Is there a bias against Corp-to-Corp (C2C) contractors in companies?

To expand your business, you can hire additional employees who will also work on projects. Regarding the cost of a query, I am curious why it is higher for a specific scenario where the address and name tables have particular structures. The explain plan for the ’01’ query shows a higher cost than the explain plan for the N’01’ query. It is worth noting that although contractors and full-time employees performed the same tasks, the latter group received stock options and amassed wealth.


Question:

Having been a consultant in Maryland, USA for almost twenty years, I find the transition to C2C challenging, despite the fact that numerous other companies have made the switch.

The concept of contracting seems straightforward to me as it is simply an alternative mode of payment. It seems logical that companies would prefer to avoid expenses like benefits and taxes. Personally, I do not see any significant distinction between being a salaried consultant and a C2C consultant, except for the additional administrative responsibilities that come with the latter. Unfortunately, there seems to be a common misconception that C2C is synonymous with offshore or remote work.

It is common to see job postings that specify “W2 only” and explicitly state “no C2C”. However, it is worth noting that some of these companies are actually contracting firms or may already have resources working on a C2C basis. This can appear to be contradictory.

Recruiters may propose a C2C employment arrangement, but often at the W2 rate, which seems unreasonable. It appears that recruiters are unaware of the disparity in rates.

I’m curious to learn about how independent contractors secure contracts in the beginning. It appears as though traditional job postings and boards aren’t very useful in this regard. I would love to receive guidance from seasoned professionals on what I might be overlooking.


Solution 1:

The legal department is the primary source of discouragement for C2C, citing two main reasons despite any disclaimers that may be signed.

During the early 2000s, Microsoft faced lawsuits where contractors were performing identical duties as full-time employees who received stock options and grew wealthy. Eventually, the contractors formed a class and emerged victorious. This outcome led to various modifications in the way contractors were managed, including discouraging the use of C2C.

The next factor to consider is taxation. Although some individuals may have a clear comprehension of tax regulations and reserve a fraction of their C2C compensation to make IRS payments and comply with quarterly filings, a significant proportion of 1099 workers do not. It is crucial for employers to avoid having any of their “staff” face IRS difficulties. This is because it can lead to decreased productivity and the IRS holding the employer accountable.

As a C2C employee, you work for yourself, which gives you autonomy in your work schedule and meeting attendance. However, if a manager wants to terminate your contract, they must be cautious because skilled workers are scarce in the software industry. In contrast, with W2 contractors, a manager can easily communicate directives through the contract company.

In certain industries, such as defense, it is common for contracts with clients to prohibit the use of C2C contractors. This restriction is often imposed by the US Government, which limits the ability of many contractors to hire C2C personnel.

C2C arrangements, which are particularly advantageous under the latest tax regulations, present an attractive proposition. Even though they offer significant benefits to the employer, they are still not highly encouraged.

Those unfamiliar with the jargon should note that these expressions are specific to the United States and widely used within the technology sector.

C2C refers to the interaction between two corporate entities.

The payment method for “independent contractors” is through 1099, which means there is no withholding of taxes and they are accountable for their own
social security
and income taxes.

The common method of payment for regular employees is through W2. It involves the deduction and contribution of
employer withholds
taxes and a portion of the social security by the employer.


Solution 2:


In Canada, hiring a developer as a contractor cannot just be considered an alternative payment method. Proper management and provision of equipment are necessary for contractors, or they may be classified as employees. This misclassification can result in significant financial obligations for the employer, as they will be responsible for paying both the employer and employee portions of taxes and other associated costs.

If the same situation applies in the US, requesting employees to adopt a different work style, paperwork process, and take the risk of potentially costing the company a considerable amount of money if they make any mistakes. Additionally, hiring decision-makers may not comprehend that the hourly rate for a consultant is different from that of an employee, resulting in resistance to the rates.

I haven’t found much success in treating contracting as a mere source of payment. If you prefer being an employee, then be one. On the other hand, if you prefer being an independent expert who comes in temporarily, uses their own resources to solve problems, instructs their personnel, and departs, then do so and charge appropriately.


Solution 3:


In my opinion, the all-powerful currency is the singular entity.

Despite discouragement, individuals still engage in the practice of counting money in the pockets of others.

Despite being solely responsible for all social and tax-related financial obligations, you will still receive appealing benefits such as limited liability and a substantial gross amount.

Although I am not a legal professional (IANAL), have you considered becoming a W2 employee of your corporation and then contracting out using this method?

Additionally, hire a business developer to search for potential contracts on your behalf.

By adopting this approach, you can initiate expansion and recruit additional personnel to undertake contractual work.

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