Contract Rates Vs. Salary

by Frances Burks; Updated September 26, 2017
Contract workers can earn higher wages, but they get fewer job protections.

Employers can benefit from hiring contract workers because they aren't strapped with paying expensive benefits that permanent employees often receive. Contract workers can benefit from getting higher wages than they would if they had a permanent job; however, they also have to be prepared to sacrifice work-related security they otherwise might have in a permanent position.

Contract Wages

A June 2009 "Businessweek" magazine report comparing the wages of contract workers with the salaries of permanent employees found that some contract work pays significantly more than permanent jobs. The report is based on employee profiles gathered by the PayScale company in Seattle, Washington. Among other things, it indicates that a database administrator working on contract can earn 23 percent more than an administrator who has a permanent position. Physical therapy assistants can earn 19 percent more as contract workers than their counterparts who have permanent jobs. Yet "Businessweek" notes that contract workers may not receive health insurance plans and other benefits, which can account for 30 percent of the compensation that permanent employees receive. Contract workers also pay a self-employment tax, similar to the Social Security and Medicare taxes withheld from permanent employees' wages.

Misclassified Workers

Some companies may use contract work to skirt wage and labor laws. In a May 2010 MSNBC article titled "Need a Job? Contract Work Could be New Normal," a Service Employees International Union executive warns that some employers purposely misclassify contract workers as independent contractors because they don’t want to pay workers' benefits. Independent contractors are self-employed, so they're responsible for purchasing their own health insurance, life insurance and disability coverage.

Worker Protections

"Businessweek" found that not all contract workers can command higher salaries. For example, contracted janitors who have a median annual pay of $21,200 can make about 1.4 percent less than their counterparts who work in permanent positions. Customer service and security managers also can earn more by holding down permanent jobs. Contract workers usually sacrifice protections that are traditionally part of permanent employment as well. For instance, they aren't protected by unemployment insurance and don't receive paid time off to cover sick days and vacation time.

Considerations

The growing use of contract workers may significantly change the U.S. job market for years if not permanently. An April 2009 CNBC article titled "Freelance Nation: Slump Spurs Growth of Contract Workers" reports that more than 90 percent of U.S. companies hire contract workers. The growing dependence on these workers may make it more difficult for Americans to find full-time, stable employment, especially in certain industries. The CNBC report says computer programmers, dental hygienists, medical assistants, marketers and writers are some of the most sought after contract workers.

About the Author

Frances Burks has more than 15 years experience in writing positions, including work as a news analyst for executive briefings and as an Associated Press journalist. Burks has banking and business development experience, and she has written numerous articles on consumer issues and home improvement. Burks holds a bachelor's degree in political science from the University of Michigan.

Photo Credits

  • real estate contract image by Keith Frith from Fotolia.com