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."

Comments

Re:Are you sure?

[stevew]

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!

Health Care and Financial Planning

[sjanich]

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