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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?"
What a timing! I'm recently thinking of moving from permanent employment to contract works, not that I don't enjoy my current income, but the inability to do something else in the quiet period (unlke Google which allows employees to work 1 day a week on their own hobby/project) is a killer. I'm a developer and all I want is to develop/create things, not sitting around waiting 3 months for PHB to approve a 8-week project.
I'm also thinking of my future income and lifestyle. Contractors seem to have more exposures to different industry/management styles, I hope to be more in-demand with such exposures, and through word-of-mouth, as long as you did good in the previous jobs, it shouldn't be too hard to find another contract. Your permanent employer probably wouldn't do word-of-mouth for you to many others.
And let's not be fooled into thinking you have a stable job by being "permanently" employed. You're only employed as permanently as the required notice period, 4 weeks maybe?
Rock that crushes, Paper & Scissors that don't matter.
Double your salary: $100,000 year salary is like $100/hour, even though the gross revenue from that would be $200,000 a year. There's just so much overhead, risk, paperwork, instability, etc.
I've been contracting for the last 5 years..
With the company I am presently with, for 2 years. They constantly dangle the "full time" carrot, but never deliver. I've found this with every place I have contracted, they talk the talk, but make excuses when its time to pay up on promises.
i hate pansy republicans
Ask yourself if you really want to work decades for a company where getting approval is such a hassle.
As a contractor, you will have to pay the employer's share of FICA taxes. That's ~13.4% of your income that is automatically lost to taxes, before you figure regular income taxes or anything else.
There's a number of different options for independent contractors as regards to retirements savings. You can actually save more than an employee as an independent contractor. You can put 25% of their income up to $41K / year into a retirement savings account.
The Google keywords are: independent contractor retirement savings.
In Soviet Russia, I ruled you
In my state, and I suspect most others, the rate you want to make per hour should be increased by a third to take into account the taxes you will have to pay. Be aware that not only will you have to pay all the taxes that were taken out of your check, you will also be responsible for the matching your employer was paying. Do not forget general liability insurance as well as unemployment, etc etc. Although you might want to receive $20 per hour in pocket take home, you will need to bill around $50 per hour just to cover all your expenses. Maybe even more.
Be smart and incorporate. This protects your personal assets to a higher degree and makes things a lot easier. You will need an accountant to help you out. Although lots of people will say you can do it yourself, my accountant saves me far more through his knowledge of the system than I could ever save not paying him.
And finally, the benefit. Every cost you incur in your business is pretax deductible. Every cost you incur as an individual is after tax. This makes it very smart to be in your own business just for the tax savings of things you would buy anyhow.
Tis better to be silent and thought a fool, than to open your mouth and remove all doubt --Abraham Lincoln
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 ?
I switched to contracting 4 years ago and generally have not looked back. I do miss the lack of structured vacations. (they end up being between contracts with a slight level of uncertainty if I haven't prearranged the next contract before leaving). I am a pretty healthy person so sick days are not an issue and I've always covered life insurance from my own pocket to even supplement my employer. For health care... Living in Canada it's not a huge issue so I can't help you there.
All in all I would do it again and I recommend it.
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
Check out health savings accounts (www.hsainsider.com) for your healthcare needs. That may be a good option if you are making your own health insurance decisions.
Contracting can be great, as long as you know what to expect. I was a long-time employee at Sun when I left for a startup. The startup didn't work out for me so I went back Sun as a contractor. Even though I had been at Sun for something like 6 or 7 years, when I came back as a contractor I was the lowest of the low. I could not go to employee meetings, I did not participate in any of the extra cirrucular activities, I did not get any little tschotkies (SP?) at the end of a project. As long as that doesn't bug you, contracting is a good way to go.
At the co. I work for, the multiplier is 1.5.
Or, calculate the cost (if you can even get it) to purchase appropriate health insurance, life insurance, equivalent vacation days, etc.
My employer has contractors and employees--we're a consulting firm. Contractors who are worth a damn stick around as long as they choose to. Same thing with employees.
