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Comment by koilke | Hacker News Reader

Having had experience in a company that acts as middleperson/outsourcing company, many of the employees where working for company A and then outsource to work for company B. They would be hired as full time employees at company A and let us say in my example start with a salary at around 30k USD per year and the company A would receive around 120k USD per year by letting that employee work for company B.

I thought it felt strange to know(although they tried to keep it secret) that one received about 25% of the work one did in terms of salary. This was a hugely profitable business model for a company and in a more competitive economy, such models would be difficult. Apparently, this gentleman realised that if you can cut off these middlepersons there are great opportunities for business, you could double and triple the salaries of the employees and probably still make a profit.

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Paying someone X and charging 3X for their time is not "hugely profitable". Employing someone is pretty expensive. You have to account for all the costs of employing them (payroll, admin, HR, project management, etc), the fact you still need to pay them for the time they're not being charged to a client, the cost of an office for them to work from and equipment for them to do the work, and so on. It's common in business admin to account for at least 2X of someone's salary as the cost of employing them. If you charge less you'd be making a loss.

I've seen the "paying 4x" phenomenon at a former company (a long time ago tho). The external "expert" consultants worked with us for 3+ years, used our equipment and offices, and at least one of them didn't understand why C sizeof() was not giving him the length of the string.

Companies hire external experts (or "experts") in order to fix hiring problems (can't find the necessary people), or because they find it hard to predict future needs (might only need them for 3 months, or 3 years), or because they don't have the management team in place to manage those people (every person hired is a call on managers to give them work to do, and more admin to do). These are all things that are often well worth paying 4X what it'd cost to employ the staff themselves.

Yeah, I mean it worked. Projects got delivered on time, I assume on budget, and functioning to spec. Lacks in some places were compensated with excesses in others. Some things were not pretty, but there's no denying the place ran like a well oiled machine. I learned a lot there.

At the time I thought the in-house knowledge and expertise these people would take with them when they moved elsewhere would be a big loss, but then the company was bought and dissolved into a larger parent, and that knowledge mattered exactly zero.

I used to work for a company that did this. After two years of asking for a pay raise, I left to be a freelancer. I found out how much they were charging the client and I made the decision to leave.

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