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Government Jobs vs. Government Contractor Positions-Which is Best?

July 19, 2018 By Tamila McDonald Leave a Comment

In total, there are approximately 2.1 million non-postal civilian federal employees working in 2018. Meaning over 2.1 million government jobs. On top of that, there are a significant number of government contractors, though the exact number isn’t known.

There is often significant debate regarding whether federal employees or contractors are better off financially. Each situation has its own benefits and drawbacks, including in areas like hiring speed, pay, benefits, job security, and more. However, it is possible to form a strong career from either side of the fence, but it’s wise to examine the details closely before making a decision.

Let’s Talk About The Obvious-Salaries

The majority of federal workers fall under the General Schedule (GS) classification and pay system. The jobs fall between GS-1, the lowest, and GS-15, the highest.

A positions assignment in the GS system dictates earning potential at that level. Each segment has ten steps, each of which represents a 3 percent pay increase. On average, it takes 18 years to go from step 1 to step 10 in a particular GS grade. However, performance management guidelines allow outstanding employees to progress faster.

Federal employees benefit from having a predictable earnings table. It’s possible to anticipate how much you can earn throughout your entire career, barring shifts between GS grades. Additionally, locality pay can increase earnings, compensating for an area’s higher cost of living.

Contractors aren’t subject to the same pay structures. Since they aren’t federal employees, companies that provide contractors are free to do as they will. While many believe that contractors earn substantially more, that isn’t always true.

Whether you earn more or less as a contractor, in comparison to being a federal employee, depends on numerous factors. Your chosen profession plays a big role as well as if a position is long-term or simply for a project. Those with highly specialized skills may earn more as a contractor, but that’s never a guarantee.

What About Benefits

One of the often touted benefits of government employment is the benefits package. Federal employees gain access to retirement plans, paid time off, life insurance options, medical coverage, and more. These offerings are also set by the government, providing a level of stability.

The retirement benefits are usually cited as one of the more robust offerings. The Federal Employee Retirement System (FERS) functions as a pension or annuity, providing a defined benefit upon retirement.

The calculation is generally simple. For the FERS Basic Annuity Formula for those who retire at age 62 with at least 20 years of service is 1.1 percent of your average salary over your three-year highest paid period per year of service. That means if you work 30 years, and your highest three-year average is $60,000 per year, your annuity is $19,800 annually or $1,650 per month.

Additional Benefits of Government Jobs

Augmenting your annuity with the Thrift Savings Plan (TSP), a more traditional investment model, is also an option, as well as Social Security. Some are also eligible for an annuity supplement.

Paid time off is also a major benefit, especially since you earn more vacation time the longer you stay a federal employee. New workers earn four hours for every 80 hours they work. That usually means you accrue a day of annual leave every four weeks, or 13 days a year.

After three years, that goes up to 19.5 days per year. With 15 years of service, a federal employee accrues 26 vacation days annually. And that doesn’t include sick leave, which is another four hours per pay period.

Plus, leave doesn’t always have to be used the year it accrues. You can bank up between 30 and 90 days of annual leave, depending on your location and the level of the position. Paid federal holidays also come with the deal, and you don’t have to spend leave.

Contractor positions often come with benefits, but they vary in nature. Since contractors work for another company on paper, that organization dictates what is available. This means different contracting businesses can provide varying amounts of leave and they control what other benefits they offer.

Job Security

Federal jobs are typically some of the most secure available. While the size of the government does change, these shifts are usually small. Plus, most federal employees can’t be fired on a whim.

Contractor roles are generally shorter term in nature. The length of the contract, which commonly lasts a few years, dictates the amount of job security available. In some cases, the renewal of a contract creates a more stable situation, but you can’t rely on that happening.

Hiring Speed

The largest drawback of trying to get a federal government job is the speed at which they hire. The government is notoriously slow when it comes to their hiring process, so it can take months to learn if you got the job.

Most government job announcements feature closing dates, representing the last day you can submit an application. After a job closes, most agencies provide applicants with an update within 15 to 30 days. However, that isn’t a requirement, and some take much longer.

That means, if you apply the first day a job comes open and it doesn’t close for another two weeks, you should expect to wait at least a month before learning if you made it through the initial screening. After that, coordinating the interview process, additional screenings, background checks or security clearances, and the generation of a job offer can add weeks to months onto the process.

Even current federal employees are subject to these waits, so you don’t see any reprieve once you are in the system.

Hiring decisions for contractor roles are typically much faster. While the level of scrutiny can be high, particularly when it comes to background checks or security clearances, they often move through the steps more quickly. Often, hiring times for government contractors mimic similar roles in the private sector, so the wait is much shorter.

Should You Become a Federal Employee or a Contactor?

Ultimately, both paths can lead to viable careers. However, it’s wise to review what your skills are worth in both areas before deciding. Compare the GS pay rates that match your target role to those you can land as a contractor. Review the benefits packages to see if they meet your needs or compensate for lower pay. Determine how long you can wait to find out if you got the job, and then decide how to proceed.

Do you have a government job or are you a government contractor? Tell us about your experience in the comments below.

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Middle Class Adults Only Have $20,000 Saved for Retirement

October 23, 2014 By Jeffrey Strain 10 Comments

Middle class adults only have a median of $20,000 saved for retirement

Americans continue to fall far short of what they need to be saving for retirement. According to a new survey commissioned by Wells Fargo through Harris Poll, The median amount of money saved for retirement by middle class people is only $20,000. This falls over ten times short of the $250,000 they believe they’ll need during their retirement years.

The reasons for such a huge shortfall between the two numbers is easy to see when looking at the numbers. Just over one-third (34%) of middle class adults who work aren’t contributing a single cent to their 401(k), IRA or some other type of retirement savings account. Those who are managing to save money for retirement are only saving a median amount of $125 a month. Almost one-in-five (19%) have no retirement savings at all.

The majority of the people questioned don’t feel a need to sacrifice for their retirement savings. Just under two-thirds (61%) responded they aren’t sacrificing much to save for retirement while just over one-third (38%) responded that they are making sacrifices to save money for retirement. Just over half (55%) responded they plan to save more money later to make up for not saving as much as they should be saving now.

The lack of savings is putting many in a position where they aren’t sure whether they will be able to retire. Almost one-third (31%) of middle class adults don’t believe they’ll have enough money in retirement to survive. For middle class adults in their 50’s, half say they will continue to work until they’re 80 years old because they don’t have enough money saved to retire.

One of the main findings of the survey is that investment returns alone aren’t going to produce enough income to create a secure retirement account. It’s essential for people to save money in addition to investing it, and that’s something many in the middle class in the US aren’t currently doing. As Wells Fargo’s director of institutional retirement, Joe Ready, points out, “The main message here is people are putting off saving, and they are losing the benefit of long-term compounded earnings. Kicking the empty can down the road is going to be detrimental to their retirement security. It’s really a problem.”

There are five things people should do to improve their retirement savings:

Start saving today
Take advantage of your company’s 401(k) match, if offered
Figure out how to save more than you currently are saving
Determine the type of investor you are
Leave your hands off your savings

The survey questioned 1,001 adults between the ages of 25 to 75 who had a median household income of $63,000.

(Photo courtesy of Garry Knight)

Do Automatic Retirement Contributions Help or Hurt?

August 16, 2010 By Jennifer Derrick 9 Comments

You may have heard about the movement to automatically opt employees into their 401K’s. Right now, the default option is for you not to contribute. When you’re hired they ask you if you’d like to contribute and how much. If you say no, then nothing is taken out of your check. There is a movement afoot to make opting in the default option instead. When you’re hired you would automatically have three percent (more or less depending on the employer’s plan) deducted from your check and placed into a retirement plan/fund of your employer’s choosing. You would have to specifically tell your employer not to do this in order not to contribute to the plan.

The thinking is that if the default option is to be enrolled in the plan then more people will save because, frankly, we’re all too lazy to be bothered with filling out the paperwork to stop the withdrawals. This is partly why more people don’t currently contribute to retirement plans. They’re too lazy or busy to be bothered with filling out the paperwork to join and researching the options for their contributions. So, the thinking goes, if you automatically enroll people into the retirement plan, they will be saving something and probably won’t opt to change it.

The goal of this plan is to get people to save something for their retirement. The government wants us to save more because retirees with no money will soon overburden Social Security and Medicare. People need to start taking responsibility for their own retirements. Since people have shown time and time again that they won’t contribute voluntarily, the government wants to try to sneak it up on us.

I don’t disagree with the plan. I wish more people would step up and take care of their own retirement planning. I’m not looking forward to supporting others in my old age. I will have saved enough to take care of myself, but I will likely be penalized in higher taxes and reduced Social Security payments to take care of those who did not take responsibility. However, I wonder if the plan will really help all that much.

Sure, it’s great that people will be saving something. And they probably won’t really miss the money because three percent taken out of your paycheck before taxes really isn’t that much. If your gross pay is $2000 every two weeks, for example, then three percent of that is only $60, or $10 per month. That shouldn’t present a problem for most people. And therein lies the problem. The contributions that will be automatically deducted are not nearly enough to create a secure retirement on their own. Obviously the idea is that the employee will opt to contribute even more or to open some other retirement account like a Roth IRA on their own. Yet if people won’t even voluntarily sign up for retirement plans, what makes anyone think they will voluntarily opt to have even more deducted from their checks? I think the odds of most people exceeding the default deduction are pretty slim.

