Slashdot Mirror
Switching to Contracting?
SoonToBeWorking asks: "I recently did a telephone interview for what I thought would be an absolutely wonderful job. It is primarily embedded Linux, with a stable employer that was less than 10 miles from my residence. The interview went extremely well, until the end. The position was listed as full-time but they want me to come on as contractor because the approval is easier to get. Then, I am told they would move me to full-time. I'm recently married, and looking for stable income because I have more than myself to look out for now (kids are not present or on the way for several years yet). I've never contracted before, so I am in unfamiliar territory. I hear a lot of good things -- 3-day work weeks and crazy amounts of money, but is the lack of stability worth it? I know I need my own health & life insurance, but what else? How do I convert my base salary to a contractor rate? Without a 401k or a 403b, how do I take care of retirement?"
Ask yourself if you really want to work decades for a company where getting approval is such a hassle.
If you get a high salary from a stable company and are a competent worker then you have little to fear.
The terms of employment may say contract or permanent but in reality people get dumped from both categories when hard times come and the least needed persons (in managment's perception) get droped 1st.
In reality the 2 to 4 weeks notice required for termination of a permanent worker don't mean squat. Health insurance etc.. just cost money so make sure the pay is enogh.
--= Isn't it surprising how badly I spell ?
Companies will tell you its easier to get contract employment.
I've know companies who will hire someone on as a contract employee for six months and if they are any good then they will switch them to full time.
It's simply easier not to renew someones contract then fire them. If you fire them they will persue unemployment and that in itself can imvolve some time.
I'm not saying this is the case for this company... I've just seen this tactic more then once.
"You should always go to other people's funerals; otherwise, they won't come to yours." -- Yogi Berra
In this economy you don't often get much chance. Take the job if you like it. The other stuff is your responsibility, even though companies used to handle those things well, nowadays you're better off buying your own insurrance plans and saving up for retirement yourself. Get a savings account and put asside some of your income every month. That's how people get rich BTW, they save up and eventually start investing. Most people aren't rich simply becaues they're not able to control their spending habbits, and instead choose to live hand-to-mouth.
I've been working in a "contract to hire" position for four and a half years. I was enticed in with decent pay, with no benefits -- but made the tradeoff because the pay was good. I've been posted at the same company the whole time and had three substantial promotions. With each promotion I've been told that I had to wait for a raise, only to find out about 6 months later that no raise would be coming. I started as an entry level tester, and after cost of living adjustments make less now as a Project Manager than I did when I started.
To make matters worse, contracting companies usually don't let you discuss anything relating to your employment with your managers. So if you have a grievance, you can't take it up with the person you report to.
Contracting is a scam. It's the new Amway. Don't fall for it. If a company isn't ready to commit to you, they're not worth working for.
for 5-ish years. Take what you think you want to make per year as a "normal", chop off the thousands and use that as your hourly rate: you want to make $50K, charge $50 per hour. This will be slightly off the going rate depending on your location, but will be in the ballpark. If you're in CA, NY NY or DC, double that. And remember that you will need to save roughly half of what you make to pay taxes.
And some advice: For cheap insurance, check out your professional society (IEEE, ACM, whatever). They usually get great rates for independants.
Keep excellent records of the time you spend. It may seem anal, but no points lost for over-documentation.
Spend at least one hour per day (off their clock) looking for the next gig. When your current project is done, it's done and they will have no qualms about letting you go fast.
And finally, if you want the long-term stability or a regular job, drop the hourly rate (slightly) and make sure that every week they know how invaluable you are. And don't sow bad karma by not commenting or documenting or writing unclean code. After all, they might let you go and then hire me to fix it...
Good luck.
- Jim
#include "humorous_pop_culture_reference.h"
If you do sign a contract, get it put in your contract that you will become an actual employee after a certain number of days. Otherwise you may find your 90 days becomes 200 (hello target). As a contractor you get to walk on eggshells constantly no matter if your a flunky or project manager. If your a real employee you get wonderful things like benefits. You'll also discover a fair number of programs for laid off people won't help you if were a contractor.
If they are already telling you lies do you really think they'll be a good employer? If you REALLY need the money then go ahead and take the job but keep your eye open for something else.
On the other hand many full-time jobs treat you as contract help. I've had several that as soon as a project was finished found some excuse to fire me. At least if they admit upfront that you'll only be there until the end of the project then you know to be looking for your next job.
My last employer hired me full-time but evidently never filed the paperwork. When we parted company (because he just stopped paying for my work) I tried to get unemployment only to find out that he'd never filed any paperwork on me and evidently hadn't been paying any of my taxes he was supposedly taking out of my paychecks. To top it off, to get my final paycheck he made me sign a document saying I had been a contract worker.. then he stiffed me for half my paycheck after I signed.
