The Hidden Costs of Hiring Consultants

For many companies, hiring consultants is a standard part of operations.  In most cases, corporations (or even small businesses) can benefit from bringing in industry professionals that specialize in certain areas for short-term contract work.  It saves them on the cost of hiring a highly-paid expert to a staff position, allows time to determine whether or not a full-time position within the company is warranted, and helps the business to meet targeted needs within a set period of time (often in the way of a business plan that the company can move forward on after the contract is complete) without the overhead of an additional ongoing salary to pay.  So there are plenty of reasons why a business might want to hire a consultant here and there.  Unfortunately, there can be hidden costs associated with bringing in outsiders to consult.

The most obvious costs are monetary.  Contracting with consultants often comes with a wide array of expenses.  First there is base salary, and self-employed contractors in the corporate world often charge 2-3 times what you might expect to pay a regular employee.  The reason for this is simple; they have to cover a lot of their own expenses (at the very least, they are responsible for taxes, a portion of which is generally paid by the employer, and they have to pay the entire cost of health insurance rather than profiting from a plan that would normally be offered for a lot less through a corporate benefits package).  So higher costs for services help to offset these disparities.  However, they may also make certain extra demands.

Most require that any additional expenses incurred as a result of taking a contract be covered, and this could include travel arrangements (flights, lodgings, transportation, and even meals).  So the bill could quickly become astronomical.  And while a company can dispel the impact of these expenses on their books through various means (say by posting payments for a 6-month contract over a 2-year period), most of these practices are pretty shady.  And if a corporation gets caught committing any type of fraud it could result in serious penalties (charges, fines, and even jail time).

However, there is an even bigger cost to consider, and that is the damage caused to employee morale.  In these trying economic times, many companies are conducting massive layoffs and then hiring contractors to pick up the slack, simply because there are ways to make it look like the company is spending less (or earning more) so that their stockholders remain happy.  But it certainly does a number on employees working their butts off to keep their jobs.  All they see is that they are replaceable and that they could lose their jobs at any moment, only to be replaced by someone who works a lot less and earns a lot more.  The situation doesn’t inspire much confidence.  And if companies continue to renew contracts rather than hiring on for full-time staff positions (which they obviously need), then it’s pretty clear to employees (and everyone else) that they’re probably engaging in unethical activities (at the very least).

There are certainly times when hiring a consultant is a wise move for a business and it can come with some definite benefits.  But when a company begins to favor contractor services or consultants over dedicated workforce it can quickly lead to loss of money and even employees over time.  And the cost of losing skilled, long-term personnel is incalculable (but definitely detrimental).  So companies that wish to hire consultants need to think long and hard about the impact it could have on their bottom line, now and in the future.