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Contract-to-hire is a clause in the consulting contract where the end-client has the option to make
a permanent offer to the consultant.
Typically the fee of executing this right is specified before hand. This fee is about 10-20% of the
consultant's gross salary.
In case the contract employee has worked for a while, the hiring fee is discounted because the
consulting firm has already earned revenues on the hourly rate. So the typical contract-to-hire
rate varies as follows:
If the contractor is hired within 3 months: 10-20% of Gross Salary, If the contractor is hired within
6 months: 10-15 % of Gross Salary, If the contractor is hired within 9 months: 5-10% of Gross
Salary, If the contractor is hired within 12 months: 0 or 5% of Gross Salary.
• On-site project: An On-site project is a project undertaken at the customer's site. All
facilities belong to the customer. The consulting company supplies the team.
• Offshore project: An offshore project is executed overseas in countries where the cost
of labor is much lower.
• In-house project: An in-house project is executed inside the facilities of the consulting
firm rather than at the client's site.
• Fixed costs project: A Fixed Costs project is where the total cost of the project is fixed.
The consulting firm has to complete the project within the given budget. This could be
on-site, in-house or an offshore project.
• Time and Material Project: Time and Material Project have no fixed time period.
Consulting companies charge on an hourly basis.
• Stress of relocating.
Many consultants are eager to join a large US corporation in what they refer to as a permanent
position rather than a contract position. In reality, no job is permanent in the US. Layoffs are
common and getting fired from the job can happen any Monday morning.
An H-1B employee is fundamentally a temporary foreign worker till he gets a Green Card to
stay on in the country.
Green Card applications take between 2-4 years. In case of layoff before getting the Green
Card, consultants lose all the time they waited while their application was being processed. This
means they would have to find a new employer and start the process all over.
Lay-offs are usually characteristic of development firms and not consulting firms. If your project
ends in one site, the firm can find you another project. With contract industry getting more
popular, it is rare for a consulting company to go out of business.
Derived like many American words from sports, bench refers to consultants who are on the
payroll but not on a client-site.
This typically happens in 2 situations. First when the consultant enters the US. He may not be
employed from the first day itself and the employers customarily pay a nominal stipend in cash
and provide an apartment.
Second, the consultant may find himself temporarily out of work in between projects - and
hence on the bench again. Now the employers normally pay the full salary.
In this situation, the consultant, whether on an H-1B or on a W-2 status or 1099 requires a
consulting firm in between him and the end-client.
As the consultant arranged the contract himself, the consulting firm is usually content with
making a nominal margin of around $ 5 per hour.
Why can't US companies interview while the consultant is in his home country?
Companies prefer to work with consultants who are US citizens or Green Card holders, as then
they do not have to go through the hassles of entering elaborate contracts with consulting firms.
Companies may also prefer working with consultants who have experience in working in the US
as no orientation to the US corporate culture would be required.
Most of the contract requirements are urgent in nature. For this reason, most employers first
prefer consultants in their own vicinity. This saves the employer both time and money. It also
saves the consultant the need to relocate.
Agreement: Fee schedule between the recruiter and client company covering the fee due, if the
contractor is hired permanently by client company. You should have a conversion fee agreement
for each and every contracting placement. The financial details of every placement are different,
so you will need a separate agreement for each contractor you place to protect yourself.
Alternative Staffing: Another term for "Contingent Staffing," includes all nontraditional work
arrangements other than direct full-time employment, including: contractors, temporaries,
consultants, self-employed, independent contractors and part-time workers.
Back-Office: A qualified back-office supports the front-office by handling all of the administrative
duties and payroll functions of a contract placement. Administrative duties includes all the legal
contracts, insurance requirements, employee forms, paperwork, etc. The payroll functions include
all funding, taxes, unemployment, workers’ compensation, etc.
Candidate: Person to potentially fill a job opening. Usually refers to an applicant who has been
qualified for the position and submitted to the client company (may then be known as a
"submittal"). In contracting, after the candidate is placed they become the "Contractor."
