“Supplemental” temporary/term employee; the worst of both worlds

e9c724eeb5636d1c1c1a2c2e85d40377_XLMany people seeking employment these days are tempted by the question:  do I want to be an independent contractor or an employee?

While the choice has always existed, many organizations are back to promoting a third option:  contractual/term-employee (supplemental) – which may sound good for a short engagement, but could be costing you more than you think.

Lets put our roles in context first.

Employees

Employees are, for all intents a purposes, true servants (and beneficiaries of) the company they work for.

In exchange for regular employment, there are laws and standard practices that allow for minimum and maximum working hours, overtime, benefits, paid holidays, etc.

Similarly, you have a number of protections that apply against abuse, misuse, harassment, etc.

Contractors

Independent Contractors enjoy a different kind of relationship with the hiring organization; while generally appearing to be like an employee (working 9-5 beside their employee counterparts) they are still nominally engaged in a business-to-business relationship between the hiring organization and their own service delivery company (often consisting of just one employee – the contractor themselves) – although many contractors work through some 3rd party organization that serves as a placement/sourcing agency and “consolidator” for the end-client organization.

Many of the governing agreements and regulations concerning the engagement of the contractor are contained in the agreement between the employing organization and the service delivery company; there may be no governing laws outside of general contract law.

As a result, the contractor usually does not get any holiday or sick days (or any benefits for that matter).  While they don’t get overtime, and they must be able to prove they worked for every hour they bill, they also get to bill for every hour they work (think about that carefully, especially when thinking of their salaried employee counterparts – who may be expected to work a lot of overtime, but are held to a fixed compensation level).

Now the contractor’s home service delivery company that sent them to the hiring organization may be responsible for the standard employee benefits, and for adhering to the normal employment laws – but in reality, most contractors are independent, and therefore they own/manage their own companies; its hard to bring yourself to court for not paying you enough, giving you overtime or not recognizing your reasonable expectations of benefits.

That said, contractors generally enjoy a more lucrative revenue (although not necessarily salary), but they often do so at a cost in terms of the degree of effort they must put in for their end client, and the long periods between engagements where there may be no revenue coming in.

There are some other unique benefits however – such as being to write off various business expenses off of the pre-tax income of the company or contractor.

Term/Contractual Employees

As the name implies, term/contractual employees (also sometimes called “supplemental” employees) are individuals that are hired by companies on a short-term, contract basis.

While they have the appearance of being employees in many cases, they are not fully employees, nor are they contractors.

These “supplemental” employees often work 9-5, and have their client take care of taxation issues such as deduction at source.

The client/employer however is rarely required (nor offers) any kind of health or medical coverage (just as if you were an independent consultant) or any vacation days (although, depending on the employment law in your region, the employer may be required to set aside a “vacation entitlement” of about 3-6% of your gross pay which you may be eligible to draw upon after a year of service – if you are still employed.

If not, then it is usually paid out upon the conclusion of your contract, or at the end of the fiscal year in which it was accrued.

The other problem that supplemental employees face is inequitable application of employee vs. contractor policies.

For instance – as a contractor, I must work every hour I invoice for, but I also get to invoice for every hour I work.  As an employee, I’m given a fixed wage for 37.5 or 40 hours per week, and I’m generally expected to work at least those many hours.  Some companies may even track hours, ensuring that you work every hour that you bill.

What has been a growing trend however is the concept of “inherent overtime” – where an employer expects the employee to put in extra hours above and beyond their 37.5/40 should it be necessary, and not expect any supplemental remuneration (ie- overtime, or time-off) as these periodic surges are inherent with their employment, but supposedly their additional efforts will be considered during end-of-year employee reviews, and for the awarding of bonuses.

Supplemental employees often work on an hourly basis like contractors, but while they must work every hour they bill, they can’t bill for every hour they work – because they are also expected to adhere to the inherent overtime rule.

This means that a supplemental who works only 35 hours in a given week can only bill for those 35 hours; but if they put in 45, they may be restricted to only billing 37.5/40.

The supplemental winds up being bound to the “inherent overtime” rule, but they are also term employees – so they don’t get annual reviews, bonuses, etc.  The only faint hope they have is that their additional efforts be recognized when considering them for continued employment.

One final threat to the supplemental or term employee is that in some jurisdictions (such as the Province of Quebec in Canada for instance), in order to minimize the risk of employers exploiting term/contract workers, they specifically prohibit continuous employment as a supplemental employee for any term longer than 2 years, lest the employer be forced to automatically convert the supplemental to employee status.

