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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."
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.
-avoelkerYou may find you're going to have to find a complete set of new clients.
I recently got fed up with an inefficiently-run government contracting position and decided if I wanted thinks right I was going to have to follow the proverb and do it myself. I've set up the home office about a month ago, and here are a few of the lessons/insights I got real quick.
:^D)
1.) Getting started takes a LONG time. Even if you hack at home now in your free time, you're going to need a few days to get your office right. Getting your workstation to exactly mimic the productive suite you were used to at work will take a while. Getting a website to feature past experience and show off your new wares is going to take a while too (but will pay off in the long run). Now add overhead for buying office supplies and, much more importantly, registering your company with your local gov't to reduce liability, and you'll see you're not going into business immediately. Plan for at least a month of downtime at the start (or sprinkled around your first code) for you to get the infrastructure to *start* ready to go. (aka, "MAKE SURE YOU HAVE SOME MONEY SAVED FOR FOOD AND RENT!!!"
2.) You're doing it *all* now. I'm able to finish bits of code much more quickly without the distractions of the water cooler (and intrusions into my cube), but once I'm done, now what? Marketing is no longer "the communications department's job". Nor is tech support someone else's responsibility. Nor polling the customer to see if I've hit the mark. Nor is handling the overhead if a customer is upset. All docs, all testing, all support, all "everything you didn't worry about when you were coding" is your responsibility. It's all you. Note that the side lesson is that if you can bring anyone with you -- or if you can use past contacts as subcontractors, that's a huge help while landing and when you finally land a big fish.
3.) Good luck finding the customer. Don't get the unrealistic idea that you're going to be able to spend all your time coding. As another poster pointed out, if you've already got work lined up, enjoy! But I recently spent about two and a half work-days on a 4 month job proposal which didn't get selected ("lack of previous experience" -- and I've been working in the field before this for 4 years! New companies are certainly at a disadvantage). That's time "down the drain" (though certainly I can cut and paste some of one proposal into the next), and you have to consider this as part of the cost of finding a guaranteed customer. In my "downtime" I'm writing a trialware application, but unlike contracts there's no guarantee anybody's going to want to buy. Don't underestimate how much work your current company is doing for you by finding the work.
4.) Multiply everything by three -- Time for projects, costs for supplies, costs for advertising and submitting proposals. I'm sure if you've worked more than a few years "in the real world" you've learned this one already (boy, I sure did), but it's worth keeping in mind. You're your manager now too, you know! Don't say you can name that tune in two months when it's going to take six. Having a poor experience with your first customer isn't going to help you find that second and third job.
That's the short lesson from my first month of working out of the home. It's fun, I get a ton done, all the code is done up to my personal expectations and written efficiently, but I'm still looking for my first "real" customer. Best of luck.
It's all 0s and 1s. Or it's not.
Join the IEEE. After two years of membership, you can join their group health insurance pool. Use Corba based health in between. So, stay at you current place at least 6 more months. That will also give you time to set up your solo structure (think Sole Proprietor LLC).
Hokay - this is interesting in that someone finally mentioned all the business paperwork
First my bonafides - I was self-employed for 7 years, and have worked for a contracting company as an employee for 3 years. So I've seen both scenarios described here, i.e. before and after.
The health care arguments others have used is specious. It's expensive, but if you are making that extra $15 an hour the company is getting as a commission on you -that'll take care of health care. You have several choices. One guy mentioned IEEE which would work. There are other places you can join the equivalent of a group health care plan too, you just need to look around. Even then, the cost is going to run you between $6000 and $12000 a year assuming a family of four.
Next let's look at what the contracting company "should" be doing for you. They should be taking care of taxes and sales for you. The tax situation has it's own questions you need to answer - 20 of them actually - as to whether you can get away as self-employed or not. Another issue is that many companies aren't going to want to hire 1099 because of possible tax problems. SO - you probably need to incorporate! Then you become an employee of your own company. So it comes down to - do you want to do the yearly corporate paperwork and tax filings quarterly?
Next, yet VERY important is sales. Likely you'll get a contract that lasts some number of months. What happens at the end of that? You need to constantly be selling your services to prospective clients. How do you get your name out there to them to even get the interviews? If you have an extensive personal network - maybe this isn't a concern. I lasted 7 years without a problem.
Anyway - good luck!
Have you compiled your kernel today??
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.
First and foremost, learn to question your assumptions. You say "they haven't done much for me" but they still get money for your work. Thing is, you HAVE work -- you seem to think that striking out on your own would also include full-time occupation, and I can tell you right off, that's almost certainly not true. The reason so many consultants ask $75 or even $100 per hour is because they're lucky, especially now, to find 6 months of full time work per year. So, have something lined up before you quit!
Also, be careful about what you decide to take. You may have signed something with your consulting firm promising not to compete or poach customers for a year after your contract; their client (where you work) almost certainly signed a similar document promising only to hire you through them. See if any friends or family can help you out with something, anything small. That's your advantage, IMO, as a completely independent dude: you can take any job, even 40 hours over 3 weeks for 2-3 grand, that a bigger firm wouldn't consider. Capitalize on this.
Don't quit even when you line something up! Try to do whatever work it is, after hours and on weekends, or scale back your day job duties by 5-10 hours per week. But your firm is a great way to make contacts, so don't dump it until you're SURE you're ready. How will you know? If you don't know, it's not time.
That said, I would seriously recommend taking steps towards being independent. I've been independent all year now, and there have been a couple of scary months, but it's been fun and I've learned a LOT. The way I work is this: I formed a LLC in my home state of Michigan at the advice of an accountant (oh yeah - get a good one of those, too) because of the way it helps with taxes. Now, since I'm a software consultant, all of my computer equipment is bought before taxes. I get to deduct car expenses for time spent driving to work. I can start my own Keough retirement plan, and my health insurance (while minimal) is 70% tax deductible. There's too many advantages to mention. Just email me if you want to talk about it.
But definitely be careful and don't piss off any connections that might do you well later. And DON'T go behind your agency's back and ask one of their clients to illegally break the agreement -- you'll just look like a slimeball who can't deal with the real world.
Good 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
I've been freelancing for six years now. I agree with many of the things others have said, especially about having a big savings cushion. But here's my big piece of advice: Getting work will be much harder than you think.
Once you go own your own, you go from being a technical person to a marketing person. Network relentlessly. Join user groups. Collect recommendations. Get and stay in touch with old colleagues. Write articles. Schedule plenty of time for keeping up on the latest skills and the latest buzzwords.
My tip: start out by getting part-time work. Don't quit your day job until you have so much outside work that you can't stand it anymore.
Also, I'd recommend that you read "The Computer Consultant's Handbook"; and Weinberg's "The Secrets of Consulting." The first one's a little old and the second one is focused more on consultants than contractors, but you will find both helpful.