Eli5 How is it cheaper for a factory/company to hire contractors for basic work when there employees they hire are paid less per hr?

Question

I work for a contractor and I’ve always wondered why they hire us when I get paid $30 a hr and obviously my boss is making a cut on top of that. But the company I’m painting for only pays there employees $18 per hr? Wouldn’t it be easier just to hire an extra employee to preform simple tasks like painting, shoveling stone, ect these are all none skilled labor jobs.

In: Economics

Answer 1

From an accounting perspective, contractors are an expense and employees are on the payroll. These two things often have different amounts of budget and different constraints on how money is spent.

This doesn’t necessarily address “cheaper”, really, but can explain why contractors may be used in some situations that don’t appear to make sense. If you have project money but no extra payroll budget, you’ll use contractors.