The moral of the story is to be careful. If your employer looks untrustworthy be careful not to trust them. Look for somebody else to work for.
At what price learning? At what cost wisdom? The price is a man's peace of mind, and the cost is his life.
My philosophy is that this is the best time you're going to have in your career to take risks. Once you have kids, you have more financial commitments, and you have even more as they get into high school and college. That doesn't mean you should take silly risks, but you shouldn't turn down opportunities flat just because of a moderate risk.
It all depends on the arrangement. If you're working as a direct contractor, on a 1099 basis, then you've got to budget a lot extra for the self-employment tax and your benefits, plus the headache of quarterly tax payments. If you're a W-2 employee of a "body shop" type firm, then it's all pretty easy for you. You'll be just another piece of meat, but that can work to your advantage. Make sure your pimp pays on time, though.
The stability of "permanent" W-2 employment is a myth any more. I've watched downsizing go on for a solid decade now, and it hasn't let up. I've seen 20-year veterans get the axe, just like the newbies. What happens is that the bean counters tend to cut EITHER contractors OR employees, since they often come from different budgets and with different approval requirements. If it's employees, the contractors will often be left completely safe. And vice vera.
I tend to boil it down to a simple monetary calculation. Figure out your total compensation for both arrangements (permanent versus contract), assigning a real monetary value to benefits or deducting appropriately from contractor payments, and adjusting for vacation and the fact that, as a contractor, you'll likely be paid for ALL the hours you work (not just 40 per week). Once you've got an idea of the cash, figure out the value of the experience each arrangement gets you. (Does the employer pay for further education and skills development. REALLY? Many places promise it, but few deliver.) What does it cost you to pay some for your own education, if you do it yourself? Will you do more interesting or career-enhancing work one way or the other? Finally, figure out how much less you're willing to accept because you're part of the team, not some "prostitute". Also figure out how much not having an annual review (as a contractor) is worth to you.
For what it's worth, I took a contract assignment near the bottom of the dot com bubble. It was supposed to last six weeks. Three and a half years later, still going, at a rate based on a short six week assignment.
While this is definitely a possibility, some companies just like to bring people on first as contractors, or through a temp agency, because it gives them a chance to safely conduct a "working interview". If they like you, then they hire you.
Keep in mind -- once you've been there for a few weeks to a couple of months (or longer), they've already invested in your training, and you've had a chance to make a good impression. At that point you have a fair amount of leverage to start pushing hard for that full-time position. If you hate your job, you can walk out and leave them starting over from scratch -- and if they're smart they'll realize this.
Contracting usually requires dilligence and pro-activeness, plus a willingness to take care of the details of an employer (since you are really employing yourself here), but the benefits (sometimes) include a better hourly rate compared to employees, and MUCH more flexibility. If you combine all these traits and pick up other smaller contracts to fill up any extra time you have, you'll earn that much more (remember, YOU are the employer, and YOU can tell your employees -- you-- that it's OK to moonlight, even during "working hours.")
First, the boring and annoying stuff. Get an individual health plan for yourself and employees. Kaiser, Blue Cross, and others offer good coverage and good prices. (My Kaiser coverage is much better than my salaried co-workers at one big company.) Check with an independant insurance broker for other options. There are many.
Invest for retirement with an IRA, Sep IRA, or Roth IRA. Don't know about these things? OK, see a financial advisor too.
My Advisor is also my tax guy, which is a good thing, because the Income Taxes get a LOT more complicated too as a contractor. If you're "employer" isn't withholding, then *YOU* need to do it yourself. On the other hand, there are MANY more legal deductions you can make for equipment, work space, classes, books, office supplies and such. You REALLY need a tax guy to guide you.
Now for the good stuff. Because you don't get sick days, vacation days, benefits, or "stability" (but in my experience, salaried employees are just as likely to be layed off as contracters when the shit hits the fan in a company. YMMV), you must DEMAND a better pay rate than salaried employees. I'd say at least 15%, but shoot for as much more as you can get.
Since you're not an employees, negotiate the ability to work at home X days a week, if possible. Don't abuse the privilege if you can get it. Being home makes up for a lot of the loss of other things.
Consider taking other consulting jobs on the side sometimes. Make that experience you have really pay.
Make sure your terms of employment give you the rights to develop professional ideas outside teh office. Previous slashdot articles cover this. Remember that the limitations imposed on salaried employees SHOULD NOT APPLY TO YOU in exachange for the lack of stability.
Well, that's just off the top of my head.
I like contacting so much that I've turned down salaraied positions at the companies I've contracted for. If you like the flexibity, then the work is worth it, but note that you probably won't advance up the ranks of the company as a contractor. If this is important to you, then you need to negotiate that up front, or don't be a contractor.
