Thinking about quitting your full time job and changing things up a little? Here’s a quick explanation of the differences between IT roles.
Full Time Employees (FTEs) of Regular Companies
You show up for work on Monday at 8AM, and you know exactly where you’re going to work, and who you’ll be working with. You have lots of water cooler conversations with the same people every week.
You’re frequently called into meetings that you can’t refuse, and they waste your time for hours on end. That frustrates you because you’d rather be out doing real work.
You’re on call (either all the time, or in a rotation), but at least when you respond to an alert, it’s a system you’ve probably seen before. You sometimes have the power to improve that system so that it doesn’t go down as often.
Every year you have a salary review meeting, and because you’re not really in the “business” of IT, your managers struggle with how to measure your success. Your raise basically comes down to negotiating techniques, and you’re lucky if it’s 10%. You rarely get work-related performance bonuses.
If you don’t like your job, you go get another one. You get to choose who you work with – to the extent that the job market lets you.
Contractor Who’s a Full Time Employee of a Contracting Company
A quick definition of the difference between consultants and contractors:
- Consultants give advice about what the client should do.
- Contractors show up and do what they’re told.
Many contractors like to fancy themselves as consultants, but the definitions are clear–cut.
Being a contractor is a lot like being a full time employee – you develop close relationships with other people who work in the same physical location. (If you work for a contracting company, you might be surprised at how much closer you are to your clients than you are to your contracting company coworkers.)
The downside is that you don’t usually get to choose who you work with, and you don’t get to complain about your coworkers. You have to suck it up and take it until your contract is over. If you’re surrounded by abusive assholes, your contracting company probably isn’t going to swap you out for someone else because someone else is going to be just as disappointed. They’d rather have just one of their employees suffer – and make things look stable in front of the client. (No contracting company wants to tell their client, “Yeah, Fred left because he was sick of your crap.”) Plus, you’ll gain the wrong kind of reputation at your contracting company.
You get paid by the hour, which makes meetings a whole lot more tolerable.
You may still be on call, but you have a lesser capability to permanently fix the issues that caused the alert. Often the client will say, “Yeah, you can’t change that system – you just need to keep it up and running.” This can be frustrating when you know exactly how to fix the issue for good, for free.
Rather than a salary review, your annual stress is what happens when your contract is up. Your contract’s renewal depends on your political savvy, and your client’s stakeholder’s political savvy. Your contract renewal rarely has anything to do with your technical skills. Even though you technically work for the contracting company and not the client, this can be stressful because they may not have other contracts available for your exact skill set, and there’s a high pressure to keep you in the field rather than on the bench.
Depending on your employment agreement with the contracting company, they may take care of your health insurance, computers, training, vacation, sick time, and so forth. The more of these things they take care of, the less money you make. (There’s no wrong answer here – it all depends on the risks you’re willing to take.)
Consultant Who’s a Full Time Employee of a Consulting Company
You get called in for advice on how to relieve a specific pain point. You do some fact-finding, build a report, and give the report to the client so they can act on your advice.
These advisory, hands-off gigs tend to be much shorter than contractors – just a few days to a few weeks with any given client. You don’t get to build close long-term relationships around the water cooler because you work with different people every week or month. You may return to visit them again, and they may be excited to see you, but it’s very different than working with the same team every day.
On the plus side, if the client is a bunch of jerks, you can grin and take it because you won’t be working with them very long anyway, and you’ll be laughing at them when you leave.
True consultants are typically sent out in very small groups (1-5 people), for short bursts, in different groups of people each time. This means not only do you have a hard time building relationships with your clients, you may also have a hard time building a relationship with coworkers at your company.
Because you’re in the business of giving advice, you don’t get the satisfaction of getting your hands dirty and building something – unless it’s for yourself. This can be great if you’re self-motivated enough to build your own things, and you’ll need to do that anyway in order to stay at the cutting edge of your field. (There’s not a lot of work available for consultants with no real-world expertise.)
Independent or Freelancer
The job is whatever you make it – a mix of long and short gigs that keep a roof over your head.
If you want to be a contractor, you just need to find a company that needs your skills for a long period of time, and convince them to sign a contract with you.
If you want to be a consultant, you just need to find companies that need your advice, and convince them to pay you for that advice.
But the length of these engagements means something else that has huge impacts on the way you do branding, marketing, community work, and sales:
- Contractors may only need 1 contract signed per year.
- Consultants may need 20-50 contracts signed per year.
- Full time employees don’t have to hassle with this at all.