Clerical: The largest segment of the temporary help industry. Refers to secretaries, typists, word
processors, general office clerks, data entry, and other low-level office personnel.
Client Company: Company receiving services from "Contractors" who are employees of a
"Staffing Company."
COBRA: Legislation enacted in 1986 requiring employers with more than 20 employees to offer
continuation of health care coverage in the event that an employee is terminated or experiences a
qualifying life event. The employer taking tax deduction benefits for sponsoring employee benefits
is the employer to look to for COBRA obligations, as legislation is part of the ERISA tax law.
Co-employment: The employment relationship where two or more legally separated employers
share potential or actual employer responsibilities with a common employee[s].
Common-law Rules: Defined as "the law of a country or state, based on custom, usage and the
decisions and opinions of law courts." Common-law rules are traditional tests that are applied to
determine an employee or independent contractor status. A "common-law employer," is an
employer who possesses the right to direct and control an employee as to the final results and as
to the details of when, where, and how the work is to be done.
Contingent Workers: Includes all nontraditional work arrangements other than direct full-time
employment, workers including: contractors, temporaries, consultants, self-employed,
independent contractors, and part-time workers.
Contracting: Triangular employment relationship where a "Staffing Company" supplies
"Contractors" to a "Client Company" for a specific function and time period, at a specified hourly
rate.
Conversion Fee: Placement fee earned by the recruiter when contractor is hired permanently by
client company. Conversion fee is in addition to the hourly fee earned during the term of the
contract.
Core Employees: Permanent, "traditional" employees who have the critical skills necessary for
an organization's continued existence. These employees guide the company's strategies for the
future. Core employees are surrounded by a flexible ring of contingent workers who handle non-
core work.
Downsizing: Movement in Corporate America to reduce costs and become more competitive;
reducing headcount to lower fixed costs.
Employee Leasing: The term employee leasing for the service industry has come to mean a
business service whereby a firm specializing in payroll accounting, personnel management,
employee benefit, and risk administration, offers its skills and expertise to the subscribing
business. The long-term, regular dedicated employees of the subscribing business are
transferred to the leasing firm’s payroll and benefits resources. The leased-employees return to
the subscribing business via the avenue of employee leasing.
ERISA: Acronym for the Employment Retirement Income Security Act. A federal law that governs
pension and welfare employee benefit plans. Sets guidelines for these programs. A group of
complex and extensive law governing employee benefits.
Fidelity Bond: Protects an insured business against dishonest acts such as embezzlement,
forgery and theft committed by employees.
Flexible Staffing: Trend in American companies towards a core of permanent employees with
critical skills necessary for a company's survival, surrounded by a flexible ring of contingent staff
to handle peripheral, non-core functions. See also "balanced staffing," "contingent staffing," and
"just-in-time staffing."
F.U.T.A.: Stands for Federal Unemployment Tax Act. "F.U.T.A." is the term used for the payroll
tax every employer must pay under this Act. This tax cannot be withheld from the employee's
pay, it is solely the responsibility of the employer.
General Employer: In joint employer situations or court cases involving multiple employers, the
general employer is the original employer who retains the employment agreement with the
employee. This is the employer with broad control. The courts and administrative agencies
identify the general employer as the employer who is maintaining the employee on the payroll
and providing benefits and its responsible for the long-term employment relationship. The
borrowing or short-term employer is called the special employer.
Liability Insurance: Insurance that covers bodily injury or property damage to others, to third
parties.
Margin: Dollar amount difference between the Client Company bill rate and the Contractor salary.
For example, if the hourly bill rate is $30.00 and the hourly salary is $20.00, the Margin is $10.00.
See also "Markup" and "Multiplier."
Markup: The percentage that the Client Company bill rate is greater than the Contractor salary.
For example, if the hourly bill rate is $30.00 and the hourly salary is $20.00, the Markup is 50%.
See also "Margin" and "Multiplier."
Multiplier: The quotient of the Client Company bill rate divided by the Contractor salary. For
example, if the hourly bill rate is $30.00 and the hourly salary is $20.00, the Multiplier is 1.5. See
also "Margin" and "Markup."