What makes you think they will be good to work for, when they pulled a bait-and-switch on you? That's not a tiny lie, that's a huge one. What else are they lying about? How many other ways will they backstab you?
we will end no whine before its time
The truly sad part is that the Anonymous Coward is 100% correct*.
While I burn my karma here and take massive metamod hits for good measure, think about the front page "question" and then think about the OP response.
Seriously. Maybe the delivery was poor but the point is still valid.
*Instead of modding my response down as flaimbait/troll why don't you educate both myself and the OP response was anything but factual with an equally factual reply.
BSD is designed. Linux is grown. C++ libs
Sorry, messed up the link to realrates.
I think some employers hire contractors and then offer full time positions because if a person turns out to be an idiot, it's easy to let contractors go, not so easy (and potential to get sued for wrongful termination) with employees.
Every company has hired people who look great in the interview and wind up being idiots, or jerks, or just unproductive. OTOH there are a lot of very productive, smart people who would be great assets, but don't interview well. Using the contractor option gives companies the option to give you the benefit of the doubt without such a commitment.
So if you're really a competent, hard working individual, going for a contract position is probably a good bet (caveat; I've never done it myself). OTOH if you're the type that got an MSCE through learning-by-rote, and doesn't really know what they're doing, watch out.
As for me, I quit my full-time position to start contracting (for my former employer and a new customer) in October. I had had enough. I actually expected my employer to be petty about it...but they surprised me and have been very cool; so I'm still working with them...only not as an employee any longer.
I was freelance for a while a few years back anyway; so, it's not as scary to me. It is somewhat scary, though. I have three children and one on the way. One of them has a genetic disorder. My wife is a stay-at-home Mom. But my job was really that bad. And besides, ownership has always been my goal.
Insurance is going to be a b***h no matter what. Look into COBRA. If the guy's married, but his wife has employment that offers insurance, he should check into getting covered under that. If not, he should look into getting coverage minus dependents. As a last resort, if he would incorporate (form an LLC, S or C corp) he could include his wife on his payroll (if she really does help out say 25 hrs/week) and then qualify under group plans instead of individual plans. The benefit there is that an insurer can generally turn you down just because they don't like you for individual plans. But for group plans, they can't.
Again, the best advice I could give you is this:
- Talk to a trustworthy accountant
- Find a decent lawyer as well
- A financial advisor is a good idea as well but will overlap functionality with the accountant
- ask for guaranteed minimum terms on your contracts (six months or a year)
- work your tail off
I like working for myself tremendously. But the money only comes in if I work. For instance, if I don't work this Thanksgiving, I don't get paid.You should also note as a contractor, your employer will not be making payments to the state unemployment and/or workers compensation programs, which may harm you at a later date should you need those services.
If you can't get a job, well, heck, it's a no-brainer. In fact, if you are "good" and can get it done quicker, you might have time to pick up a second "gig" as a contractor for someone else, eventually hiring people yourself to form your own company (American dream here).
But if all you want is stability....maybe something else is a better solution.
It's true that 'perminant' employees aren't more protected, but when it comes to lay-offs in times of belt tightening, contractors will likely go first.
I do security
There is no loyalty anyway. Even if you're an employee, you can still be layed off or fired on little more than a whim. Being a contractor simply makes the lack of promise explicit.
Long ago, I took an employee position. I was layed off after five months. I felt betrayed and I was really angry. My next several posisitons were as a contractor and my employement at these positions lasted as long as *I* wanted it to. Since I hadn't made a promise, I simply left if I didn't like the job that much. The positions that I liked lasted for years. The lack of promise kept everyone happier and prevented anyone from feeling betrayed by a one-sided promise.
First of all, forget the notion of 3-day work weeks. Your goal, if you take this contract position, is to convert it to full-time. Working only 3 days a week is not going to help you get that goal.
There are a lot of different things to consider when you take a contract position. How much of a pay differential you get depends a lot on the specifics of your contract. You will want to discuss this with the company making you an offer and make sure you get all of the details. Here are some things to find out:
- Will you be W-2 or 1099? 1099 contractors are independent contractors according to the IRS. This means you pay *all* of your FICA taxes. If you are W-2, the IRA considers you an employee, which means you pay half and the employers pays half. So if you are 1099, that's an additional 7% reduction in your net pay that you will never get back.
- What benefits, if any, are you eligible for, and how do they differ from full-time employee's benefits? This all depends on your contract. Sometimes health insurance and 401k are available to contractors, sometimes not. This may or may not be important to you (you may have health insurance through your spouse's job, for example). 401ks are usually a very good deal if they are offered, but sometimes they are not available to contractors.