As a result, many employers will have a spontaneous renewal of supplemental employees every two years.  Some have even gone so far as to extend this policy to their independent contractors – although it’s not really required by law.

TABLE OF “BENEFITS” – comparing types of employment

BENEFIT EMPLOYEE CONSULTANT/ INDEPENDENT CONTRACTOR TERM EMPLOYEE/ SUPPLEMENTAL
Vacation Usually some, per your employment agreement as well as vacation-pay accrual under law. None. Generally none,  except maybe vacation-pay accrual under law.
Medical and other benefits Yes, but the degree of benefits varies with each employer benefit package. None, except what you arrange for yourself through your own company. Generally none, although some employers may allow you to “buy in” to their benefits program on a term basis, but this is rare.
Expenses Usually reimbursement of pre-authorized, directly work-related expenses may be eligible. Some expenses may be billable back to your client, but all other expenses are at your discretion (and tax law) for expensing against your own company. Generally none, although some employers may allow work related expenses to be reimbursed per normal employee standards.
Source Deductions (taxes taken automatically from your pay) A requirement of the employer. Your responsibility – and don’t be late or miss them. Yes, usually as a requirement of the employer.
Other Issues May be subject to inherent overtime, but in consideration for annual reviews and bonuses. Could be restricted to maximum of 2 year mandates with a single client.Some governments also insist that you have multiple clients over a 3-5 year term, lest they assume you are just an “incorporated employee” – which is illegal. Often subject to inherent overtime expectations, but no annual review/bonus considerations – except possibly continued employment.Some jurisdictions have specific limitations on maximum supplemental periods (ie- 2 years) with the same employer.

WHAT ARE THE ADVANTAGES?

Employee vs. Contractor

This is the classic problem many people face; do I become a serf of the organization, or am I going to be a hired gun (or prostitute) hired out for a special job.

Tough call – and often it comes down to a combination of what benefits do you want/need vs. the rate and advantages of being independent (such as being able to write off almost anything associated with running your business).

Generally speaking, employees have the stability of a recurring paycheck and benefits.

Contractors, if the rate warrants, have their own corporation – and while they generally only have short-term engagements, they usually have much higher rates than employees and can afford time off between mandates to search for work.

They do, however, have the added burden of running their own company – including managing source deductions, government reports, book keeping and end of year accounting responsibilities.

Employee vs. Supplemental

Other than perhaps specifically enjoying a short term engagement (say working for the fall and winter and taking the spring and summer off) there really doesn’t seem to be much advantage to the supplemental engagement – unless you really want to avoid the burden of running your own company – in which case you are nominally “outsourcing” the headache of bookkeeping, accounting and deductions at source to your employer.

Contractor vs. Supplemental

As with Employee vs. Supplemental – there appears to be no advantage, unless you are trying to avoid having to run you own company.  Also keep in mind that you are losing out on the ability to write off your business expenses – such as travel, cell phone, some meals, paper, internet access (if you have a home office), etc.

Summary

Truthfully, short of being a retiree with few business expenses and no interest in running my own company, there is little or no advantage I can see to being a supplemental employee.  I find such programs abusive of the good will and spirit of the employer/employee relationship.

Also be wary when negotiating such “supplemental”/term employee deals.  The last one I had was established in good faith with a fortune 500 consulting firm – and they claimed to not know the specifics of the supplemental program, but sold it as being essentially just like being a contractor, and I could buy-into whatever employee programs I wanted if necessary.  Worst case, I could even switch back to contractor if I chose.

Of course, it was nonsense… and contrary to what was implied, they had all the differences between the types of engagement at their fingertips.

Don’t trust the recruiter – even when dealing with large, supposedly reputable firms.  As always, get everything in writing, and weigh the advantages and disadvantages of the written agreement carefully before signing.

It’s often what you aren’t getting (such as write-offs, loss of overtime, forced maximum engagements, etc) that may be costing you more than you realize in the end.

Author: Stephen Holton, PMP, CISSP, SSGB, ITIL, CD

After completing over twelve years service in the Canadian Armed Forces, Stephen moved to private industry where he was employed as a Director of Information Technology, Director of Operations and CIO for a number of private sector companies before finally electing to become an independent consultant in 2000. Since then he’s served as a management consultant, project/program manager and business analyst/solution architect in a number of industries and organizations - including a big-5 consulting firm. These industries and organizations have included the airline, railway, telecommunications and banking industries, the Canadian and US Governments, as well as mandates in Brazil and Bermuda. Presently Steve lives in Ottawa, Canada.

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