Payrolling: A term primarily found in the temporary help literature. Refers to situations where all
or a portion of a client-customer’s employees are on the payroll of a staffing firm but working at
the client-customer’s location. The client company may want to screen or interview the
employees because of safety or experience requirements, but they do not want the
recordkeeping obligations associated with payroll and withholding. Traditionally, a recruiter does
not locate a payroll candidate.
Payroll Taxes: Employers are appointed, as agents of the government, to withhold federal, state
and local income tax from employee’s wages. These obligations are severely regulated and carry
heavy penalties if they are not done correctly.
Outsourcing: Basic outsourcing is where the client company has an entire department staffed by
the employees of a staffing company, from top to bottom. Can be done on or off the client
company premises. See also "Vendor on Premises."
Special Employer: This term is used in general and special employment. A special employer is a
person or organization that is deemed to share an employer-employee relationship with the
general employer. It applies more accurately where the general employer momentarily
relinquishes control over their employee[s] to another employer.
Sole-Source: One "source" or means of acquiring all of your staffing needs. Commonly referred
to as Sole-Source Supplier which allows a Client Company to go to one recruiter (firm) for all their
staffing needs. (Permanent, Temp-to-Perm, Contract, Payrolling, Etc.)
Staffing Company: A company, such as TE Contracting, who is the employer for contractors and
handles the back-office functions associated with payroll and administrative duties.
S.U.I.: Stands for State Unemployment Insurance. Each state imposes a payroll tax on the
employer for unemployment benefits. The tax ranges from 1% to over 5% of each dollar of
payroll. The employer is entirely responsible for paying the tax, it cannot be deducted from the
employee's pay.
Traditional Employment: New term for permanent employment. Non-traditional jobs are the
contingency positions.
Unemployment Insurance: Government sponsored protection to assist workers who have been
laid off or even quit their jobs through no fault of their own. The unemployment income lasts only
a few months. This insurance represents a significant contribution on the part of an employer as a
percentage of employees’ gross wages.
Virtual Corporation: New term for maintaining a minimum staff of core employees, surrounded
by a ring of contingent staff.
W-2 vs. 1099MISC: At the end of each year, workers either receive a Form W-2 or a Form
1099MISC. An employee receives a W-2 and has all required payroll taxes withheld throughout
the year. An Independent contractor receives a 1099 and has no payroll taxes withheld.
Auditors can go back three years. Fortunately, for those companies the IRS feels did not
intentionally ignore the law, the fines are less (Section 3509 of the Internal Revenue Code). Be
advised that any relief of tax liability provided by the IRS -- such as Section 530 of the Revenue
Act of 1978 -- is of limited applicability in the staffing industry. This section, also referred to as the
"Safe Harbor Act," was amended in 1986 to not relieve engineers, designers, drafters, computer
programmers, systems analysts, or other similar skills or lines of work of tax liability.
Additional fines can be imposed by the IRS depending on the situation. The violations and
associated fines are:
Furthermore, if a company classifies workers to avoid paying overtime according to the FLSA, the
company can be subject penalties, from the payment of unpaid overtime premiums to liquidated
damages, fines of $10,000, and six months imprisonment for willful violations. Unpaid overtime
premiums alone may represent substantial monetary liability depending upon the size of the work
force and the length of time that the company has failed to pay appropriate overtime
BIA Board of Immigration Appeals. The BIA is an administrative appeals body separate and
independent from the INS, and directly accountable to the Attorney General. The BIA decides
appeals from decisions of immigration judges.
DOJ Department of Justice. The U.S. Department of Justice enforces federal laws,
supervises the federal penal institutions, furnishes legal counsel in cases involving the federal
government, interprets laws relating to the activities of the other federal departments, and renders
legal advice, upon request, to the President and to Cabinet members. One division of the DOJ is
the INS.
DOL Department of Labor. The U.S. Department of Labor enforces U.S. labor laws and
regulates workplace activities required by those laws, including those related to immigration.