- Contractors usually do not get paid holidays or paid vacation, but that is not always true. If you get no paid time off, that's about 20 days of lost pay per year (assuming 10 days vacation and 10 holidays) out of a 200-business-day year, the equivalent of a 10% reduction in pay.
- Employees are typically salaried but many contract positions are hourly, and some will pay time-and-a-half for overtime. If so, find out whether overtime is considered over 8 hours per day, or over 40 hours per week. 8hrs/day is better than 40 hrs/wk, but 40 hrs/wk is probably more common.
- Are they serious about making you full time eventually? How long do they expect you to be a contractor before offering you full-time? See if they will put a conversion date in writing. Starting out as a contractor can be a very good way to get in the door and prove yourself, but it could also be the employer's way to make it easier to trim staff when workload lightens. If you know anyone who works there already, see if you can talk to them about how things look from the inside and find out if it is really the great job it looks to be. If they intend to leave you as a contractor forever or cut you loose after a short period of time, be aware that many potential employers look negatively at short-term contract work on a resume. Not all do, but many do.
Be prepared to take a pay cut if and when they do offer to convert you to full-time.
Don't be afraid to talk to the recruiter or hiring manager openly and honestly about your concerns. You are raising kids and have never had a contract position so you have a very legitimate reason to be concerned and to want to proceed carefully. If they balk at your concerns, I would take that as a red flag that something is wrong with the situation. If everything is on the up-and-up, they should be understanding of your situation and willing to spell things out for you.
Good luck!
However, there are risks and costs to contracting and your compensation for them is only measured in money. Figure 30-50% more than you would expect to make as a FTE. This breaks down as follows:
salary: 72.5% FTE equivalent
Federal Tax: 25.0% FTE equivalent
SS Tax: 7.5% FTE equivalent
SS Tax: 7.5% (W2 employers usually pay this)
Vacation/Hol: 12.0% (figure six weeks per year)
Benefits: $x,xxx (depends on age, dependants)
Risk: 8-16% (figure 4-8 weeks to find new job)
I base such calculations against a 2080 hour year so divide your annualized benefits appropriately and make sure you allow for them to increase 15-20% per calendar year.
Of course your prospective employer will downplay the risk, downplay the benefits (since those would be deducted from your FTE paycheck) and downplay the vaca/holiday time as well. They'll also tell you that self-employment taxes are deductible, yada-yada. So try to avoid disclosing the details of your thinking there. Contracting involves risk and cost, your surcharge for 1099 vs. W2 is 50% or whatever works for you. Be prepared to walk away vs. discounting what you think you are worth.
Risks? If your contract-employer does go out of business, you'll be left holding a worthless paper invoice and will have lost 15-30 days income or more. You might even get sued for the previous 90 days of payments you already received (yes, it happened to me). FTEs have some legal protection from this and are guaranteed up to ~$4280 in priority claims by federal law. Contractors have no such protections and are merely lost in the sea of claimants.
Other tips?
These opinions guaranteed or your money back.
1) Variety, variety, variety... Rather than getting tied to the same code for years, I get to move from project to project...
2) More control over my life... I can usually stay as busy as I want, but if I want to take a month off, I just stall signing up for the next contract...
3) It's been said already in this thread - there is no such thing as job stability...
4) I am constantly thinking about adding value for my clients... Rather than thinking of myself as an expense, I think, how can the client afford not to hire me ... Everyone should do this - I think working on contract makes people think about this more...
5) Lots of tax advantages... I am in Canada, so I suspect you're able to write off as much or more than you can in Canada.
Platform independent bug tracking software
I contracted for a company for about 2 years after they had to move me back from full time employment due to money issues. I found it fairly unpleasent except for the fact I loved the work I was doing and the customers I was interacting with. 1) Having to get your own benefits sucks cause they are not as good as ones a company will provide. I sprained my ankle real bad during that time and when I went to get a brace that my doctor recommended, the insurance agency said that my benefits did not cover orthopedic unless I was diabetic or one other condition that I can't remember off hand.(This was Blue Cross/Blue Shield, they had great price on the insurance plan, but that has since changed from what I've heard). 2) Having to pay all of your own Medicare, Social Security, etc is horrible. Be prepared to be reamed. Now sure you can jack up your rate to cover this, but in the end you're still going to be gritting your teeth as you write the quarterly checks to the IRS. 3) Pay your quarterly taxes. Or be prepared to be penalized, though I believe this only happens after the first year. Don't quote me though. 4) To cover the taxes, I would suggest getting a decent savings account with a good percentage. Something like ING Direct's Orange account that offers 2.2% interest. Remember you can reimburse mileage and some other things(Check the IRS website for this) if it exceeds a certain amount. 5) Get an IRA, especially a SEP IRA. I have one called Select Fund, but can't find a link for it now. Will respond when I'm at home and looking at the documents. 6) Get everything in writing. Pay, how many expected hours, what their timeline for when you'd be brought on full time. 7) If you have to work at home, I'm sorry. I found it incredibly boring and lonely. Now being married could make it more enjoyable. Other wise, enjoy and good luck.
