A: This really doesn’t seem logical, but in reality, it happens all the time in business, and it’s all tied to budgets. Most companies run their businesses with a variety of different budgets: Corporate Budget, Operating Budget, Capital Budget, Production Budget, Project Budget, etc.
If a company institutes a hiring freeze, basically they are forced not to hire individuals as direct hires because there is not any money in the specific budget tied to personnel, fringe benefits, etc. But money for contractors comes out of a different budget.
In many cases, the expense tied to a contractor is part of a Project Budget, and the projects still need to continue to help the company make money. In other cases, the expense tied to a contractor is part of an Operating Budget, and a contractor can be written off in much the same way a company writes off the expenses tied to consumables.
Another huge advantage of hiring a contractor during a hiring freeze is the fringe benefits issue. The client does not have the added expense of fringe benefits like medical, dental, and vision insurance. (The contractor gets these benefits directly from their contract staffing service provider.) Plus, the client does not have the added costs associated with Workers’ Compensation and Unemployment Insurance. Again, this is handled by the contract staffing service provider.
You will see this type of contract staffing in bad economic times and in good economic times. Even during the good times, clients are always up against year-end budget constraints. Often, an individual can be hired as a contractor and then convert to a direct hire when the budget opens up at the beginning of the new fiscal year.
Bottom line—It is a fact that no matter how large or how small the client company is, they can hire contractors, even during a hiring freeze.