Because they're paying Silicon Valley rent, they can't afford real employees until such time as they do happen to land that VC money. Even then, that money isn't theirs to fuck around with, and I'm sure the field is littered with startups that were too good to too many people.

    The upshot of this is that the kind and amount of work that is best available today isn't enough to sustain a person by itself, and it's not solely because of exploitative employers. This is why universal healthcare and universal basic income will be important ideas going forward. The commodification of labor isn't going to be around forever, and while it persists, it's going to change alot. More automation means more people who do work at all do it the way I do. I can tolerate this arrangement because I basically already have the benefits of universal healthcare and basic income. I'd like them to be universal. People need to be free of the fear of homelessness and starvation for work to legitimately be anything but slavery. I want other people to be free the way I am, and I'd like them to not need to be some kind of cripple to get it.
    • Getting alot of this, so before you reply to the above post, please ask yourself: "am I about to behave as though this person has never heard of taxes? Alternately, am I about to behave as though taxes are somehow avoidable if the government provides no services?" If you answered "yes," do us both a favor and find something else to do.

    • Re: (Score:2)

      by antdude ( 79039 )

      Which company is this? I am also disabled and cannot find a job. :(

      • No idea whether my current client still needs help, but if you put together a profile on upwork.com and wade through crappy and scammy postings for a week or two, you're pretty likely to find something legit. I don't have any of the networking necessary to be a truly independent entrepreneur, so that website has been really transformative to my job search process.

    • Re: (Score:1)

      by Shaitan ( 22585 )

      "precisely because I don't cost them anything when I'm not working."

      In my experience most of these tech companies still pay you a standard 40hr minimum week regardless.

  • In my team, it's much easier to hire overseas contractors. It's not about internal office politics; it's that we work with a contracting firm that makes a big effort to screen candidates well. I find that American recruiters are so focused on being salesmen that it's very hard to pre-screen candidates. They work hard to convince us that a candidate is awesome, when in fact the candidate is a poor match. In contrast, when our contracting firms present a candidate, there's a good chance it's a good candidate.

  • 'The U.S. jobless rate dropped to 3.7 percent in September, the lowest since 1969'

    Guess Trump gets a second term?

    • Re: (Score:2)

      by harrkev ( 623093 )

      Nope, this is the result of Obama's policies. Obama was clever enough to make sure that the real results of his policies did not really kick in until two years after he was out of office.

  • The military ... (Score:5, Interesting)

    by CaptainDork ( 3678879 ) on Tuesday October 23, 2018 @01:57PM (#57525261)

    ... shares a similar dark secret.

    There are more contractors hired by the military than there are actual military headcount.

  • Nothing secret about this. (Score:3)

    by WindBourne ( 631190 ) on Tuesday October 23, 2018 @02:25PM (#57525479) Journal
    It is the H1Bs and these companies are able to get not just contractors, but contractors are some of the lowest rates going.
    This is why we need to kill H1B progran and instead increase the greencards. In addition, we need to require that anybody that comes to America on a tech visa, not be allowed to contract out for say 5 years. IOW, they can work for contract shop for 5 years.

  • In recent years, I'm more familiar with the UK labor (um...labour) market than the US, and there the situation has really developed into a class-based society. You have the "nobility", who have jobs with benefits. And you have the "serfs" who are technically "temps" - short-term contract positions with no benefits. I know of cases where only upper management are actually employees - everyone else, from middle management on down, is a temp.

    The advantages of this are obvious, at least to pointy-haired types:

    • Yes, it is indeed sad. Do you remember Jeff Bezos tweeting out the wage increase to 15.00 per hour? What was left unsaid was that in order to work at Amazon, you basically work through a staffing agency in a so-called temp-to-hire capacity. However, Amazon makes no guarantees of a conversion at all so you work as a temp. My guess is it is cheaper for companies to bring in contract labor because there is no cost of hiring, terminating, or even benefits associated with said labor. It's an underhanded move whe
  • Contractor vs Employee is about the level of control and independence. Control is: Who sets the hours, who owns the work place and the tools, who decides how a task will be solved, can you work for more than one person.
    Uber driver, picking his own hours, driving his own car and even to some extent choosing the route to drive - contractor.
    Cube dweller payed $150/hr, working 9 to 5, using a company computer - employee.

    Most western governments use degree of control/independence as the measure for employee
  • a gig is not a job. This percentage is incredibly wrong.

  • At least at a couple of those firms mentioned (Alphabet, Facebook), they've boxed themselves into a crazy level of "only the best" multi-day intense interviews hiring. Can't remember every IPv6 header on a whiteboard? Can't rattle your Linux syscalls for a SRE job? Don't fully know the internals of a dictionary in Python? Don't have any TEDx talks? Out the door. Meanwhile, they backfill a lot of those very same roles with contractors who, while they don't last as long, don't go through *near* the rigor in

    • They're also a good "try before you buy" option, where they directly hire the best of the contractors after seeing how well things go for a few years. The huge companies (and governments) basically point at contract companies' non-compete section where the contractor can't work directly for the client for x years, laugh, and say "yeah strike that or not a penny of our multi-million dollar contracts will go through you".

  • Not really surprising. Google and Co. are large computers with large pieces of software on them - not much more. What are humans supposed to do in that context? Come up with Google Chat App #11? The novelty effect of silicon valley is wearing off and two decades from now the party will be in the far east or somewhere else. This is just how things like this go.

  • Long term employees can become stuck in a rut and lose their motivation, especially if there are peaks and troughs of interesting work. On the upside they develop unrivalled domain knowledge on that business. Sometimes though you just need an experienced person who will do a solid 3 month stint, enthusiastically. They usually don't get involved in internal politics and will hopefully know their stuff - for a price.
  • I was a direct employee for a company that rhymes with Hell. During my 5 years there, about half of my team consisted of contract workers on a continuing rotation. These were not telecommuters. By keeping only half staff direct, continuity was maintained, and by rotation of contract workers, benefit costs stayed low. Once a contract was up, the contractor would be shifted to a "sister" company until that contract ended. Rinse and repeat. There are people who have worked years this way without benefits

  • This has been common practice at every high tech company I've worked at over the last 30 years. They all had a mix of permanent and contract employees.

    There are any number of reasons to do this, some good, some misguided. It's like buying versus leasing a car, or buying versus renting a home. Depending on the circumstances, you might want a temporary relationship.

  • I work in IT for a large manufacturing company that has nearly 100 manufacturing and retail locations across the US. Most of the locations are remote (surrounded by cornfields). The company has been in aggressive growth/acquisition mode since I hired in a few years ago. I have been in charge of IT infrastructure for the new sites we turn-up. We utilize an outsourced contracted company for network cabling. That company employs contract workers. The reason for this is twofold: my company does not want t

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