Form your own company--either an LLC or S-corp and do your contracting through your company. There can be many tax benefits to this (work related write-offs, lowered self employment taxes by paying sef a reasonable salary and taking the rest as a distribution, and others). Once a company, you can start your 401k plan and match it however you like up to $40000 (total) IIRC
/.
PROS
Own boss--sort of
Can play with money to lower taxes and keep more for yourself (check with CPA on best way(s) to do this)
Write-offs (internet connection, phone, travel, insurance costs, etc)
Can start your own 401K
Once you have a company, it may be easy to get contract work
CONS
Insurance (life, health, disability)
Keeping your own books (Quickbooks or the like makes this easy)
Filing tax related paperwork
Setting up a company and 401k does takes a bit of effort
PUSH
Keeping your job/contracts
Now to write off this time as professional advice...oh wait...this is
"Look Lois, the two symbols of the Republican Party: an elephant, and a fat white guy who is threatened by change."
You're contracting directly, treat this like it will never be anything but a contract job and you will be scaring up business again on short notice. Of course, you want the salaried position, but they're asking you to shield them from risk and they need to pony up for that. That means you need to charge at least as much as your total salary+benefits+payroll tax would be -- which is about 45% above your base salary just. If this was a $75k job ($36/hr), you need to charge the equivalent of $108,750 or ($52/hr).
If you really want that salaried position and you really think you're going to get it, you can stop here. If you have _any_ doubt whatsoever that this is going to transition, you need to act like a real contractor and frankly that means take the figure you just came to and add at least 50%. Doubling it would not be out of order, but this is where you need to feel them out. If you're gunning for a $75k job and they balk at paying you $75/hour on contract, you don't want to work for them--they'd pay yet another half again as much if they got you as an employee of a contractor and they know it. Let them know by demanding to be paid accordingly.
By law, if you have a 1099 relationship, you have to be a bona fide contractor--and that means among other things setting your own schedules and having other clients. If they are your sole source of income, demand you come in from 9-5 and otherwise treat you like an employee, you CANNOT be considered a 1099 contractor and they know it. If they want to play that game, they have to play by the rules and so do you. Act and charge accordingly. If they don't take you seriously, they never would have anyway.
Look, basically all jobs are going to the contract model. There is no such thing as a "stable" job anymore.
Hear that sound in the background? That's the sound of our standard of living falling rapidly (and that sound has been there for a few years now).
Hear that other sound? That's the sound of the falling dollar (Euro == $1.31 as of today). There is a relation between these two sounds. Why is the once almight $ now falling? Because the rest of the world doesn't believe that we'll be able to get your fiscal house in order (and they're probably right). We're running record trade deficits and record budget deficits. The US National debt (private and public) stands at about $55Trillion if you include promises made to retirees. What does that mean you ask? It essentially means that the US is a Banana Republic. Just today the Russian central bank wondered out loud if they should continue to hold on to $$s since they're losing value so rapidly. The Chinese and Japanese have to be wondering the same thing. Should these companies beging selling off dollars in a serious way, it'll spell financial ruin for the US.
So what does all of this have to do with your post? Well, it's likely that when it comes to retirement that the money that you're socking away to retire on won't be worth much when you actually retire. Also, it just reinforces the fact that there won't be any such thing as 'job security' anytime soon.
On the bright side: As the dollar plummets it makes us more competitive with India and China (as it basically lowers our standard of living).
Take the contract job. It'll probably last up to a year and you'll probably do pretty well during that year. Let the year after that worry about itself - that's about all you can hope for anyway these days. And it does sound like a pretty good gig as well. Who knows, maybe they will make you permanent after a few months if all goes well - but don't be lulled into thinking that being 'permanent' really means anything.
If you already manage your money well, then contracting can be very good for you. However, I know many contractors who have tax problems, bill problems, and periods of no employment because they didn't think it through.
Money: First, you should probably be at least an LLC or C corporation because you will have better control over the dispositon of revenues. The bad part is that you will have to be responsible for filing all the necessary paperwork and you will have to keep a good set of books. You can set your own retirement plan if you are a high officer in a corporation, and this can be a benefit, particularly if you are older. I recommend you know about financial ratios and manage your business according to standard. then, since you are paying youself out of the corporation revenues, you will need to know about payroll requirements, and you will have to figure out what rate gives you an adequate return.
Personal money management requires you to be somewhat conservative. You should have liquid assets enough to cover about 3 month's expenses. Most contractors don't start out with that, but if you decide to go the contractor route you should make a plan that will achieve that within about a year. In other words, don't spend it all.