I suppose, as a consultant, getting laid off from a job is irrelevant. One job ends, the next one starts. In 10 years of employment, I've had 1 week when I didn't work, not counting planned vacations. During that week, I could have done minor jobs, but I wanted the time with my wife before going out of town.
If you see a "permanent" position as somehow more stable or respectable, or as a guarantee that your family will be secure then you're fooling yourself.
"Reality is that which, when you stop believing in it, it doesn't go away." - Philip K. Dick
I did the calcs at two diff. jobs over the last four years, and the break-even point was around 25% in one, 35% in the other (extra salary needed to buy missing benefits: health, paid vacation, retirement).
Stability is great, but being unemployed is also stable.
Remember (and try to find a polite way of letting your employer know) that you can only offer the level of commitment to them that they are prepared to offer you. There is very little security in contract work, but there is also little security in the first few months of a full-time position. Make sure that your contract time will count against any probationary period that your company mandates and that your benefit waiting periods will be reduced by the amount of time you work under contract (assuming they do hire you in 6 months).
It's not a bad idea to let your employer know that you don't consider the contract position as a real job and you will still be looking for a real job until they offer you a full-time position.
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"
Dont be fooled into thinking that a non-contractor position is any safer than being a contractor.
The market is still brutal and there is no loyalty anymore between corporations and their employees. I would take the position in a heartbeat.
Good Luck!
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.
I contracted out for about a year to a company.
Made some damn good money because contractors get something regular employees don't get.... overtime pay.
Putting in all those 60+ hour weeks don't seem so bad when you're getting time and a half for all the hours after 40.
The only downside for me was the fact that I didn't get any benefits like vacation days, or health insurance, but my wife's job carried the health insurance for my family, so we were good.
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.
i would view contract-to-hire as a mutual try-before-you-buy period, during which you get a feel for the workplace and the employer evaluates your performance. if the contract is not renewed, your resume just lists a contract job that was completed.
contractors in the usa are often reported to the IRS via form 1099, with no withholdings or employer contributions for medicare, social security, health insurance, state and federal tax, disability, etc., so you would should expect to pay for those out of pocket before you count your loot.
good luck!
about sean dreilinger
GST 10%
Payroll tax 8%
Professional indemnity insurance ~3%
Public Liability insurance ~3%
Annual Leave: 20 days/yr
Public Holidays: 5? days/yr
Long service Leave: 6 days/yr
Special Leave: 3 days/yr
After doing this, you end up with the gross salary you would receive as an employee. As very rough guide, work out your hourly rate as an employee then double it to get what you should be charging to get the same money as a contractor. Of course you must figure out what premium you want to charge for lack of income security (or insure your income).
The correct answer to "What should I charge?'" is "What the market will bear". If your client raises their eyebrows at your hourly rate, then pays anyway, you are probably about optimum.
An Australian specific answer, but hopefully of some help.
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.
If this company is large, well-established, and been around for a while, and not a younger (less than 5 years), smaller sized company, then odds are they are telling the truth about easier to hire contract.
Of course, the fact the position is advertised as full time, and they are now telling you it is contract, and that the reason is because it is easier to get approval, then that means the position your going for may not be fully funded.
Bottom line: Ask questions. Questions such as:
Is this position fully funded already, or is that why you need approval?
If it is funded, as a contractor (i.e. temp), how long is it funded for?
Does the company have any restrictions on how long you have to work as a contractor before being eligible to go perm?
How long until this position is moved from contractor to perm?
When moving to perm status, will benefits start the first day, or will there be an additional probationary (no benefits) period beyond the time spent as a contractor?
Will you be working under a staffing company (where you are a regular employee of the staffing company), or would you be working as an individual directly with the company (W-2 versus 1099 in the US)?
:)
I've seen some companies use contractors as a way to check out the work and abilities of someone they are interested in hiring when the candidate does not have the "required" education or job experience they originally listed. It can be a great way to get a foot in the door of the company.
Of course, there are also companies that use contractors as a way to staff up and down with little penalties.
You should do your own due diligence, check out the company, their track record, things like that. If you'll be working for a staffing company, research them as well.
