FTE vs. Hourly Contracting – the Differences

FTE vs. Hourly Contracting – the Differences

Posted on 15. Nov, 2013 by in Career Coaching, Careers, Compensation, Consulting, Featured, Job Seekers

It feels like I have previously covered what the differences are between Full Time Employment (FTE) and hourly-based contracting a number of times; however over the past few months, I’ve interviewed an entire string of candidates that don’t know the differences. Also, taking a gander back at my past HealthcareITToday.com blog content, I see that I haven’t dedicated an entire post to this topic. Therefore, here are the differences and some pros/cons of these two types of employment.

FTE Consulting – For those of you currently working in hospital-based employment, FTE is going to be the closest employment model to your situation now. It’s just like it sounds, consultants are employed full time by the consulting firm and will have a number of different client engagements throughout their tenure at the firm. This is the traditional model for consultancies and typically you’ll find that the larger firms such as Deloitte, Accenture, PricewaterhouseCoopers, and Impact Advisors (though we aren’t a large firm) employ their consultants in this manner. Usually an FTE employee will receive an annual salary, bonus(es), healthcare benefits, 401Ks with company match, life insurance, paid vacation, and paid holidays among other benefits.

The first pro that comes to mind for this model is stability. By being an FTE, you eliminate what I like to call “the hustle” where you are constantly marketing yourself to find your next contract. In an FTE-based consulting firm, there are operations staff that are responsible for staffing consultants and eliminating time spent on the bench. In this type of employment, a consultant doesn’t have to constantly be selling themselves. Also along the stability line, FTE employees receive substantial employer-subsidized benefits like healthcare, 401Ks, paid vacation and paid holidays. When you add up the cost of procuring independent benefits or taking a vacation without pay, it becomes a pretty decent chunk of money.

The con that comes to mind is that in FTE consulting you can’t be as choosy with your client engagements as you can with hourly contracting. Meaning that if you live in Colorado and don’t want to travel all the way to Florida, it’s a lot harder to say no when your employer is paying your salary all the time. Also, there is usually less possibility of remote work given that most employers won’t allow some of their staff to work remotely while the rest of the staff must travel weekly. Most companies won’t make an exception for one and not for everyone (rightfully so).

Hourly Contracting – For our purposes today, we’ll consider hourly contracting to cover both w-2 hourly and 1099 contracting (that’s a topic for another post). This is how most staffing agencies arrange employment with their contractors. You are assigned an hourly rate and you are paid that rate for every hour that you work for the duration of your contract and usually that’s it. Some staffing agencies will supplement benefits for w-2 contractors, but they tend to be rather expensive. Some will also offer some vacation, but that is rare. Benefits and vacation pay are not offered for 1099s.

The obvious pro of this model is the money. Hourly rates are HIGH! Over the past few years I’ve seen the rates for an Epic Analyst be anywhere from $85 to $110 per hour. That’s over $200,000 per year. Every time I recruited and hired an hourly contractor I’d wished Epic had recruited out of my college because who isn’t interested in making that kind of money?! Flexibility is the other pro of this model. An hourly contractor is able to choose what assignments they want and which they do not. For example, I know many hourly contractors that will only travel 50% of their time and they are able to negotiate their individual contracts to do so. The same goes with destinations. If you’re a contractor and want to work in Florida, the likelihood is there that it could happen for you. Big money and the beach; sounds pretty nice, eh?

I like to call hourly contracting “High Pay, High Risk” because the risk of going from a very high hourly rate to no rate is clearly a con of this model. As healthcare reform changes are made and CMS changes reimbursement schedules, hospitals are on the lookout for cost savings and a large cost savings is always cutting the consulting budget. So if a hospital decides to cut all consultants, as an hourly contractor you’ve now gone from a nice high rate to no rate. There is always a risk that supply and demand will swing outside your favor, meaning if you happen to be looking for your next contract and there is little available, you’re out of work and pay. As the Epic consulting market softens and now the holidays are upon us, there is a good chance that many Epic contractors will be out of work for a while.

So which model is right for you? Which is more important? Stability or big cash? Benefits or being choosy about your customer location? It really all depends on what you value and your current life situation. Neither is right or wrong, better or worse; it’s which is right for you.

Cassie Sturdevant

Cassie Sturdevant is a Senior Recruiter for Impact Advisors, a healthcare IT strategic and implementation services consulting firm just named 2013 Best in KLAS for Overall Services. She specializes in humor and follow up.

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2 Responses to “FTE vs. Hourly Contracting – the Differences”

  1. Gwen Darling

    15. Nov, 2013

    This is such helpful information, Cassie! I get asked this question by candidates all the time and now will refer them to your post for my answer.

    Looking forward to your post on w-2 hourly vs. 1099!

    G.

  2. Cassie Sturdevant

    17. Nov, 2013

    Thank you, Gwen! I think it’s really important that consultants truly know their options and I’m finding that many do not. Thanks again!

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