So how much work is it, really, to get 20-50 contracts signed per year? Here’s all the parts to getting a contract signed:
- You have to find a pain point that a lot of people need advice on
- That pain point needs to be expensive enough that your time looks cheap in comparison
- You have to build a process that can reliably relieve that pain in a short amount of time
- You have to get the word out to the public that you’re qualified to relieve that pain
- When someone calls you, you have to convince the technical stakeholders that you’re a good fit
- You then have to convince the business stakeholders that you’re worth the expense
- Your lawyers and their lawyers have to come to terms on a deal
- Your schedule and their schedule have to line up quickly
Every single one of these is a hurdle for consultants and contractors.
29 Comments. Leave new
Seems like most folks considering a switch to “freelancing” get freaked out about the mechanics of the business. I don’t know how you have your business structured but freelancing is going to require an intimate understanding of LLCs/S Corps, tax codes, payroll, insurance/ACA, and accounting. An accountant helps, but few really understand these arrangements. The ones that understand consulting businesses get the $$$. Caveat emptor. Understanding that this is a business venture is the difference between converting revenue to income and not sleeping at night. For me that’s the most painful part.
Dave – I would argue that freelancing doesn’t require an “intimate understanding of LLCs/S Corps, tax codes, payroll” any more than doing application development requires an intimate understanding of databases. Get a trusted advisor who has that intimate understanding, get a second opinion to make sure the first one is on track, and then go from there.
If you had to understand database internals before writing a line of code, you’d be too terrified to get started – and you’d miss out on shipping a good-enough app. 😀
Hey Brent
Interesting read from a UK persons perspective.
In the UK there aren’t really “contracting Companies”.
Being a contractor in the UK is equivalent to your Independent/Freelancer.
Cheers
Mat
Mat – yeah, UK employment contracts are quite different from the rest of the world!
As usual, you nailed it. I’m precisely right now doing to switch from FTE to independent or freelance. This blog post comes in the right time. As many, and if I remember correctly you too, my first client (full time) will be the company I worked for up until last month. If everything goes ok, then will try and go down the rabbit hole for more clients. Thanks!
Yaroslav – cool, good luck and congratulations!
Yeah good luck mate 😉 and get down that rabbit hole now!
Hi Brent, I’d definitely want to hear about the legal side of closing a deal with the client.
Also I’m wondering about the differences about marketing yourself, especially the pain relieve point, when aiming for contracting.
I always thought about contracting being more for generalists and consulting being for specialists(or expert).
Thanks for this nice article !
Eric – will do! You’re welcome.
“you’re lucky if it’s 10%” That would be nice. Our above target percent is closer to 3 and those are on the bell curve. You need to be better than goal and your teammates. Even promotions are only around 5%.
MikeC – ouch, sorry to hear that. So what keeps you around?
I would agree with MikeC. Over the last 22 years in companies huge and small, I’d say average perf = 3%, walk on water = 5% and promotion = 10%. Just my experience though.
Brent, this is great info. I’ve been calling myself a consultant but mostly I’m an independent contractor… sort of an independent, in-between, guy-who-fixes-and-plans. I left FTE for the first time ever just over three months ago, and my first three-month contract completed on paper but there’s so much more opportunity here that I’m extending with possibility of FTE – and I’m honestly not sure if FTE is better.
Each world has its own pros+cons. With hourly contract, you can negotiate an hour range (min/max) and basically give yourself a raise by completing more work in a week, or scale back for family time. As FTE, you may be required to work 60-70 hours one week with no bonus.
Stability wise, there’s a huge difference. With FTE, 99.9% of the time the employer pays exactly on time. With contract, you may have to nag them for two months because they lost the invoice, lost half their finance department, and forgot you exist. FTEs are harder to fire, needing HR review and three-strikes policies, etc. Contractors are second-class citizens, and can be fired on a whim. Management often throws around phrases like “expendable” and “just a contractor” so you need to keep your allies close by.
Mark – yeah, the payment stuff is definitely a gotcha! And yeah, if it’s a three month contract, that’s generally more of a contractor role than a consultant. (If you’re there for 3 months, you’re probably the one clicking/typing/doing rather than just giving advice.)
Hi Brent,
This is a really good article. There are some people where I work that say we are “Consultants”, there’s also the guy who says we are just “Order takers” and that seems right to me, actually.
So, going through your post, I wonder where you fit? Because, I know you are a guy that like to get their hands dirty, and I’ve been following you since a while ago.
I’d like to take the leap and become a consultant or a free lancer, but I’m still in the process of convincing myself.
Thanks for this great article!
Ben – thanks, glad you liked it. I’m definitely a consultant – people call me in for advice. It’s fairly rare that I do the hands-on work – I’m what they call a force multiplier. I guide teams to relieve challenging pains, and I’m usually there as a mentor for a day per quarter at most.
Brent – Great post. Having left a FTE position exactly 90 days ago, today I am celebrating 3 months of being independent.
For me it has been a great experience, I get to do the things I love to do almost every day. I help people with their SQL Server problems and have a great time doing it.