One nice thing about working for staffing companies, you submit your time card to them and they take care of all the billing and collecting. You are a regular employee of the staffing company. That means you have labor law protections. When you work as a contractor directly for the company, it's a simple business arrangement, meaning if they don't pay you, you can't use labor laws (easily) to collect. Plus, in several cases, the staffing company will pay you weekly.
. 62,400 repetitions make one truth -- Brave New World, Aldous Huxley
Warning: my information is about 3 years old (when I retired) so some of it might not be as valid now.
Check out realrates. It's a good resource for contractors with lots of tips.
Use an "umbrella" company. They'll "hire" you as a full-time employee and do all the paperwork and billing on your behalf with the client. You can also get health insurance and 401k through them. Good ones won't charge the high percentages regular agencies do.
For annual salary equivalent: take your hourly rate and multiply by 1600. Remember, you won't get paid for holidays, sick-leave, bench-time, plus you have to pay about 15% extra in taxes for being self-employed, and health-care etc, but you'll get a bit more tax breaks. While there may be more hours available in a year, you will not to be able to bill for every one of them, so be a bit conservative in your estimates.
Contracting can be as stable as full-time, sometimes even more, especially in large companies. I've survived several rounds of lay-offs as a contractor.
These days, there are tons of contractors in IT, even at lower managerial positions. You only need a full-time position if you want to make it into higher-level management and/or get stock options.
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
You may want to check out bringing a third party in to payroll. Someone like eWork http://www.ework.com/html/services/index.htm can payroll you and bill the client on your behalf. The benefit of this situation is that you would be a W2 employee of ework, avoiding the process of filing quarterly estimated taxes and keeping your own books. They often can extend group plan benefits to you at discounted rates, too. (I am not affiliated with ework.) If going independent/1099, make sure you bill enough to cover things like benefits, taxes, expenses, etc. A rule of thumb is to double the hourly rate that you would work for them as an employee (i.e. if you'd work full-time with bennies for $20/hour, charge $40 as an independent). Also make sure you cover your butt on contract details like overtime/off-hours work, minimum hours worked per week, job/task description, worksites, travel time/expenses etc... my $0.02
Never trust anyone who takes pride in being called a 'geek'....
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
I did work under a similar arrangement for a while. I used a company called mybizoffice.com for the benefits. They're generally called an "umbrella company" or an "employer of record". It made getting a mortgage recently _much_ easier.
I had no complaints with MyBizOffice. There are other options, but they were the only ones with a good web interface at the time I was in the market (July 2003).
-jbn
Yes, contracting is scary. if you can do W-2, then you don't have to worry as much about estimated taxes.
Roll your 401K into an IRA at a repitable bank or investment firm, be good about puttin money from your contracting fees into you new IRA.
I have been looking for FT perm since I was layed off from a Sys Admin/Citrix Admin positions, fools. a year ago
I have been contracting on 4 1-2 day a week projects, paying my bills and gas money ( the gas part hurts)
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.
anet Ruhl's Answers for Computer Contractors: How to Get the Highest Rates and the Fairest Deals from Consulting Firms, Agencies, and Clients ISBN: 0964711621 Buy it from your favorite online bookstore and have them overnight it to you!! You are on unfamiliar territory and can very easily be taken advantage of. There are a lot of pitfulls with computer consulting/contracting. However, the rewards are well worth it if you know what you are doing.
Go not unto/. for advice, for you will be told both yea and nay (but have nothing to do with the question)
2) Then, take out at least 10% for 'short term' savings (S) - in case you lose the job (something like a savings account would do.) If this acct ever gets over a couple thousand, move it to long-term savings.
3) Then, take out another 10-20% and set that side for retirement (R) in a long-term fund. I set it this high for several reasons: 1) you want to retire early, 2) inflation, 3) knowing the flukes of our economy and career choice, you'll likely need it sooner than later. This is also a practice of the Japanese culture (or was, 10 years ago), and it's been shown that the 'recommended' 10% that most Americans save has traditionally not been enough.
