Every once in a while, we get a watershed moment that impacts nationwide hiring practices in unexpected ways. When back in 2000 by paying $97 million, the outcome sent chills through HR departments and labor attorneys and created real fear about coemployment issues. This resulted in both smart HR practices and a few overcautious strategies like limits on IT contract lengths. Any number of lawyers or will tell you that putting strict caps on IT contract lengths doesn’t defend against coemployment risks. In fact, it just makes it harder to get the best results out of your partnership with an IT consultant.
How the IRS Reviews for Coemployment Issues
As one of the primary agencies concerned with employment classifications, the IRS is the go-to resource in the debate about the length of consultant contracts. Their guidelines for determining whether a worker should be a permanent employee or contractor falls into three categories:
· Behavior – Is the company or the worker in control of the processes and how the job is done?
· Finance – Are the business aspects of the worker’s job (equipment, expenses, etc.) covered by the company or the worker?
· Type of Relationship – Is the relationship permanent? Is the work a key aspect of the business?
It’s the question about the permanency of the employment relationship that seems to make companies hesitant about contract lengths. Though there is no clear language about contract length, companies tend to pick an arbitrary amount of time to avoid any coemployment issues whatsoever. If you were to review the length of time companies choose for their maximum contract lengths, you’d see a lack of consistency from one HR department to the next.
If the practice itself was harmless, we might shrug it off and leave businesses to their own devices. Unfortunately, companies that implement contract length caps limit the performance of IT consultants and the overall outcome of these projects.
Why IT Contract Length Caps Are Hurting Your Business
The impact that IT contract length limits can have on companies can be subtle but detrimental, doing damage to companies without any overt signs. In fact, these two major consequences tend to sneak by undetected:
· Decreased ROI – Surveys show that it takes eight months minimum for a new hire to reach full productivity. In that time, IT contractors are getting to know your business and determining the full benefits they can provide as they immerse themselves in your challenges and culture. If they are gone in six months, they’ll barely have time to make a dent. Even a year isn’t always enough time to make their full impact. Additionally, if contractors are only with your business for a short period of time, the full extent of knowledge sharing with members of your organization might be shortchanged due to inadequate time.
· Difficulty Attracting Top Talent – When IT consultants are considering opportunities, project duration can play into their decision. If all of the other factors of several contract opportunities are comparable (desirable technology, interesting challenges, telecommuting options, etc.), IT consultants will choose the position that has the longest duration. IT consulting has higher compensation than permanent employment, and candidates want to maximize their earning potential. In fact, shorter positions that end up away from longer engagements usually have higher bill rates, driving up the hiring costs for HR departments.
Finding a Perfect Middle Ground
If your company still has reservations about the risks of coemployment issues, there are ways to get the best of both worlds. For example, even if your company outlines a projected contract length, it can be renewed if new projects arise or if there are opportunities for candidates to dig deeper into their initial work. And if the IT consultant is too good to part with, the option to make the position can ensure that your business will benefit from their talent permanently.
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