The first 30 days was the roughest. Not having enough work, not knowing what would happen next, but then it just kicked into gear.
So far I think I would classify myself as part time consultant part time contractor. I am realizing that the consulting part is what I love doing, but the contracting side is helping pay the bills while I build the client base for consulting.
Thanks for the post. I found very interesting.
-Steve Stedman
Steve – thanks, glad you liked it!
It’s a little different here in Australia. Here you’re a casual employee of a contracting agency who works full-time for another company on one year contracts.
So you get a mix of all of the above. You show up to work for fixed hours at the same place and with the same people. But you’re also forced into meetings and team-building garbage and IMHO the money does NOT make that any more bearable.
You also have more power to improve things within your domain because you’re a quasi-FTE. But heaven help you when you need outside help like from the AD people or Infrastructure. Then you’re back to being treated like outside garbage.
And if you speak up too loudly about any improvements, or get asked to consult on something utterly unrelated to what you’ve been hired for and let them know, then you get reminded you can be let go on the spot because you’re a filthy casual.
It’s not great. For those of us who just like to do great work with SQL Server and otherwise help everyone get things running smoothly, it’s downright demoralising.
Cody – ouch! Sounds like it would encourage you to get as much experience as fast as you can, and then move into an independent position or consulting?
This write up reminds me of why it is so hard to describe to people how we work at OmniTI. While we are generally thought of as consultants (short term measured in days / weeks engagements), we also do staff aug work (like contractors) and we also do long term service management and/or r&d project (like FT employees). Essentially we are a freelancing *company* I suppose.
Usually this allows us to give our employees a mix of new things coming in the door, but at a more gradual pace; rather than every 2 weeks a new thing, you might work on new things every few months, or maybe every few years, depending on how comfortable you are with changes.
This does of course require a lot of work on the business side to make sure we find good fits (people/tech/customers), but when it works well, the relationships we can form are tremendous. It also opens up opportunity for folks that otherwise wouldn’t have it; I tried freelancing a few times but it didn’t fit well with me, but being a part of an organization that does this works pretty well.
Robert – while I appreciate a good astroturf message as much as the next fella, let’s drill down into that just a little.
Is it the case that *one* person does consulting, and long term staff augmentation work, and R&D projects?
And how would you describe that mix for a single employee in the span of, say, one month?
[…] What’s the Difference Between Contractor and Consultant and FTE? […]
Great article. I am in both worlds – full time internal consultant and starting occasional external consulting. Sometimes it’s a mix of contractor and consultant in my work. Given that, I call my work consulting.
There were a few blanket statements which I will have to disagree with as a consultant.
First of all you don’t need to be an LLC as a consultant – much of this depends on the type of work you’re doing. I’m a sole proprietor, and in my line of work and with my Professional Services Agreement, it works perfectly.
In addition the tax work is not really that difficult – when I started out as a consultant, I paid for an account and found him to be a huge waste of time as all he did was fill out a template spreadsheet, and basically did the same thing that TurboTax for business does. I made a spreadsheet all by myself to track my P & L and I’m amazed that a lot of Consultants pay for such basic service. The thing that benefited me the most was to work with a good contract attorney to create a Professional Services Agreement that I use consistently with all my clients. The more important thing in being a 1099 is making sure you set aside more than enough for estimated taxes… That’s what often bites a lot of people in the butt the first year or two. I found its a better investment to find a good overall financial planner, who can help you from your own personal goals perspective rather than just tallying how much taxes you owe. My financial planner not only educated me on estimated taxes but also got me as a sole proprietor set up on my own 401k and more. Way better one time investment.
Finally you definitely do not need “20-50” contracts each year to be a consultant! It definitely depends on the time you’re putting in and how much you are charging. Myself and other Consultants working in Tech are definitely not working that many contracts in any given year. For me it’s anywhere between 10 and 20, and more depends on how much money I want to make rather than what I need to survive.
Much of consulting depends on your reputation: quality over quantity. If you’re good you don’t need to do much business development, and won’t need to worry about going back to Contracting or FTE work. You just need to know how to live with the ebbs and flows of being self-employed, and thrive in an environment of constant change. I found in my career I was often hired in full-time positions to clean up messes, and enjoyed going out there and doing that and didn’t need to be in an office full of people all the time (or going to those unnecessary meetings as you mentioned!), so this type of work suits me very well.
Aimee – I’m going to hazard a guess that you haven’t been through a court case yet?
Ahhh, I see by your web site that you’re a recruiting consultant, not in IT. This blog is targeted at folks in information technology. I totally agree that things are wildly different when you’re not in IT.
[…] either a generalist or a specialist doesn’t dictate your employment status as a contractor, consultant, or full time employee. However, generally I find that generalists are FTEs or contractors, and specialists tend to be […]
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