4) Now, figure what your annual health (etc.) costs (H) will be, and subtract it from what you have left.
5) This will leave you with the money you have for day to day annual living. Divide by 52 to figure out what your weekly available budget would be.
6) Figure out what you could get by on in order to pay rent/mortgage, food, utilities and a base level of entertainment (eating out, movies, video games) funds for the both of you. Subtract this living cost (L) from the total.
7) You should have at least 5% of your living costs left over at the end of the month.
So, in summary:
~/ssh slashdot.org ssh: connect to host slashdot.org port 22: too many beers
I've been both an employee and a contractor. In fact, I've been both for the same project at the same company once. Here's some thoughts.
I doubt that you'll actually get converted, because that's a second headache for them. If it turns out they love you, maybe, but not normally.
It's a lot more money; maybe 50% more than the guy sitting next to you doing the same job, particularly if you're an independent, rather than going through a contracting company. However, there is some added work and expense; you need to figure out how to pay your taxes, and you need to get biz. insurance, and so on. The best thing to do it find an accountant that other contractors in your area use, go to him and say "what do I do?" You might even wind up starting a corporation to accept the checks, which is easier than it sounds.
If you start your own corporation, you can setup a retirement plan for yourself called an SEP, which works just like a 401(k). You can contribute whatever you want to it, and buy mutual funds and so on.
To figure your hourly rate, what you want to do is divide the employee version of the job by 1000. Like, if you'd make $100,000 as an employee, you'd like to charge about $100 an hour. You might not get quite that much, but that's the goal.
One thing about your salary goal--it's not quite as much more than an employee as it first seems, because of the biz. expenses an employee doesn't have (accountant, taxes, etc). But it's still pretty good.
Another way to figure your hourly rate is to divide your yearly salary goal by 1840 hours. That's about 46 weeks, which is about how many you can work...you don't have any paid holiday or vacation days or sick days, so need to figure those in. 6 weeks of non-work is pretty safe. When I was a contractor, I found it hard to take a day off because of all the money I was loosing. :-)
Finally, there's health insurance. If you don't have some other coverage (like from your spouse), it costs a bundle...maybe $10K. I didn't have to do that, because my wife's plan covered me, so I don't know much about it.
Good luck, brother contractor.
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.
The only extra tax that a self employed individual needs to pay is "the other" half of social security.
15.3% of the first $87,600. As an employee you only have 1/2 of that taken out in withholding, and the employer pays the other half. Next year the limit is $90,000. In any event, the 2.9% medicare has no limit.
Note however, that you WILL pay your taxes quarterly (e.g. file 1040-ES) or you will be subject to penalties for not paying your taxes nice and early.
Now, that said, you may want to raise your hourly rate by a third or more to cover things like medical insurance, unpaid vacation time, time between jobs, etc.
Being self employed is no less stable than being an employee. Just ask anyone who has been downsized.
This issue is a bit more complicated than you think.
I hope people listen to you but I imagine you're in for a world of hurt.
It definately helps to be more independent when you're a contractor, but not a guarantee of success OR failure.
If we give the guy the benefit of the doubt (he has at least superficially looked into retirement, healthcare costs, etc) we could assume he's asking for additional information. Any "independent" contractor that's stupid enough to think that he's done all the research and he can't be wrong deserves a smackdown.
Even if he is relying on slashdot to do ALL his work (unlikely), this is going to be an interesting discusson for the thousands of people who are reading this thread. Many people might be considering contract work semi-seriously and this thread will give them fantastic links (and horribly wrong information) to start with.
I agree, the grandparent post was poorly delivered (and reminded me of several arrogant high-school pricks who, like all humans, are occasionally right).
But the post doesn't further the discussion and is arguably wasting diskspace and bandwidth globally. Mind you, I'll give him points for being consise and minimizing the waste. (Too bad I couldn't minimize the waste generated by this post)
I can only talk from experience as a contractor in Toronto for the past 8 years. Not sure how contracting works in the US but here contractors are usually incorporated. In my case my corporation get paid by the client and it (corporation) in turns pays me (and my spouse) a fixed salary every month from which I deduct taxes, retirement savings plan (for me and my spouse), etc.
