Consulting company: Perm/Salaried vs 1099/W2

One of my pet peeves is seeing a top-notch BI architect/developer working as a salaried/perm employee of a consulting company where they are making a good salary but are being billed out to the client at a rate that is 3-4 times what they are making.  Are they getting taken advantage if their salary is 120k and they are billed to clients at $200/hr (and they are billable 90% of the time and they must travel 50%+)?  Is it better to go 1099/W2 instead (I wrote a bit about this at Salaried employee vs contractor)?

I asked a veteran recruiter who has worked for many placement firms and now runs his own small firm about this.  Specifically, I asked him these questions:

Are you getting taken advantage of if your salary is 110k and you are billed to clients at $150/hr?  Is it better to go 1099/W2 instead?  When you were working as a recruiter for the big consulting companies, did you try to steer consultants to go perm instead of W2 or 1099 because you would make more money off them?  Where consultants laid off if they were on the bench more than a couple of weeks?  Did you place less-qualified people on projects because they were the only one’s available?

We never cared if a person was salaried or a 1099.  I guess a salaried person is more likely to stay with you longer because it is a pain to change benefits (especially if they are really good benefits) when you change jobs, but other than that, the percentage spreadsheets I mentioned before (see Billing rates – other side of the fence, part 2) always spit out a number and it didn’t have a bias towards salaried vs. 1099.

As for the specific question about a salary of $110K on a bill rate of $150/hr, it depends on the benefits (for example, are you taking insurance for a single person, a married couple, or a family?).  Also, what other benefits come with the salary? 401(k) match?  Tuition reimbursement?  Utilization bonus (if you work over a certain number of billable hours in a calendar year, do you get a bonus?).  I’d need a clearer picture of what comes with the $110K salary to know if it is a bad deal for the consultant.  I’d think at a rate of $150/hr the vendor could afford a higher salary, just my gut though until I know more about the vendor benefits.

Also, this type of stuff applies across different industries.  I know a person in a law firm that has an hourly billable rate of $380/hr.  She has a nice salary, but it isn’t anything out of this world.  They scoreboard the entire firm to show how much money you bring in through your billable hours, how much new business you won, etc.  There is a lot hidden behind the curtain in all industries, so it is hard to compare apples to apples on these things sometimes.

As for bench policy, it was always a case by case basis.  Has the person been with the firm for a long time?  Meaning, has the firm made a decent profit on this person over the years.  At the $17B firm where I worked, there was a lady that had been there 30 years.  She was rarely on the bench, but if she ever did need bench time, she had earned it and it was there no matter what.  A general rule of thumb is a week of bench per year of service.  Also, the person’s skill set was a factor – was the person in a marketable space (Java people in some cities are gold, you’d give that person bench no matter what because they’d be out on another assignment for you very soon.  On the contrary, if the person was a mainframer, that work isn’t as hot in most cities after Y2K, so that person probably had a shorter shelf life.  One vendor (a $1B company) was a huge mainframe shop and after Y2K they had a ton of employees that were no longer billable.  They kept them all on the bench and retrained them in Java.  It was a huge investment/loss to the vendor and Wall Street killed them for the move and their stock price sank.  So even when they “did the right thing” and took care of their people, Wall Street slammed them.

More info:

The Future and the Big 5

About James Serra

James is SQL Server MVP and a independent consultant with the title of Business Intelligence/Data Warehouse/Master Data Management Architect and Developer, specializing in the Microsoft SQL Server BI stack.
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