Sharpening the Saw: You will need to continually upgrade your skills and tools. This can be expensive, but is usually well worth it. Figure about 15% of your time to be used to make you worth more in the future.
Your reputation: Employers are looking for "heads down" hard workers in the IT fields (particularly programming). If you are a slacker or a surfer, you won't last long as a contractor. Be sure your contract covers the scope of work, and try to deliver that work on time or early. Furthermore, you should have GOOD communications skills. There will be problems, and you will have to talk your way into getting them resolved. If you fail at any of these, you will have trouble getting your contract renewed or getting further employment.
The most successful contractor I know used to fix electronic organs and switched to programming when that industry started dying out. He took a couple of classes, subscribed to the MSDN, read Charles Petzold's book on Windows Programming, and built a niche as a highly competent programmer. After about 4 years, he was contracting out at >$200/hr, and at least once landed a contract for about $20K/wk. He arrived at that figure by recognizing the hassle in working for other people and deciding how much he had to be paid to put up with it. His contract includes 6 weeks of freedom on Mexico beaches at the beginning of each year (although he does some work over the 'net). He's been working for a large oil exploration firm for the last couple of years, and when they tried to bully the contractors into reducing their rates he said no. They renewed his contract anyway. Since I've been bullied like that before, I learned a lesson: Know exactly what you will settle for, be worth it and don't settle for less.
All-in-all, contracting is well worth it, but you have to be willing to be in charge of yourself, and not need outside motivation.
"The mind works quicker than you think!"
1. Increase "hourly" rate, 30% should do it to cover taxes, etc.
2. Hop on your wife's health insurance. I did that after I got married, and my business has employees with a generous health package (I pay 100% because I don't want to track contributions/opt-outs)... it was much nicer to have her company pick up half... Otherwise, find a local coop.
3. Retirement planning. 1st, Max our the Roth IRA, if elligable. Then, incorporate yourself as an S-corp, no tax implication, but it's slightly cleaner than a sole propreitorship. Then do any of the retirement plans that interest you, SEP-IRA, SIMPLE, Keogh, Profit-Sharing...
4. Learn some basic accounting, and find a CPA that will cheaply set things up for you. I skipped that, cost me a few thousand dollars and LOTS of headache to compensate for saving $250 upfront.
It's a great option, if the pay works out. Also, if you can get some of the work to be remote (which they technically HAVE to allow as a contractor, there are IRS rules for who can be a contractor), you can always later hire someone to do it. I.e. if you only have to be onsight 2 days/week, you could eventually raise your rate sufficient to hire someone to do the job and land a second gig...
Work one location M/W, another T/Th, and keep Fridays for bookkeeping.
In that scenario, you spend all your office time with "face time" and working on extending/enhancing the contract, and have your employee do the projects. Just email them the assignments and back to networking...
Just a few thoughts...
Alex
The other big thing to remember about contracting is that you have to charge enough to live - the best rule of thumb for me (handed down from a truly old hand at the contracting business) has been to take my hourly salary as an employee and multiply it by a factor of 2.5x - 3x to get my hourly rate as a contractor. This takes into account medical, retirement planning issues, corporate overhead, and hot and cold job cycles.
;-)
...
Sounds like a lot early on, but you quickly realize how much of that pay differential is essential to maintaining a comparable quality of life.
Keep really good time sheets, and be sure to document all of the work you do. Very different from being a full time employee, since frequently the client will never see you doing any work at all. Good hourly and daily logs really go a long way to show you and your client what you are doing to earn your keep. This is in addition to coming through with the contract deliverables in a timely fashion, of course.
Another thing to realize is that if you are a successful contractor, you are almost certainly going to get offers for full time employment from satisfied clients. Think long and hard ahead of time about if you are interested in full time employment, and if so which clients you would be willing to work for and which you would not. Figure out how to tactfully decline prospective employment offers you are not interested in.
Know when to cut your losses with a specific client. Some clients are more trouble than they are worth, and often young contractors carry poor clients for far too long before cutting them loose. It is hard to let a paying client go, but freqently in the long term a problem client will cost far more in emotional distress and work disruptions than they are bringing in financially. Figure out how to cut problem clients out gracefully.
Get someone competent to handle billing. I cannot overstate the importance of this. You might be lucky enough to have a part time bookkeeper who will be willing to handle this for you. Do *not* assume that you are going to be as good at this as you are at doing what you are paid to do. You most likely will not be. heh.
Unfortunately, you are most likely going to have to learn most of these things the hard way
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety."
As long as he's willing to accept the decreased quality associated with making you work overtime.
paintball
A wise old contract employee who worked for me 20 some years ago said:
"Bill, we're all temporary employees here, it's just that only some of us know it."