Since personal taxes are higher in Canada, contracting makes sense because you have the advantage of income splitting as I outlined above. Also, many of my toys (PCs, PDAs, etc.) can be expensed out... subject to depreciation of course :-) Yet another advantage is you get to know more people (and make more friends) who can potentially be contacts for future gigs. If you do a good job, clients will be more than willing to hire you back.
Finally, learning is accelerated if one is lucky enough to work in different development projects and with different people who can add their own insight and experience to problem solving.
I did contracting all thru the late 90's. worked well for me, I got a $5 raise every 4 months. In Post 911, outside Silicon Valley they ask a bunch of questions about why you left so soon. Saying you were contracting doesn't cut it. In the valley you get funny looks if you didn't contract. They will think you don't have any initative or skill. If your boss worked in the valley it's cool but you have to take that into account. Hope that helps, likely it didn't.
Sorry about the writing. Robot fingers, you know? Cliff Steele in DOOM PATROL #23
I was a contractor at IBM with the carrot dangling. Not only did I get the full time job, but I made a killing in the process. It's not for everyone, weigh your choices, know the company you are working for and the company you are working at. Work hard, show them your stuff, if it's good enough you just might get it and if not, you are still contracting and can look for other work.
If you are working in the tech industry, I think you would be crazy to think that full-time employment means something more stable than contracting.
Thanks to the new overtime rules, you are more than likely to find yourself exempt from any kind of overtime pay on that salary. As the folks at EA how that's working out for them. Contracting is paid by the hour. I've never been paid overtime, but at least if I end up working a 12 hour day, I get paid for it.
California, as I suspect is the same elsewhere, is an "at-will" state. You can be fired at any time for any reason. There is no tech union so unless you are working for a government agency, if the company decides to get rid of you, poof. Contracting is theoretically unstable but you at least have some notice. If you contract is ending in a month, all you need to do is ask the company if they want to extend it or start shopping for another customer. If you contract for an agency, they take care of this for you. I've never worked for a company that didn't expand the scope of a project several times. Six month contracts end up being 18 month contracts...if you do good work, believe me they find places for you.
The dirty secret of contracting is that it's considered overhead, not employees. You get paid out of the same fund that pays for things like light and heat. So consequently, there's not a lot of attention paid to what gets spent, it's simply the cost of doing business. It's not uncommon to make twice as much per hour as a salaried equivalent. For specialize things like security, thin-client, servers you can make hourly rates that bring back visions of the dot-com days.
Health insurance is a biggie if you have no coverage right now. I was on my parents health insurance when I started contracting, and I switch over seamlessly to my own plan when that expired. I pay $170/mo for your basic HMO garbage, which isn't ideal, but I make enough to cover the cost. I got a Roth IRA way back when that I occasionally remember to pay into, but honestly...the only real way I've made any money is real estate. I bought a house that doubled in value in four years. Thank you California.
For stability, your best bet is to get work for a government agency. TSA, Post Office, I have many techie friends that moved to those jobs when the dot com bust happened and they haven't looked back...essentially they have jobs for life. Working for state governments is a more midgroup approach. You still have a pecking order (they don't fire, but they might layoff), but if you make it there a few years, again, employment for life. But full time? In this current pro-corporate climate? I don't think it's stable. You should expect to change jobs at least three or four times in your lifetime.
If that's what you are facing, the question remains, why not at least make the most while you can? Just don't be a spend-happy idiot consumer. Put lots away for a rainy day and keep your taxes in a separate bank account. As a contractor, you have to pay your own taxes and that's a pretty hefty chunk if you don't remember to "set aside" like withholding does. Again, agencies will often take care of this for you but you will be paying for it...if they pay you $30/hr you can bet they are billing more like $60/hr
Anyway, that's my thoughts. I started contracting, went through two failed dotcom companies, got fired from one full-time position (long story), got my business license, started contracting for myself, and haven't looked back.
- JoeShmoe
.
