State Department Contractors A Symptom Of A Bigger Issue

The problem with the snooping into the passport records of presidential candidates that recently popped up is a red flag for a bigger problem facing American workers. The government has systematically been replacing or augmenting employees with “contract” workers. For someone not familiar with this little ploy, let me explain.

Major corporations a few years ago figured out how to reduce costs of employee benefits, hire fewer employees. I worked for a company for a short time that practiced this technique. The scenario goes like this. You contract a “staffing” firm to provide personnel to fill positions that would otherwise be held by full time employees. Because they are not technically on your payroll, you are not obligated to provide benefits for them, nor do you have to keep the requisite paperwork in your HR departments. These contract workers are someone else’s employees who are just on site fulfilling a contract.

That means that they sit beside full time workers doing the same jobs but without any of the benefits of full time employment at the company. Because of the tight job market, they agree to work for an hourly wage far below that paid by the company and as an employee of the staffing firm, their taxes and other paperwork is handled by that firm.

The staffing firm makes its money on the difference between the benefits costs of full time employees and the amount paid them per hour by the primary corporation. In other words, they buy low and sell high, but not so high as to reach the level of a full time employee.

Why would a company do this? Well to save a few bucks, but also to free it from obligations it would have to a full time employee. Contract workers can be terminated without penalty or question. They show up on the P&L reports as outside expenses and through creative accounting make the company look more productive than it really is. More specifically, they avoid any obligations regarding unemployment payments or insurance or pensions, and in a company that may have a union, this is a way to circumvent the union regulations as well.

The other sneaking trick is that many of the staffing firms are actually owned by the companies they provide “contract workers” for. In other words it’s a scam and the people who pay for it are the contract workers, who get no benefits but all the responsibilities of working for the corporation.

Well the State Department figured this trick out and now hires lots of contract workers to handle the “overflow” of work. That translates into a conscious understaffing by the State Department in order to pass off some of the cost to a private company who reaps the profits that would otherwise go to pay for insurance and benefits.

Ain’t deregulation grand?