EAD Employment Authorization Document. Usually takes the form of an I-688B or I-766 card.
Gives the alien work authorization, and can be utilized when completing Form I-9.
EOIR Executive Office of Immigration Review. Consists of two parts, the immigration judges
and the Board of Immigration Appeals (BIA).
Green Card The authorizing document for permanent residency. Although once green, it is now a
different color.
I-9 Form prescribed by the IRCA to verify the employment eligibility of workers. I-9's are to be
completed within three days of the employee starting work.
I-20 Form which documents that the alien has been accepted for a course of study by a school
authorized by the INS to accept foreign students. This form is also used as supporting
documentation when applying for an F-1 student visa.
I-94 The document received as one enters the United States which states place, date, status of
entry and time allowed to remain in the U. S.
I-129 Form utilized by an employer to petition for an alien to come to the US temporarily to
perform services or labor, or to receive training, such as on an H-1B visa. It can also be utilized
for an extension of stay or change of status in certain situations.
I-538 Practical Training Application. Along with a copy of the I-20, this form is utilized by a student
visa holder to obtain work authorization. If approved, the student will receive an EAD form I-766.
I-688B A card issued to aliens who are authorized to work temporarily in the United States. It is
being replaced with the I-766.
I-765 Application for certain aliens who are temporarily in the United States and wish to apply to
request an Employment Authorization Document (EAD).
I-766 A new version of the I-688B. While the document is being phased in, some work-
authorized aliens will continue to receive their work authorization on the existing EAD, the I-688B.
Immigrant An alien admitted to the U. S. as a lawful permanent resident. Immigrants are those
persons lawfully accorded the privilege of residing permanently in the U. S. They may be issued
immigrant visas by the Department of State overseas or adjusted to permanent resident status by
the INS. The primary distinction between nonimmigrants and immigrants is that most
nonimmigrants must intend to return to their country of origin after their period of authorized stay
has ended, while immigrants can and normally have the intent to stay permanently in the United
States.
Nonimmigrant Persons who come temporarily to the United States for a particular purpose
(e.g., as students, tourists, diplomats, or temporary workers). An applicant for a nonimmigrant
visa usually must convince the INS or consular officer that they do not intend to immigrate to the
United States and that they intend to return to their home at the end of their authorized stay.
OF-156 Application for Nonimmigrant Visa. This form is utilized when applying for an F-1 visa.
B-1 Temporary visitor for business - The B-visa is the most common visa issued by the United
States Consular. The B-1 visa is used for specific categories of business in the United States.
B-2 Temporary visitor for pleasure - The B-2 visa is issued to tourists or visitors for pleasure.
With either the B-1 or B-2, the holder of the visa may not engage in activities which will result in
financial compensation unless it is paid from abroad.
E-1 Treaty Trader - The treaty trader visa allows foreign nationals to enter the United States for
the purpose of directing and developing import/export trade between the U.S. and the treaty
country.
E-2 Treaty Investor - The treaty investor visa allows foreign nationals to enter the United States
for the purpose of directing and developing substantial investments made in a U.S. business.
F-1 Student - This visa is available to persons seeking to enter the United States for the purpose
of engaging in a full-time academic program. While a foreign student is participating in a full-time
academic program, or immediately upon graduation, the student may apply for a period of
practical training. The requirements are essentially that the practical training must be related to
the course of study the student is pursuing. The school will certify that the sought after practical
training will benefit academic training as well. Most schools have a student advisor to assist
foreign students with all the required paperwork. The practical training period lasts 12 months.
H-1B Professional in a Specialty Occupation - This is one of the most important non-immigrant
visas available to qualified foreigners who want to come to the United States to perform services
in a "Specialty Occupation." Specialty occupation is defined as an occupation which requires
theoretical and practical application of highly specialized knowledge in such fields as architecture,
engineering, mathematics, physical sciences, medicine and health, education, business
specialties, accounting, law, theology, and the arts. It also requires at least a bachelor’s degree or
higher in the specific specialty or its equivalent.