-- I wonder which will go down in history as the bigger failure: the War on Drugs or the War on Filesharing
OK, you say increase your billing by a third, then you say go from $20/hour to $50/hour (an increase of 150%, not 33%)
... I'm sure I'm missing some stuff here.
Your general advice is right, but the numbers are way off.
I have been contracting (1099) for about 6 years. Here's what I can think of that you need to worry about:
* save the taxes your employer would have deducted
* also save the additional 6.2% on the first $87,000 you make for the employer's portion of social security and 1.45% of your salary for employer's portion of Medicare/Medicaid
* you may choose to pay your unemployment taxes (pretty low)
* pay worker's compensation (also pretty low)
* provide your own insurance. This is expensive; expect to pay more than $300 per month
* provide for your own vacation *and holiday*
* file estimated taxes 4 times per year. You can do without this, but you pay a penalty
* if you incorporate (I recommend it) DO IT IN DELAWARE. I paid $7000 in franchise taxes last year because I foolishly incorporated in TX.
* if you incorporate, pay your franchise tax. It should be $100/year
* you can deduct TONS of stuff. Insurance, medical bills, travel (track your miles driven for business), possibly rent a portion of your house to your business for office space, business meals, business trips,
Overall, I think the +30% figure is probably about right; maybe it's a little high. I figure it by a % added (8% for FICA + 7% for vacation) + my insurance cost (about $5k) and a little extra for the trouble. Of course, that's only for when you're asked to choose between contracting vs salary rates - you always ask for as much as you can get.
No doubt they're using this contract as an alternative to a probation period. If they don't like you after 6 months then it's easier for them to simply not renew the contract than it would be for them to fire you.
I've been a contractor on/off for nearly a decade now. Here are some helpful hints.
Last piece of advice. Do not think you will make more money out of being a contractor. You might. You probably won't. You will receive all sorts of shit from permanents who think you're raking in a million dollars. In reality, you're likely to be making as much as they are when all is said and done.
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.
My company has been throught two rounds of layoffs now in the IT department. Permanent isn't so permanent anymore. Take the relative freedom you have now and go out on your own. They're willing to hire you up contracted, do it. Prove your worth. If they like you they'll either keep you contract or make your permanent. Either way it's as permanent as anything. Somebody said take your asking salary and add 1/3. I'd say more like 1/2 or even 2/3's again.
The contracting firm I worked for had basically doubled what I made just so they could offer up my bennies and pay my taxes. You're not supporting an entire corporation (just you) so 1/2 to 2/3rds is extremely reasonable. They're still on the cheap because they don't have to pay out all the benefits and taxes on your behalf, and if you suck (you don't, do you?!) they can let you go without too much worry or hassle.
Don't wait till you have kiddies at home, do this NOW!
I've contracted for almost 10 years now, and 1 thing I can tell you is, I've been out of work and on unemployment (between contracts) more often than I've been working. I have no benefits as a contractor, no retirement, no insurance, and little money to show for it.
I've been lied to about contract length more than once, told it's 1 year and end up looking again 3 to 6 months after starting. Promised there's a renewal after 6 months to be told they can't renew for this or that reason etc.
If you can get and hold onto a regular full time job, do so, I wish the IT industry and desktop support still hired regular instead of contract, but the way the industry is lately, it's not happening.
As for taxes, if you do take a contract, make sure it's W-2 and not 1099, that way they'll take withholding and unemployment out like any normal employee. If the contract ends, you can collect unemployment. On 1099, you're 100% responsible for your own taxes, withholding, etc, you're a self employed independant and cannot get the benefit of unemployment insurance.
Most contracts do not supply benefits, some agencies will, it's rare at best. Expect that if you need insurance, you're on your own.
Good luck with your future.
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!
There are several types of contracts, and the type of one you have can affect the answers to your questions.
A W2 Contract is the most common around here (Austin). I'm currently a W2 employee of my contracting agency, working on premesis for . My contract agency pays me every other week, withholds FICA and SSI, pays the other half of SSI (aka self-employment tax), and deals with getting their money from . I'm paid by the hour, get no paid holidays, overtime, vacation or sick time. