Organizational caste systems

What's the difference between an employee and a contractor employed by an organization to do work in that organization that no-one else is available or qualified to do?

In most organizations I have worked in the 'contractor' is a second class citizen, denied the rights and privileges of the 'employee' for example access to training programs, attendance at certain meetings, space to voice opinions, feedback on performance, and so on.

Why this is I am not sure, particularly since the contractor is, for the most part as committed to doing a good job for the organization as the employee (in many instance more committed than an employee because a contractor's status is that much more tenuous).

It seems to smack of a caste system that is not healthy for the organization. If it were a question of racial or gender 'second class' treatment of an employee it would not be tolerated. But the status of a contractor seems to foster an organizational attitude that such a person doesn't matter. This in spite of an organizational value set that typically includes words like 'respect' 'fairness', and 'valuing differences'.

Contractors are different from consultants who are afforded a certain respect (maybe because high fees seem to equate to organizational value). Contractors, on the other hand, do not get this respect but again I don't know why. What is the difference between a contractor and a consultant that gives rise to a different organizational treatment?

In an attempt to find out more on this I dug around the internet a bit. Some intriguing nuggets emerged. For example:

They are individuals from outside of the organization that perform services for the organization and are not subject to the various state and federal payroll withholding tax laws. Contractors and Consultants are more likely to be paid without a withholding and issued a federal tax form 1099 for any monies received. There are some 20 or so factors used by state and federal agencies, including the IRS, to determine which category, contractor — consultant — employee) an individual falls into.

There is some interesting guidance from UCSF Campus Procurement and Contracting "In a nutshell, Consultants provide advice, while Contractors "do" things." This website gives a useful table that further explains the distinctions between Contractor and Consultant:

OK so back to the question what's the difference between an employee and a contractor? Again it is an IRS distinction when considering independent contractors. However, the term 'contractor' is applied to people who are, in fact, employees but not of the organizations in which they are doing the work in. In this instance they are effectively 'leased out' by their actual employers for a period of time that may be defined or may be on a rolling contract. They may never visit their actual employer's site, and are effectively managed on a day to day basis by the leasing organization. This is not a comfortable spot to be in when trying to 'do' things in an organization that operates a caste system in which 'contractors' have a lower perceived status partly because they are thought to be taking jobs that should 'by right' go to an employee.

In my experience the finances of organizations are so muddled that it is quicker and easier to employ an ultimately more expensive contractor to do work than it is to hire an employee. This is mainly because the line items on the budget are different. Employees count as the dreaded 'headcount', while contractor spend comes out of some other pot of money and doesn't appear as headcount. Trying to get headcount is a virtually impossible task so why bother if you can get a contractor?

Rather than scapegoat contractors a different (better?) tack would be to change the organizational accounting system to make it easier to employ people on flexible contracts and thus avoid the need for contractors. An alternative approach would be to value everyone for the skills and expertise they bring to the organization and behave in a respectful, fair, and equal way toward them without making distinctions on their employment status.