And because everyone knows this, a contractor can easily charge 2-3 times what an employee makes - aka what they're actually worth. The system works (Except of course for the employees)
I've been on both sides. Depends on the company, of course, but all else being equal:
- Contractors don't always get the best projects. Often the coolest, most strategic projects go to employees. Of course, if no one internally is qualified, contractors then get the best projects.
- When cuts happen, contractors are at the front of the line, and when cuts need to go deeper, employees then are at risk.
- It is a pain to collect. You are often not the primary contractors, there is usually a pass-thru company that is well-connected and gets the receivables and then pass them onto you. Sometimes they delay payments 45 days. Sometimes 60 days. I've had some months paid 4 months late. On rare occasions you never get paid.
- You pay the employer payroll tax if you are in the US and on 1099 (on W2 you only pay half the payroll tax).
- Benefits you purchase are often not the best benefits. The benefits you would get at a large company are often well negotiated and much better and much cheaper than what you purchase a la carte.
Obviously for a contractor premium high enough, none of the above really matters. But contract work isnt worth it, for say, a 40% premium IMHO, especially with a family. At higher premiums (250%, 300%) it can make sense assuming you like what you will be doing.
Benefits are not worth 2-3x the pay. I find myself being a contractor due to the better pay.