This is actually a "composite" question from several readers. Recruiting calls
from consulting companies have become commonplace, and lots of Ask The Headhunter
readers are confused about this booming business.
- If these recruiters aren't headhunters, who are they?
- What is consulting all about?
- How does the business work?
- Why would I want to work for a consulting firm rather than
directly for their client?
- Are the benefits different?
- How will it affect my career?
- Is it risky?
- Will I get rich?
- How do I jump in?
Insider Advice from
Computer Aid, Inc.
Computer Aid is an Information Technology consulting
firm, in business since 1981, operating in the forty-eight states with over 1,600
employees and revenues of $95 million. The company specializes in application development,
application maintenance and desktop services. Its clients include several major Fortune
500 companies. Scott Henty's office is located in New Hope, PA.
While consulting companies are perhaps most common in
the IT industry nowadays, they exist in many industries and fields. Scott's advice is
worth considering in any case.
1. What is a consultant?
A consultant is a person who is employed by a consulting firm and who is
"farmed out" to another company to do work there. The other company is a client
of the consulting firm. Typically, the consultant is assigned to a project that has an end
in sight: it might end in six weeks, it might end in four years. The consultants
employment agreement is with the consulting company, and thats who pays his or her
salary, provides training, benefits and other things that a traditional employer would
ordinarily provide. The consultant would tend to report to work every day at the
2. How does the consulting
Large companies, including the Fortune 500, augment their staffs by anywhere from
10%-50% by outsourcing work to consulting companies or by hiring temporary help. This
staffing strategy helps a company manage the cost of its headcount. When you hire
employees, you have higher headcount. When you use consultants, you dont. There are
great financial implications here. The finance department in any company prefers to keep
"revenue per employee" high when it reports financial performance to the
stockholders. By using consultants, or contractors, a company keeps its actual headcount
low while still having the number of workers it needs.
For example, the finance people tell the Information
Technology department, you may need 100 people, but you get 50 in your budget. This
increases revenue per head. When the other 50 are hired as temps or contractors, that
isnt headcount because such staff is "expensed" rather than treated as a
When a client needs workers, we supply them either
through our existing staff, or by recruiting and hiring the right people and then
assigning them to the client's site. (This is where people being recruited sometimes get
confused -- we are not headhunters.) Sometimes its necessary for us to assemble an entire
team, and to help design the jobs in cooperation with the client. If training is required,
we provide it. Although assignments end, a good consulting company can re-assign a
consultant to a new client. It's important to examine a consultaing company's practices on
these points -- they're not all alike.
Consulting companies like Computer Aid provide the right
staff without causing a company to incur the long-term cost of hiring more employees.
3. Why would a person want
to be a consultant to a company, rather than an employee?
People who are good performers and have an interest in having their own business tend to
like being consultants. It gives them more professional freedom while helping them avoid
the bureaucracy of a company. It also enables them to typically earn more money.
In a traditional large company, there is a lot of
paperwork and administrative overhead to most jobs. Your career is determined not just by
how good you are at your work, but to a large extent by administrative issues. You get
tied down by meetings and other "corportate requirements".
For example, whether they need it or not, employees are
required to attend training sessions and workshops. A consultant gets custom training as
he needs it, at a level thats most appropriate to him, not to anyone else. Training
also need not occupy his work hours. A lot of his training comes from reading manuals,
journals and brochures on his own time. The rest of the time the consultant can focus on
his customers and on driving the business. At work, he doesnt have to do all that
other stuff that a large company makes employees do. The consultants time is more
self-guided, and he is measured mostly on how well he performs his job.
A consultant can also earn more money because companies
tend to hire consultants for "hard to fill" jobs that involve the more
state-of-the-art skills. Because demand is high, compensation is higher. If you had a
traditional job, say in the finance department, and your company needed more web
developers, for example, and you were qualified to do web work, youd probably be out
of luck. Even if you have good web skills, youre not likely to be moved from finance
to programming. It would cause political problems. As a consultant, you move based on your
skills and your earnings depend on what you can actually do. Its easy to change
jobs, so its easy to capitalize on your most valuable skills.
In addition, a good consulting company is more likely
than a regular employer to provide you with training outside your normal area of
expertise, because then it can bill you at a higher rate.
4. Does that mean a
is dependent on the consulting company he works for?