The other goal of this plan is to teach people to save. The idea is that if you show people savings in action they will be inspired to save more. If you show them how a 401K adds up they will want to do more. I don’t think this will work, either. Most people know how saving works. You don’t need much more than an elementary school education to understand interest and compounding. When you start a job you are usually given information on the retirement plan that includes all kinds of charts showing how your contributions add up. People ooh and ahh over those charts during orientation, but still don’t sign up. For all that they understand, people still don’t want to save. You can’t force people to save money. Sure, you can take a nominal amount of their check but you can’t make a non-saver get excited about doing more. Sadly, many people only learn how to save once the crisis comes. Forcing people into a 401K isn’t going to turn them into savers or teach them how to save for the long term.

I worry that these plans will have the opposite effect. Instead of getting people to save more, I worry that this default contribution scheme will increase complacency amongst people and actually lower their desire to save. People will start to think, “I’m saving for retirement through my employer. I don’t have to do more.” They’ll lose any desire they may have had to save more because they will assume it’s being taken care of by those default deductions. Even if you explain that they need to do more, many will assume that what is being done is enough. If people are so complacent when they aren’t saving at all that they think retirement will magically take care of itself, why would anyone think that they would not become even more complacent and guilty of magical thinking once a little money is actually being put away?

When people who’ve been “tricked” into these contributions retire they will have some money saved and that is better than nothing, but it won’t be nearly enough to accomplish the governments’ goal of reducing the burden on entitlement programs. It won’t be enough to make them independent in retirement. I don’t think many of them will have learned to save on their own. I’m afraid that this plan might actually make the saving situation worse in this country. People will assume that it’s taken care of and not bother to save more, to learn about investing, or to take responsibility for their own situation. If they won’t do it when no contributions are being made, why would they do it once some contributions are being made by default? So what do you think? Will automatic contributions help or hurt the long term retirement prospects in this country?

A Life Without Debt: The Decision to Remain Childless

April 21, 2009 By Sadie Morris 33 Comments

We are DINK’s (Dual Income No Kids). Many years ago we made the decision not to have kids. That decision didn’t have anything to do with money. On the contrary, we could have afforded kids quite easily. We just didn’t want kids. I’m the sort of person who likes to visit with my nieces and nephews and then send them home. I don’t have the sort of temperament that lends itself to having kids. I like things just so and I like doing what I want with my time without having to worry about a child. My husband is much the same way. Of course in a society that values children to an extreme at times, our choice is often unpopular. We’ve been accused of being selfish; denying a child the benefit of being raised in a comfortable home. But I’ve always thought it was the opposite. It would be more selfish to have a child that I don’t want to deal with just to satisfy some societal norm than it is to know I don’t want kids and act confidently on that knowledge.

Now that we’re many years down the road from that decision, I look back and I realize that part of our ability to remain debt free stems from our decision to forego children. If we had had children, I think we still would have remained debt free because that is our priority and we’re very frugal by nature. We would have found a way to make it work. Likely we would have forgone a lot of vacations and bought quite a few hand me downs. I probably would have stayed home to avoid child care expenses. There would have been far fewer meals out and our kids would certainly have gone to public school or been home-schooled. They would most certainly not have been spoiled and had the latest of everything. We’re just not wired that way. We would have enjoyed a good standard of living, but certainly without many luxuries. Our parents did it; I’m confident we would have made it, too.

However, not having children does make it much easier to stay out of debt. When one of us loses a job, we only have ourselves to worry about. When creating an emergency fund, we only have to worry about each other, not what can go wrong with several children. Our expenses in every category are less without kids (except maybe housing as we would have this house with or without kids). We don’t have college educations to save for so we are able to put away more for our retirement or other big purchases. Our incomes only have to cover us, not educational expenses, childcare, extra insurance, additional medical bills, lots of clothes, and additional food.

I know friends who have kids that have remained debt free so I know it is possible. They do a wonderful job of balancing the needs of their children with the household needs and saying, “No” when the budget does not allow for extras. But I do know that it is harder for them than for us. They say no a lot more often than we do. And while they have remained debt free, they have not been able to save as much as we have. They have very little in their retirement accounts and a modest emergency fund that would only last two months. It is harder for them and I am aware, when I visit with them, that remaining debt free would have been much harder for us if we had kids.

As I said, we didn’t decide to skip kids because of money. But there is no doubt that remaining debt free has been much easier without that burden. People often remark, “Oh, well, you don’t have kids so it’s no wonder you don’t have debt,” as if kids are an automatic free pass to rack up the debt. And I don’t deny that not having kids makes it easier. But everything about personal finance comes down to your choices in life. Those of us who choose not to have kids sometimes reap the financial benefits. But there are plenty who do have kids and remain debt free, albeit with a lot more effort.

I know other DINK’s who are in debt up to their necks, so being child free does not confer an automatic debt free life, either. It’s about the choices you make and the priority you place on remaining debt free. I wouldn’t recommend basing the decision to have kids or not solely on your desire to remain debt free. Kids are about a lot more than money. But there is no denying that it is much easier without kids. It’s yet one more choice and factor that has to be considered when planning your financial future.