Can you explain more how paying double for a contractor for tax reasons saves the company money? Or is this all some nonsense setup by the company to shuffle the numbers to look superficially better for a specific metric?
"We spent 1B in one-off costs for increased future growth" is a much happier story to investors than "we have recurring costs of 1B", put simply, even if the actual recurring cost number is worse.
(There's also some complexities in some industries around money from, say, grants, which you can only spend on certain types of expenditures...)
This strategy cannot work long term unless there is growth happening elsewhere in the company to make up for the excess money burned on contractors and reduced number of employees. But it can definitely work short term if the growth numbers for the quarter are going to look bad, and it has the benefit of giving management someone else to blame when the project work doesn’t get done.
If your company starts replacing employees with contractors, that’s a bad sign.
This may vary due to region. For example in the U.S where you can fire people quickly the contractor benefit is less apparent, but in EU where after a short period you may have to spend a long time to fire someone it may be beneficial to hire a contractor rather than going through a lengthy hiring process only to find out you want to fire them.
Contractors in such an environment often are a reasonable investment for a project that has a particular dedicated timeline. Like we expect 1 year for project to finish. We hire for 1 year, and opportunity to extend for 3 months 2 times in case it goes bad.
Otherwise you have to hire for project and then do these layoffs everybody here is complaining about.
Furthermore in EU if you are paying 10000 for an employee, you probably have extra fees on top of that so you are paying 14000 (estimation) then for contractor you are not paying 28000, but 20000. The pricing is not great, but there are lots of factors that can make it seem more attractive than it might appear on its face.
Finally, Contractors tend not to do any of this quiet quitting or whatever, probably because for them it is more a business and they are also earning significantly more that makes it an interesting business to be in and to maintain.
The main difference at least in my region is that if you're a contractor then it's much quicker for you to quit and find a better job so the incentive to stay isn't as strong. In other words, tech workers who become contractors here usually are better contributors and have an easier time finding good offers.
Also, I will repeat this as many times as possible: you can fire employees in Germany exactly the same way you can fire employees in the US. You just need to follow the damn law. You need to give your employee a WRITTEN letter of termination, to make the termination legally binding. Then all you have to do is give them notice (or pay the salary out immediately if you want to get rid of them immediately).
Paying double so you can fire contractors is illogical. The maximum amount of notice you can be legally entitled to is 7 months, after working 20 damn years at a single company, which means at worst the company would have to pay half your salary out a single time to get rid of you immediately. None of this 2x every year multi-year bullshit.
The reason why you hire contractors is that you do not need the full output of an employee. You might only need three months or maybe just a week. It's the same reason companies rent equipment instead of buying.
That is overly simplified. First, you have to commit to one of three types of layoffs, only one of which usually is applicable (betriebsbedingte Kündigung). But if you do that you have to consider the social circumstances of the employee and also other comparable employees. Which absolutely can result in not being able to fire the employee you would like to fire without also firing a number of other employees first. That could be really disruptive, so it is not quite so easy for German employers.
I believe the maximum amount of notice you can be legally entitled to as a contractor is whatever your contract says
- a contractor provides a "service" that improves your money-machine output.
(or so it's said).