If that's the case -- and you need to be the judge of this -- you may want to make their lives easier by being pretty easy going about it all.
I've been on the hiring side of this, and contractors -- to avoid being burned, or because they've been burned -- can be pretty mercenary. We're way more likely to hire someone on full time who basically doesn't *act* like a contractor (who will stay late without charging for each minute, etc.). (This assumes it's an hourly contract, not a per-work contract.) That said, my company is pretty fair and cool place to work. There are a lot of places that *will* take advantage of you.
If you think there's a reasonable chance of being hired on as an employee, I would not sweat the retirement planning unless your contracting phase goes over 6 months. You'll have to pay double for medicare and social security taxes, so you'll need say 20% - 40% over the "hourly" rate you'd want as a salaried employee. The advantage is that you will be able to deduct EVERYTHING. (Talk to an accountant or tax prepare to learn the correct way to do this.)
Good luck!
Dude, I think I can see my house from here.
Look, there is no such thing as a permanent job any more. So, "full time" really just means "with benefits". Contractors are supposed to get ueber-high pay so they can pay for their own benefits.
This leads me to answer the questions of the writeup:People who do the "3 day work weeks and crazy money" thing are generally doing that as a strategy: they have some very specialized skill that they can charge gobs of money for, and they're confident that they're able to bring in regular clients or have a stable set of clients. In that regard, it is more or less as stable for them as any other job. If they start feeling concerned about their ability to bring in regular clients, they tend to move on to a "regular" job.
All of that said, that's not what you're talking about doing. You're talking about going into what's often referred to as a "temp to perm" situation. So, if you feel the company can be taken at their word, it's just as stable (or unstable) as any other job. If you don't feel they can be taken at their word... well, then you can't trust them to keep you around in an ordinary position anyway.That depends on the needs of you and your family, your spouse's working situation (if she's employed, can she put you in *her* insurance instead of paying extra?), and how long you and the company anticipate you being a contractor. Since the employer is talking about this in a convert-to-perm-later context, negotiate with them now what your permanent salary would be if you reach that stage, and then your contractor rate should be 1.5 times that rate if you're contracting full time, 2 times that if you're working part time. For full time contracting, your rate is supposed to equal what your salary would be plus the cost of providing your own benefits, and benefits are supposed to be 50% of salary, thus the 1.5 factor.Again, you're not talking about this as a long term contracting situation, so why are you worried about long term plans for retirement saving during contracting?
The only other advice I can give is, discuss in advance with the employer how long they expect it will be before they could convert you to full time, and how long you're willing to wait. One of my employers had me contracting on and off for six months, followed by full time for six months, before they hired me, and it was very stressful to me. What made it change was that after about three months full time there I basically started asking "are you ever going to hire me?" and then after about the fourth month I told them "If you're not going to hire me, I'm going to move on." That finally shook them up, and then it just took two months to make the paperwork happen. But, it was nerve racking for me. In successive jobs, it worked out much better for me because I sat the boss down before the hire and we talked out when I could expect the conversion to perm, and what my level of flexibility regarding slippage of that date was. Because of that, I eneded up moving from "contractor" to "employee" in about a month to a month and a half, instead of a year. Having this conversation with them also makes plain that you're serious about working for them, instead of just taking their money, so it may help improve your chances for getting hired... especially if you phrase it as "I really want to stay here, so let's talk about what timeframe you're thinking about converting me to a regular employee."
There's a saying -- going freelance is trading the illusion of job security for the illusion of freedom.
In any case, what I really enjoy about freelancing is that it's very easy to take multiple clients and combine a lot of your overhead to reduce/write off costs.
Also, with multiple income streams, you can effectively eliminate the one client who is starting to become a nuisance without threatening your way of life too badly.
Summer's coming along? Drop down to one client and take it easy. Need extra cash? Work like a dog and see the results in your bottom line.
Pinch pennies for a year and you've got a comfortable cash cushion that'll smoothen out most unexpected employment mishaps.
Requires a strong can-do attitude and self-control.
It was a bit scary at first, but once I started believing in myself, getting the work became pretty easy and I'm generally a much happier person now that I made the step.
At this point, you'd have to kill me before I would agree to work a fixed 40 hour/week schedule.
My wife was declared terminally ill within 10 days of my firstborn. We had no insurance at the time. We had an appointment with an agent but it turns out my daughter was born prematurely. So my wife was in the hospital giving birth when the agent was to come over. Hense no insurance about 2 weeks later when she went back into the hospital for a grand mal seisure.
Childbirth was fine. It was the brain tumour that did her in.
Well, even without the insurance we did ok but life would have been a lot easier if I could have afforded a nurse because for 10 years I had to provide 100% supervision, support my family and raise my kids.