A consultant is more free than a regular employee to circulate within his
professional community and to take more jobs in more challenging environments. He can also
get more relevant training. Theres no room in the consulting industry for wasting
time training must be good, and it must be for a good reason. The consulting firm a
person works for thus has a great impact on his career, based on the quality of
assignments it can offer him. By the same token, a good consulting company can offer both
short-term assignments and long-term ones. A company like Computer Aid usually puts people
on assignment for 2-3 years sometimes 4 with the same client. Were
responsible for a certain scope of work, and for improving that piece of work for the
client, making it more cost-effective. Otherwise the client wont use our
consultants. We thus have an incentive to provide a good career path for our people.
There are two types of consultants. One is the
career-oriented consultant who will work with our company to deliver long-term services,
often on a strategic level, to our clients. The other is the consultant who wants to look
for the best rate he can get, and who wants to do six months with company A, six with B
and six with C. He wants to keep his options open all the time. When were recruiting
consultants, we often go after seasoned employees of large companies. These kinds of
savvy, highly-skilled people usually arent interested in quick-turnaround jobs.
Theyre more interested in a long-term assignment with a good client. Such desirable
recruits keep us on our toes -- we have to be good at helping them develop their careers,
or they won't work with us.
About 2-3% of our employees are the short-timers. We may
use them because we need very specific, new skills, like web development.
5. Some people get
recruiting calls all the time from consulting companies. What cautions would you give
someone who was considering moving from a traditional job to a consulting job?
Make sure you read your agreement with the company carefully, and make sure everything you
agreed to verbally is documented and signed. It doesnt matter what the consulting
company is telling you if the contract says something else. Contracts vary all over the
board. Make sure you know what youre signing up for.
You want to check the companys references. As a
potential employee, it may seem weird to ask a company for references, but today its
very important, because its a job hunters market. If I were considering a job
with a consulting firm, Id like to talk to other employees, especially employees who
are in a similar role to what Id have.
6. Its common to
hear stories from first-time consultants whove taken jobs with consulting companies,
only to find they made a grave mistake. How do you avoid that?
Even the best consultants will encounter problems. A consultant I talked with the other
day didnt get paid for two months by his company. Hes been consulting for 20
years. The firm recently changed management, and lost its ethics. That kind of horror
story can happen to the most experienced consultants. Thats why its so
important to perform your own due diligence before you sign up.
7. Many people eye
consulting as a way to earn more money, because theyve met consultants who seem to
be getting rich. Does that really happen?
It does, but usually only for short assignments. Your objective should be to maintain
compensation growth for the long term. Some people are able to earn huge amounts of money,
but theyre in the minority. Eventually, even if youve gotten a very juicy
contract, you come back to the norm.
If youre looking for a high rate consistently over
a 2-3 year period, you need hot skills. For example, in the Information Technology
industry, SAP would be an example. This means taking a lot of training, which requires a
huge investment from the consulting company, and you must sign an agreement that you will
stay for probably for two to three years. After that, you can leave with your new skills
and your higher value.
You can usually negotiate higher dollars if youre
moving from an employer to a consulting job. But again, Id encourage the person to
look at the long term. Dont be fooled by the short term rate. Ask yourself, what can
this company do for me? If youre a professional consultant and you know several
reputable consulting firms, when youre two months from the end of an assignment and
you get in touch with the managers at those firms and you have the right skills, one of
those firms is going to have another job for you. Its secure as long as youre
8. Whats the
difference between working as a consultant on W-2 vs. 1099?
A W-2 contract is where youre being paid an hourly wage just for the actual hours
you work. While you could work on a 1099 and call yourself an independent contractor,
Id go with a W-2 because the IRS is looking carefully at subcontract situations. The
legit subs are fine, but thats where you usually have the consulting company
providing more than one worker. For example, if a firm puts five Lotus Notes workers on a
clients site and one is out sick, the firm replaces him with another. Providing
Lotus Notes staff is what the firm does. Thats a legitimate subcontract
Now, let's say the firm has only one employee (that's
what happens when you're an independent one-person contractor, hiring yourself out). If
you're putting just one person into one full time position, then your subcontractor status
is risky as far as the IRS is concerned, because the IRS regards it as an employee
relationship. Its not worth the hassle for the company or the subcontractor to do
that. Its still done, but its not going to last long as a trend.
9. What kinds of benefits
should I expect as a consultant?
Dont expect a lot of benefits for a W-2 contract or a subcontracting job. The hourly
employee should expect the company to pay its half of Social Security and unemployment
insurance. The better firms will provide some sort of long term disability insurance, life
insurance (Computer Aid provides basic life insurance of $10,000) and access to a 401(k)
program. Computer Aid can provide medical insurance if the employee works at least 30
hours per week. That level of benefits is considered quite good. The typical situation,
however, is probably just going to provide social security and standard withholding.
