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?"

Comments

Been a contactor for 10 years. No big deal...

[wernst]

This is going to be short since I need to get back to work. (heh heh heh)

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.

Re:Contracting has a lot of cons - beware.

[zuzulo]

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 ...

Wise old contract employee

[xs650]

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."