I did this through contracting. I was paid 2x what employees were paid - but I did absolutely excellent work (from home). My time was my own, my clients wanted me to clone myself, I had some of the most interesting project one could ask for, and I did have the support of my clients who really did do their best to help me out from time to time.
That being said I was so burned out from the stress after 10 years that I could no longer work. It took 3 years to recover - probably Post Tramatic Stress Disorder! Other than clients lifting work deadlines - I got no help from anyone. Insurance would have made a difference because if I were assured of a policy payout then I would have been willing to take on debt to hire help during the tough years.
Now if any people think that making 2x salary is enough in a situation like this.. forget it. Had I a normal day job I would have needed about 12 hours per day coverage and nursing staff are not cheap. Even with 2x salary I could not have ben able to afford 1.5 nurses salaries along with maintaining my own household.
My ONLY option was doing it all myself - or a premature nursing home - and that 2nd option was not in the cards.
So all in all - You do need insurance if you are married because if either gets sick its on the other's shoulders. Contracting is a good way to go - just make sure you do a really good job because your tenure is a 5 minute phone call.
As for steady employment? Well - I had to interview and hire my supervisor - but made 2x his salary. I didn't think that was a bad idea and I was able to STAY COMPLETELY AWAY from all office politics... everyone knew I was not after anyone's job!!!
The life of a contractor can be bliss.
First of all let me just say that I have been in this industry since 1991 and most of it was contract either w2 or 1099 in Silicon Valley.
1. Incorporate yourself into a company The last thing you want is employeers/customers coming after your and your families personal assets
Welcome to self employment tax and a big stick in the butt. This is a pain in the ass and don't do it unless you are forced to go 1099. W2 contracting is the way to go. Even if you get a gig where they want to pay you 1099 there are places out there willing to process payroll for a small fee. So unless you are good with taxes and plan on having a lot of expendatures to write off, fuuuuuuhgedaboudit. The lawsuit thing as engineer is just FUD, ignore it.
2. Insurance Many companies require Professional Indemnity & Public Liability insurance. For the young & inexpirienced, this can be very expensive - recent PI insurance for us was more than $6000.
Never have I or anyway I have done business with on the entire west coast ever required this. Maybe it's an Australian thing.
3. Training Once you're a contractor, you are generally responsible for paying all your own (re)training costs. In the short term this mightn't be an issue but it is something that should be considered nonetheless
This carrot promptly disappears after you sign on to be FTE. Managers want to see people sitting in cubes, who cares of they are actually doing anything. But they definately don't want word to spread within the company that certain people got training becuase EVERYONE will start bugging their managers for "training". Ironically on long term contracts I have had my 2 of my CCNA classes paid for and some other rather pricey software certifications.
4. Working Harder You will work harder as a contractor. Seriously. Because contract rates are more expensive and generally because you work on specific tasks (ie write system X), you MUST show a positive return on investment.
Wrong. Here in California you are required by law to get paid time and a half overtime, so guess what? After 40 hours you get to go home and like it. IF you have a $50/hr contract the CFO is going to pee all over the place when you start billing $75/hr, and that's YOUR cut not even the agency's.
5. No real job security Everytime you a contract finishes it's like a job interview all over again - sometimes you could go without another contract that suits your skills/needs for extended periods. which leads me to this point...
Laughable. Perhaps you have haven't been paying attention in the last 10 years. This is an illusion. Go find out about this thing called 'at will employment'.
6. CASH FLOW If you ignore everything else in this message, at least take note of this: You may not have a regular income. Cashflow management is essential.
Yes because making a bunch of cash and then having time off to enjoy it is a terrible terrible thing.
Puleeese, the difference between a "Career" and a "Job" is that with a "Career" they can screw you out of your overtime.
I have another comment for the insurance, retirement question.
Buy it, start an ira if you actually have enough left over.
I have been self employeed since 1989. Some times it gets a little lean, but I can say that I would not trade the freedom ofr double the money.
Go for it.
* Carthago Delenda Est *
And that 15.3% is only on the first 30% of income. You can set up an S-Corp, take 70% out in dividends, and only pay the 15.3% on the remaining 30% that you pay yourself in salary.
There is a big difference between being a contractor and doing the "contract to fulltime." Contract to fulltime is just a way to shift budget money around until they have an FTE position approved - which mean you work the same hours and get *maybe* slightly more than you would salaried for benefits. Its often for a short period of time 3-6mo for example and if the budget dosent come through...bubye. And being a contractor isn't exactly glamourous either - if you do have these miraculous 3 days weeks its because you are on a plane the other 2 going back home to see your family for the weekend...not to mention depending on your costs for health insurance etc the pay isnt exactly grandious either.