There are two reasons (both sort of hard to fix) for why contracting is screwed up.
1. Co-employment- Large companies like Google or Apple would love to hire contractors directly but are very scared of being sued by contractors that can claim they were actually employees-not contractors because of the unclear rules around who is/is not an employee. So they introduce a staffing agency in between to become the 'employer of record' and offset the risk.
Things like hiring and paying contractors directly, giving them laptops, keeping them for long terms, training them, etc. actually makes a stronger case for contractors that might want to sue them, which is why you see the weird ways these companies treat contractors (not allowing them into morale events, restricting how long they can work, etc.)
How to Fix- Labor laws would need to change, making it clear to companies how they can hire contractors without becoming liable to be held as employers. New labor marketplaces like Taskrabbit, Homejoy, Workmarket, etc. will push lawmakers into doing something soon, but this is going to be tough given how strongly labor unions are against this.
2. Non-transparency. Large companies don't like to advertise that they hire contractors. They instead give their open jobs to staffing agencies, who are not allowed to disclose the client name when they advertise the job on job boards. The staffing agencies are incentivized to provide the lowest cost engineer that meets the minimum bar and these are usually the engineers on visas that need to find a project soon or leave the country.
How to Fix- If large companies publicly share all their current contract job openings (reqs) just like they do their full-time jobs. If that happens, anyone can apply to those jobs and even nominate the staffing agencies they'd be willing to work through. They already have Vendor Management Systems (VMS) that they use to share their reqs with staffing agencies, so its just a matter of will.
In the meantime, we (http://www.oncontracting.com) are trying to solve this non-transparency by crowd-sourcing the list of preferred staffing agencies for the Fortune 1000 companies. Contractors can avoid bad labor brokers and instead discover who the preferred staffing agencies for any Fortune 1000 company are and approach them directly.
>How to Fix- Labor laws would need to change, making it clear to companies how they can hire contractors without becoming liable to be held as employers.
Except that the entire reason these laws exist is because tech companies have been caught using people as contractors permanently, "laying them off" on a consistent seasonable basis, and then "rehiring" them again as "contractors". A permanently-employed worker needs to legally be considered a full-time employee and be taxed/benefited as such.
I believe these laws were first put in place to prevent factory owners from exploiting poorly paid workers- and weren't really meant for highly paid tech workers. The problem with requiring companies to hire everyone as employees is exactly the reason companies try to find ways to dodge it in my opinion. If the Govt has a problem collecting taxes from contractors that is a different problem and should be addressed separately.
What's wrong with that? Lots of people love working seasonally. Teachers, fishermen, hospitality workers, and forest rangers can work seasonally. Why should programmers be denied the privilege by law?
I'm not aware of how it works in those fields, but as I see it, trying to burden companies with unclear laws and force artificial behavior is what is causing the problem in this case.
For example- A large company needs a contractor and is willing to pay $75/hr for 12 months.
Option 1- Hires you as a contractor directly for $75/hr on 1099. You get paid well, but if they are not very savvy about independent contractor compliance, you can still go after them in the future stating you should have been an employee for various reasons. The IRS could also go after them for not classifying you correctly and claim taxes missed.
Good for you- Risky for Client.
Option 2- Give the req to their staffing agencies and offer to pay them the $75/hr. A Staffing agency finds and hires you as a permanent employee- pays you $40/hr with benefits. Terminates you after 12 months. Large Company ended up paying the same but has much lower risk of being considered employer because the staffing agency was paying you and taking care of your healthcare, etc.
Same deal for Client but low risk- Bad deal for you - Good deal for Staffing Agency.
In the quest to try and force the law upon a company, we successfully complicated and introduced a middle-man into this process.
There's already plenty of laws to regulate them and they work pretty well for the most part.
The problem is if a large company wants to hire contractors directly- and not use a staffing agency. Thats where the laws are unclear and contractors are the ones paying for it.
Is common in games, what has happened to people I know is they get a job and then build the mechanics of a game, they then get fired while the art is discussed and worked on, then rehired to finish the work as nobody else knows how it fits together anyway.
What's wrong about it? You should just charge more in expectations that the job won't last long and you can work at different company on different game mechanics after getting fired. Employing people you do not need is not efficient for both the company and economy.
Companies are also scared the IRS will come after them with a rusty knife for hiring "contractors" that per the 1986 law that removed the safe harbor are really employees. That's probably more of a threat than losing a "permatemp" lawsuit (https://en.wikipedia.org/wiki/Permatemp).
They don't want job-seekers cherry picking or getting confused between full-time jobs and contract jobs (You can sometimes get a higher pay-rate contracting than as a full-time at the same company). I think, they also fear it reduces their recruiting brand. They want to make it appear that getting a job at X is really hard, which is why they boast about their low acceptance rate, etc. If people discovered there are hundred or thousands of contract jobs at the company, it reduces the allure. Use of contractors is also often not deemed as a 'good' workforce practice - similar to outsourcing, mainly because of stories of exploitation, etc. It also leads to complications- think customers buying some sophisticated or sensitive equipment or service from you discovering that you had a bunch of contractors building it.
1. Co-employment- Large companies like Google or Apple would love to hire contractors directly but are very scared of being sued by contractors that can claim they were actually employees-not contractors because of the unclear rules around who is/is not an employee. So they introduce a staffing agency in between to become the 'employer of record' and offset the risk.
Things like hiring and paying contractors directly, giving them laptops, keeping them for long terms, training them, etc. actually makes a stronger case for contractors that might want to sue them, which is why you see the weird ways these companies treat contractors (not allowing them into morale events, restricting how long they can work, etc.)
How to Fix- Labor laws would need to change, making it clear to companies how they can hire contractors without becoming liable to be held as employers. New labor marketplaces like Taskrabbit, Homejoy, Workmarket, etc. will push lawmakers into doing something soon, but this is going to be tough given how strongly labor unions are against this.
2. Non-transparency. Large companies don't like to advertise that they hire contractors. They instead give their open jobs to staffing agencies, who are not allowed to disclose the client name when they advertise the job on job boards. The staffing agencies are incentivized to provide the lowest cost engineer that meets the minimum bar and these are usually the engineers on visas that need to find a project soon or leave the country.
How to Fix- If large companies publicly share all their current contract job openings (reqs) just like they do their full-time jobs. If that happens, anyone can apply to those jobs and even nominate the staffing agencies they'd be willing to work through. They already have Vendor Management Systems (VMS) that they use to share their reqs with staffing agencies, so its just a matter of will.
In the meantime, we (http://www.oncontracting.com) are trying to solve this non-transparency by crowd-sourcing the list of preferred staffing agencies for the Fortune 1000 companies. Contractors can avoid bad labor brokers and instead discover who the preferred staffing agencies for any Fortune 1000 company are and approach them directly.