It costs a consulting firm company about 10-12% of your
rate to handle all that. At Computer Aid, due to our size we can leverage the insurance
programs we have for salaried employees to help us provide insurance for the hourly staff,
too. Not all firms can do that. 401(k) can be a significant benefit for hourly workers;
that gives us an edge when we recruit, because not all consulting firms offer it. Good
benefits help us encourage a long-term relationship, even with W-2 workers.
10. Is turnover high in
the consulting business?
In general, turnover is over 30 or 35% in Information Technology consulting. Among
employers its about 20%. Our turnover at Computer Aid is about 15-20%. Customers are
very comfortable with that and they feel were on the right track; were
11. Once you add the
consulting companys overhead, what does a consultant wind up costing a customer?
A client pays a premium to hire a consultant, and the consulting company takes on the
added costs of the employee. We provide services to the client including recruiting,
training and certain management functions. From a cost-savings standpoint, when a company
hires a consultant there is never a cost of severance when the employee is let go. If the
company were to hire its own employee, the additional burden on a $50,000 salary raises
the cost to about $80,000 - $90,000. A consulting companys price for that same
employee would probably be a little higher than that.
12. Why would a company
hire a consultant for $100,000 rather than an employee for $80,000?
First, theres the headcount problem, as weve already discussed. Second, we
provide a lot of added value. For example, we put our new people through 5-10 week
training institutes. We teach our consultants a methodolgy that makes them more profitable
workers, and we build teams that are very efficient. That pays off for both the worker and
the client. We can usually put a team in place with fewer people than the customer could,
because were focused on that job. Our processes and methodologies more than pay back
the client for the added expense of using our people. Thats how any good consulting
relationship should operate.
13. How would you advise a
consultant who was considering working on his own, as an independent contractor?
Few consultants succeed on their own, mainly because they dont accurately calculate
the cost of running their own business. Make sure you accurately price out the insurance
and benefits you used to get from your employer. Then get a good insurance agent. We pay
about 20-30% of salary as benefits. You should figure at least that much for yourself. In
addition, you have to factor in the time and cost of marketing yourself, and other
administrative expenses. Most people who try to go it alone find the marketing to be a
real challenge. Thats why they work through consulting firms.
14. Any horror stories
to share with us?
Its altogether too common for a candidate to be recruited by a consulting company
and sent to the end-client before he ever meets the consulting company. This is very poor
practice. The candidate arrives at the interview and sees his resume on the
employers desk and notices its on the consulting companys letterhead.
Hes startled because he thinks hes there for a direct job with the employer.
He thought he had been recruited by a headhunter, not a consulting firm. That creates
embarrassment and trouble. A consulting company is not a headhunter. A headhunter earns a
fee for placing you in a job directly with the employer. Some recruiters at consulting
companies aren't very clear about that when they call you -- you have to ask.
Sometimes, a consulting company will send a persons
resume to 30 firms without the candidates knowledge. That makes the candidate look
bad, because word gets around that the resume is floating.
Our hiring process is very dramatic; its more
rigorous for salaried than hourly employees. We do two interviews before wed ever
send a candidate to interview with a client: a management interview, and a technical one.
We administer tests to assess technical and other skills. This is for the workers
benefit as well as for the clients; it helps us assign the candidate to the most
profitable job for everyone involved. We prep the candidate for the interview, sometimes
for ten minutes, sometimes 30-40 minutes, depending on the situation. But we avoid sending
anyone to a "blind interview". We share as much information with the candidate
as we can. Of course, there are sometimes surprises, but the goal is to get it right, and
to protect all our reputations.
15. How does a person find
a good consulting firm?
Ask contractors you know who work in your building, who have been in the consulting world
for a while, and find out who are the good consulting firms theyve worked with over
the years. Talk to headhunters. If there are ratings of consulting companies, I
havent seen them.
When youre deciding on a firm, try to work with
people you know and trust who are reputable, and they can help you through this whole
process. If you have to go to someone you dont know, check their references. And
dont just use references theyve given you; use your own contacts.
Many thanks to Scott Henty for taking the time to share
his insider knowledge and advice. Scott can be reached through The Headhunter; all email will be forwarded to him.
Please indicate in your subject heading that your email is for Scott.
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