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Leaving the Contracting Company for Independent Work?
Giggles of Doom asks: "I currently work for a technology contracting company (one of the ones that finds you a tech job and you work at some other company as a non-employee) and have been for the past couple years. Recently, however, I have begun to realize that for the past two years they haven't really done much for me, yet they still get a commission for every hour I work. The benefits I get from them aren't that great: non-matched 401K (that they are canceling), discounted prices on stock that has gone down for the past several years, and a few paid vacation days. I have begun looking into going independent. After all, that commission my contracting company is getting could be money I could be getting. And considering that they don't seem to be offering much in the way of benefits for that commission I don't feel obliged to have them keep on getting it. I am wondering if anyone else out there has gone through this kind of thing, leaving a contracting frim to work for themselves, and if they have any advice to give on how to get out of contracts, billing the company you're doing the work for, etc. And, biggest of all, was it worth it? Obviously it will be different with everyone and every company, but I would be interested in hearing of other peoples' experiences."
Weigh the costs of Health Care of yourself vs. your company.
This ultimately forced me to find a day job, just couldn't (and didn't) want to pay with a purchasing power of one person vs. the (relatively) cheap programs a real company offers.
Plus, if you're by yourself you'll talk yourself into the old "Well, I've been as healthy as a horse for three years" line and you'll wanna skimp, until one day you throw your back out lifting a rackmount UPS or you fall off a ladder in some godforsaken server room in the middle of the night.
Just think to yourself "Can I afford a $3000 bill if I get hosed?"
Let's look at this from the Client's point of view
You work for your contracting company
Its Client 'rents' you by the hour...
Suppose you muck up (however unlikely this may be)
Case 1: You're still working for the contractor
Client can sue a [presumably] large company
& - if it wins - have a greater chance of
their suit bringing them in big compensation
for their efforts in the courts...
Case 2: You become a one-person-contractor
Client can sue you (or your own company),
but (I'd suggest) your public liability
insurance value will be much less in $'s
(ie less to go after)
Now, if you are competent... and your Clients
know that, you should be able to break away
from your current employer... provided that
you haven't signed with the employer -and-
the Client hasn't signed with the employer
some agreement that precludes that for some time
after you leave the employer.
('don't know if that'd be legal... but you'd
sure be tied up, just as your funds would be,
if they sued you for anything like that...
And, even if they could afford it, your Clients
probably don't want the hassle of a legal battle
either; not only that, they may be depending on
the presense of -other- guys in your (present)
role, coming from the same contractor as you do;
why should they rub their vendor(s) wrongly, ie
just so you can earn more per hour and maybe
decide to leave them, to travel the world, etc?)
Actually, I like Philip Greenspun's model of
5-member companies, who offer services (in
that case, creating & maintaining database-
based web sites & the like, I understand).
Long years of experience in one or a few of
the group's areas of specialty combined with
rotating project lead's (eg changing with
the project) put them in good stead to do
what you're considering, without risking
being stretched too far, along the way...
Go have a look at the model, see if you can
find a few others with a similar vision, &
give it a go.
Good luck! (Come back & tell us how it went)
The consulting agency you work for earns it's cut by finding you work between gigs. If you can readily find new contracts without the agency, and you don't need to stay with them for immigration reasons, I suggest you make the break-out and work for yourself.
The benefits are probably not worth the reduced income unless you have an expensive/precarious medical insurance situation. An important benefit of self-employment is your ability to deduct expenses against your taxable income. Also, the experience alone is probably worth the hassle/expense.
First, I'd suggest incorporating, either as an s-corp, LLC, or c-corp in your state, for tax and liability reasons. It's not that difficult or expensive if you follow the instructions in the Nolo Press book for incorporation in your state. It should cost only a few hundred dollars, plus a state corp income tax minimum (not additional, if LLC or s-corp) of less than $1000 per year.
Second, get liability insurance. It's really cheap for contract software developers (as opposed to a product company). I found cheap liability insurance from Hartford via http://www.techinsurance.com.
Third, follow the procedures and documentation in the Nolo Press book...make stock certificates, do government filings on time, hold periodic stock holder and board meetings...for your corporation to remain legitimate if you get audited.
Fourth, set-up a company checking account and credit card. Generally, pay for things using these instruments, but you can reimburse yourself. Fund the checking account from multiple clients over the next year or two, to legitimize that you're not an employee of your client companies
Finally, bill and sign contracts with your clients using your corporation's name. You will be acting as an agent of your corporation. You can set-up QuickBooks and bill them with the generated invoices using agreed upon terms, typically Net30, which means not being paid until 30 days after submitting your invoices.
Lastly, IANAL (I am not a lawyer) and IANAA (I am not an accountant). Please use your own judgement and advice of professionals or good publishers like Nolo Press. Good wishes.
-avoelkerGood point. I believe that goes to 100% for 2003 and beyond.
Think 1200 to 1600 hours X Billing Rate for Revenue
Think the following for expenses:
-Lawyer
-Accountant
-Health Insurance
-Disability Insurance (as important as health insurance)
-Life Insurance (if you are married or have dependents only)
-Business Liability Insurance
-E&O Insurance (maybe)
-Cell Phone
-Voice Mail/Fax (second line or something like onebox.com)
-DNS hosting, shell account, email (think easydns.com and something like imhosted.com or threeh.com)
-internet connection (DSL or Cable Modem, pro rated for non business use)
-marketing goodies (maybe some pens, mugs, or shirts for yourself or others)
-Logo Design/ Identity (think www.1800mylogo.com)
-Education costs (your yearly Usenix or whatever conference)
-Professional Group Membership
-Reference materials, magazines and books
-American Express Card yearly fee
-Hardware and software costs
-biz checking account and business checks
You pay a self-employment tax of 15.3%
You can put 15% of you Net into a SEP-IRA (think Vanguard or TIAA-CREF low exepense, no-load mutual funds)
If a Sole Proprietor or Sole Proprietor LLC you basically pay personal income tax on: (revenue - expenses - SEPIRA).
You need to make quarterly estimated tax payments.
Get an Accountant to help you with a system. You will want a notebook for a startup expense log, an asset log, and expense/revenue notebook. If you don't understand things like depreciation, you will need to find that out. Most states have some free legal programs for small startups.
Also, you accountant can help with travel re-imbursement, home office deductions, etc.
Note: Everything is more complicated then I have mentioned.
Check out these 2 books:
Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants by Stephen Fishman
Keeping the Books: Basic Recordkeeping and Accounting for the Successful Small Business by Linda Pinson