IT contractors hit hard by the economy

Salaries across the IT profession are flat, but contractor pay is falling fast. Here's what's driving the dip.

Pete Miller Jr. wanted to find work quickly after getting laid off in January. So instead of chasing elusive staff positions, he became a worker for hire.

On the upside, he's working. But he's not getting the full-time hours -- or the salary -- that he once did.

"Business is coming in, but it's slow," says Miller, who specializes in office printer repairs. "I think I'll have more business as time goes on, but I'll have to see. That's the hard part to determine: When more business will arrive and by how much."

IT professionals, like people everywhere, are feeling the economic pain. Salaries across the IT sector are flat, and new job openings aren't plentiful. But IT contractors -- that is, those brought in for short-term projects or to fill a particular skill gap -- are experiencing the economic downturn more acutely than staff workers. According to Computerworld's 2010 Salary Survey, average compensation for contractors and consultants is down 3.3%, while average compensation among all levels of IT staffers has held steady.

The compensation disparity stems from the poor economy, contractors and IT employment experts say. It also highlights the riskier nature of contract work, where pay and employment can be hit or miss even in good economic times and contractors have to market their services and handle accounting, billing and other administrative tasks in addition to doing the job they're hired to do. It's a big task that's even tougher in this economy.

"This happens to be a buyers market again, and you have to be a self-directed person to do this very successfully and thrive," says Johanna Rothman, president of Rothman Consulting Group Inc. in Arlington, Mass., and the author of Hiring the Best Knowledge Workers, Techies & Nerds: The Secrets and Science of Hiring Technical People. (Read about how to recharge your IT career with contracting.)

Alan Stevenson Jr., a senior staffing consultant at TreeTop Technologies Inc., a Newton, Mass.-based IT staff augmentation firm, says the recession hit contractors particularly hard from the start.

"The first thing that went in terms of budget was project-based work, and that's where you have a lot of contractors," he says.

That put a glut of contractors into the job market at the same time some laid-off workers were turning to contracting. That situation created more competition for any contract jobs that were still being funded, putting downward pressure on pay, Stevenson says. "It's simply a function of supply and demand," he adds.

Compensation Package

But contractors have to consider more than straight pay when evaluating their work situation, Stevenson says. Although TreeTop Technology treats contractors as employees, which means it offers them benefits, not all staffing companies do that; independent contractors generally must take care of benefits, such as health insurance and retirement savings, entirely on their own. (Read more about the pitfalls of becoming an IT consultant or contractor.)

Allan Grah sought contracting work two years ago, after quitting his networking job at a large company because he felt the work environment was poor. Now a technical project manager working on a contract basis at a global company, Grah says his contracting job has the same base salary but no benefits.

"I gave up a significant chunk, unexpectedly, but the job is good enough and pays enough to take the good with the bad," he says.

Stevenson says he sees companies beginning to slowly add staff, including contract workers. However, he says that uptick hasn't brought a corresponding increase in pay.

"Companies had done rate increases through 2007 and right up to 2008, but [the rates paid to contractors have been] reduced or flat through the end of 2008 and all of 2009 and they haven't increased in 2010 yet," he says.

He says many -- but not all -- companies have a take-it-or-leave-it mentality when it comes to the rate they're willing to pay for contractors, even if the rate they're offering is below market value. Because so many IT contractors are looking for jobs, those companies can always find someone to take the position.

Miller says that makes the administrative side of contracting all the more challenging. He has had to invest in office space and supplies -- costs he didn't have when he was in a staff position -- to be prepared for work when it comes along.

"That's the fine line. You try to project how much business you're going to have and you try to start small on your expense side," Miller says, adding that he now also has to spend time on administrative tasks, such as accounting, that he didn't have to do before.

George "Gaffer" Fitch has a similar outlook on his work as a contractor in his one-person, nine-year-old company, GAF3 Solutions in Portsmouth, N.H., which develops internal-facing applications for small companies.

Although he's been successful, he says contracting came with financial risks. One client stiffed him out of $28,000 in 2005, right around the time he got engaged to be married. And as the economy started to slow down, he says he figured that the financial risks of being a contractor outweighed the advantages. He took a full-time job at the University of New Hampshire, where he's now a senior analyst. He continues to work as a contractor on the side.

"There was a very high risk that if one client goes south, you're in deep trouble. It's not just annoying or a write-off. It's you're not going to pay your bills for a while," says Fitch, who is now married and has an infant daughter. "While it was OK for a bachelor, the financial part wasn't going to work for a family."

Pratt is a Computerworld contributing writer in Waltham, Mass. Contact her at marykpratt@verizon.net.

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