Why do consultants or contractors make more money than employees?
The benefits and taxes thing, in my opinion is the biggie. Most people don't realize that the cost to the company for a full-time employee with benefits can be 2x or even 3x the amount they see in their paycheck.  Health plans are extremely expensive. Even if you are having money taken from your check for health insurance, it is often just a fraction of the total cost, and the employer is subsidizing the rest.  More expensive benefits that contractors don't typically get are 401K matches and paid vacation days. When contractors call in sick or don't work because it is a national holiday, they don't get paid for that day. Also, see that line on your paycheck deducting for Social security and Medicare? That is only half of the tax. The employer pays an equal amount that is not shown on that statement. Also, they pay taxes that go towards unemployment benefits , and may be required to pay higher taxes if they churn through a lot of full-time employees. You can usually let contractors go with relative impunity . For the unemployment tax reasons, not paying for people's days off or benefits, a lot less paperwork, and less risk to the business associated with committing to full-time employees all provide value to the company. Thus companies are willing to pay more because they are getting more.  Think of it like a cell phone-contract. If you commit to a three year contract it can be a pain/expensive to get out of the deal early, but you will probably get a better rate in exchange for the risk being shifted to your end of the deal. There are a couple of reasons, including: All the existing answers are right and the general theme is: contracting is a different kind of relationship. It's a business-to-business relationship rather than a business-to-employee relationship. This has implications such as: Of course, some contractors are effectively just over-paid employees, and some of the above points don't apply to them, but that's the idea behind bona fide contracting. In addition to the other answers, consultants and contractors face a real risk (though admittedly small) of not getting paid. The more short-term the gigs are, the higher the risk of not getting paid for a particular job. As an employee, there are laws to ensure that you get your paycheck. As a contractor, you're just another creditor. I know a couple of contractors (software engineers) who have had difficulty collecting after a job. (I'm not even sure one ever got paid the full amount.) I also personally witnessed a contractor show up for a job who was then told by the company that they unilaterally decided that they would pay half of their pre-arranged rate. "The ""more money"" aspect is only true if you ignore the lack of symmetry between employment and contracting. Consulting is another story altogether.  Companies are willing to pay consultants for a number of reasons but the most important is deniability.  If a decision is recommended and goes wrong then the consultants can be sued.  Liability cover is expensive. Cynicism aside, it often isn't cost-effective to keep specialists permanently on the payroll for tasks that are performed once a year. Recently I've noticed that the nature of consulting is changing.  Companies are starting to assemble brains-trusts of internal consultants who can create and manage projects while outsourcing only the labour-intensive data-collection roles.   Expect this to have a big impact on the management consulting industry." Note too that being a contractor means that you will unavoidably have periods between contracts; you tend to be out of work more often than a salaried employee would. You need to set your rates so your average income, including those down times, adds up to a living wage including all those benefits that aren't being covered. If a company hires a contractor, they understand that this is part of the trade-off. They avoid making a long-term commitment when they don't have a long-term need, and they accept that this convenience may cost a bit more in the short term. Contractors earn less. Especially the people that are hired under them. They usually have no education, and base pay; long hours and hard work.
"It's a nice thought, don't get me wrong. Pushing decision making power down to levels that can correct issues quickly is great; especially in smaller organizations. The big miss with this line of thought is that all of Tesla's 33,000 employees actually know who / where to go to solve their issues in the first place - they don't (nor do they in any large organization) which is why you have organizational structure.  Also - the author states at the end ""I worked for one non-profit with this environment and then consulted for a half dozen others; none of them had this sort of communication."" I would have puked if I weren't laughing so hard - how that experience is relevant to the article regarding a large, for profit enterprise is beyond me. I am sure it impresses people at Starbucks though." "No it is not ""Normal"" the normal process is that the money is transferred to your account with out issue.  This would be an exception.  That does not mean that there is anything to worry about.  It could be that the transaction met some criteria that triggered closer examination, or it could be that yours is just one randomly being reviewed.  And it could just be that your husbands partner misunderstood or lied.   Step 1 would be contact the bank and find out what is going on and if there is any action you need to take.  Assuming that the bank confirms the status and the amount is significant enough I would probably give my lawyer a heads up of what is going on.  If Homeland Security is involved there is a reasonable chance that you will need that representation anyway so getting the lawyer involved early might save you a headache in the end.  The lawyer is probably the only person that will be able to get any answers for your anyway. from comments: My husband is a consultant that works for another company - as a   consultant. That company received a contract from a government south   of the US (Free Trade approved). That government first wired the   overall government contract to the company account in that originating   country, then... the funds were wired to the US counterpart company   ... then then consultants gets paid. It sounds like the contract is not your normal business to business international contract.  So normal goes out the window there.  When you start getting foreign governments involved things get... lets use the word ""interesting.""  If the contract involves anything with military or restricted technology applications (even if they are not directly military) then HSA wants to make sure that no one is circumventing export restrictions.  With out knowing more specifics it is difficult to guess whether or not there is anything for your husband to worry about.  The bottom line for him is that he does not have his money so he should keep that in mind when delivering services to the Prime Contractor." "I think it really depends on what work/lifestyle you are looking for. I'm sure your more than capable of going down either route, but you should weigh up the pros and cons of each A consultant would be great, you'd be your own boss and you have overall say on how your business/career plans out, but be prepared to put in a hell of a lot of work to get it off the ground. Long hours, little time for social/family etc. But in the long run it'll pay off Employee, no worries about running your company, just turn up and perform your duties. You'll get the whole benefit package: healthcare/pension etc. You can probably go on expense paid training courses etc It depends, do you want to just be an employee working ""for the man"" or do you want to be ""the man""? I wish you luck in whatever you do! :D" The reality is that for labor is cheap for software startups. A couple of founders can usually take a prototype to the point where they can get the seed capital to hire labor at market rates, so why would they give up significant equity to employees? Plus, if they need cheap employees, there are always contractors and naive new grads who will gladly take below-market salary for 0.1% of the company. (in options, vested over four years, of course) I think this is a bit of fallacy. Capital is not a fix thing. If there is value to be realized, business can find the money. The issue really is that the job is hard and the company views it as a cost, not an investment. In order to grow the way they do without recording profits, they need to find costs (or cut prices). The revenue is turning over because it's being paid out all over the place. Either those companies are running on razor thin margins, or they're paying taxes. There's also payroll taxes for the 270,000 workers. And this is why you should always treat your employees well enough that they stick around. It's amazing how easily managers forget the laws of supply demand. There is a huge demand for great workers and a relatively small percentage of even above average employees. As a consultant I charge my clients by the hour of my time they're occupying, not just my productivity.  That means when I walk to the printer, task a colleague, scan an incoming email, go pee, time taken to tally productive tasks, or take an ergonomic stretch break are client paid non-value added work.   Professions that track billable hours are not tracking productivity.  Some more than others are definitely more productive in a given hour, but productivity will vary by the person and skill level.