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Jul 26, 2023

What you need to know about tech contract roles

You’ve been searching for a job in tech for 8 months now. Interview after interview and all of the rejections. You’re beginning to wonder if you’re actually good at what you do.

An agency recruiter messaged you a few days ago about a 6-month contract role at a tech company, but there weren’t a lot of details. You don’t normally reply to these recruiters, but hell, it’s a job. Where do you start and what should you expect?

Welcome to the 30%. The shadow workforce of the tech world.

Here’s what’s happening.

Tech companies use these external agencies to find contractors. Agencies are only too happy to comply since they get a huge cut of the contractors' hourly pay. In return, Tech companies get a disposable workforce at a fixed cost. And since they’re not providing stock, bonuses, annual raises, or really any benefits at all, they get all that labor at a significantly lower price. Not a bad deal, eh?

Oh, and if there’s an issue and the company needs to cut costs, or the CEO just wants to pump their quarterly numbers, they’ve got a huge pool of people they can fire.

Microsoft became famous for this in the early ’90s. In fact, they abused the system so badly that they got audited by the IRS and later lost a $96.9 million class-action lawsuit brought by long-term temporary workers who claimed they were denied benefits.

The other line you’ll hear from agencies is that it’s a “contract-to-full-time” role, implying that you’ll be brought on as a full-time employee in the future.

But when you’re contracted through an external agency, it’s really in their interest to keep you as a contractor since they get paid directly by the number of hours you work.

For the tech company, hiring you full-time would mean paying you all those sweet benefits. And why would they pay you more? Which leaves you at the mercy of headcount and the whims of your manager.

How do agencies get paid?

Agencies get paid most often with a percentage of a hired candidate's total hours worked. Company X says, “We can pay $100/hour for a candidate.” Agency says, "Great! We’ll hire this person at $60/hour, and then I’ll pocket the $40."

(A 20-40% cut is not uncommon for these roles.)

The other way they get paid is through sourcing. Company X says, “Bring me 10 qualified candidates and I’ll pay you 10k.” Agency says, “Ok.” This is where you’ll find them blasting your LinkedIn for a resume to a job they haven’t even told you the company for.

Why do these roles exist and how did we get here?

You’ll hear lots of reasons why companies hire contractors. Interviewees get pitched on contract work’s “flexibility” (as if full-timers can’t just quit at will).

The realities lie more in money and office policies:

Money:

  • Contractors are usually a fixed cost to a company.

  • Contractors get paid less = More budget to spend.

  • Companies don’t have to pay core benefits like health insurance.

  • Companies don’t have to provide stock options, refreshers, bonuses, or RSUs.

Policies:

  • Contractors often don’t count toward internal team headcount.

  • Contractors can more easily be fired or let their contract lapse.

This last point is especially poignant. They’re a workforce that can easily be fired. And we’re in an industry that’s closely tied to interest rates, and therefore very "boom and bust." So the thinking is: hire people when money is cheap, fire them when times are tough.

Why not just hire contractors directly?

Same reason as above. Since agencies provide some health insurance and retirement plans, big tech can distance themselves from the contractors in order to avoid the precedent set by the Microsoft case.

Why do recruiters message me and not even tell me the company?

Recruiters often won’t tell you because if they tell you the company’s name, then you can apply directly. They only get their money if they send in your application first (and you get hired, of course).

They also may be "pooling resumes," which is essentially building up a resume database that they can call upon at any time for other roles they might look to fill. The last point I’ll get to is that recruiting is a high turnover/high burnout field, which means that often you’ll deal with entry-level recruiters who leave things out or mess up, purely out of their own inexperience.

What’s good about contract roles?

Generally, it’s easier to land an offer for a contract. This is true mainly for the larger tech roles since they don’t always have to go through the whole formal hiring process. This makes these roles great for landing a big tech FAANG company on your resume, and leveraging that into a better role down the line. (Since resumes with experience at a top firm ate 30% more likely to get an interview)

The interview process is shorter—2 interviews instead of the usual 4-5. They’re optimizing for speed and getting someone working ASAP.

I’ve worked in these roles for a majority of my career. Hope this helps you navigate contracting and what to expect if you get another LinkedIn message from an outside recruiter.


Helpful links:

Contract Working Conditions in Tech

Reddit: Recruiter won't tell me company name


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