H-2 Temporary Agricultural Worker - The H-2 visa allows an agricultural worker to enter the
U.S. and work for a temporary time period.
H-3 Trainee - Visa classification applicable to trainees other than medical or academic. This
classification also applies to practical training in the education of handicapped children.
J-1 Exchange Visitor - This visa assumes the foreign employee will be actively engaged in on-
the-job training and the employer will be gaining some productive benefits from the foreign
employee’s activities. One of the most unusual characteristics of this visa category is that the
foreign exchange visitor will be barred from filing a permanent visa petition or applying for a
change of status to H or L for a period of two calendar years from the date of United States
training completion. There is a Foreign Residency Requirement. This requirement states that the
visa applicant may have to go back to their country of origin for two years before applying for a
renewed visa.
K-1 Fiancée - This visa gives someone the right to come into the country for 90 days. During this
90 days they MUST get married. When they enter the country they can apply for and receive the
Employment Authorization Card. The EA Card is good for 90 days. When they actually get
married, they petition the INS and they are granted a conditional status for residency. At the end
of two years they petition the INS again and they are granted a permanent residence IF they can
prove they have lived together as man and wife. Tax returns, joint bank accounts, children with
birth certificates, etc.).
L-1 Intracompany Transferee - The L-1 visa is one of the most flexible and sought-after
temporary visas which provides for employment. The purpose of the L-1 visa is to facilitate in the
transfer of key employees to the United States from companies that are affiliated with or related
to United States corporations. The prior employer/foreign company must be related to the United
States company, either as a subsidiary, affiliate or division.
O-1 Alien of Extraordinary Ability in sciences, arts, education, business or athletics - Visa
issued to aliens possessing extraordinary ability in the sciences, arts, education, business, or
athletics. Such applicants must demonstrate extraordinary ability through sustained national or
international acclaim.
P-1,2,3 Performing Artists and Athletes - Visa issued for the purpose of allowing performers
and athletes to enter the United States to compete or perform for a temporary time period.
R-1 Religious Workers - Allows foreign ministers of religion, professional workers in religious
occupations, and other religious personnel who work for a religious non-profit organization to
enter the United States to perform religious work for up to five years.
TN-1 Canadian Professionals and Consultants - Allows a professional from Canada to enter
the United States to perform professional work pursuant to the North American Free Trade
Agreement.
TN-2 Mexican Professionals and Consultants - Allows a professional from Mexico to enter the
United States to perform professional work pursuant to the North American Free Trade
Agreement.
CS – Customer Service.
J-1 – Visa for doctors and researcher usually tied to some sort of research grant or
exchange program.
Announced – Job seekers that are ready to work in 30 days and appear on the Hotlist.
Corp-to-Corp – Indicates that the employer would prefer to deal directly with another
corporation. The main reason for this preference is to avoid some of the potential
liability that might exist in dealing with an independent contractor on a 1099 basis.
This would include corporations dealing directly with other corporations or
corporations dealing with individuals who have incorporated.
J-1 – Visa for doctors and researcher usually tied to some sort of research grant or
exchange program.
Job seeker – Candidate looking to better their employment opportunities. There are
three types of job seekers:
• Announced are job seekers that are ready to work in 30 days and
appear on the Hotlist.
• Passive Public are those job seekers that are not actively looking for a
job but would entertain the right opportunity. Passive Public job seekers
names display on the Hotlist, but they will be on the passive list.
• Passive Confidential are those job seekers that do not want anyone to
know who they are. Job seekers can chose to be confidential and they will
show up in the passive list as a confidential candidate.
W-2 – A W-2 employee is an employee whose taxes are withheld by the employer and
whose earnings are reported to the IRS at the year-end via a W-2. The W-2
employee completes a form W-4 at the beginning of their employment to instruct the
employer on how to withhold taxes. This eliminates any possible issues that may
arise with the IRS regarding employment status.
W-2 / 1099 – The position can be filled by either a W-2 or 1099 employee.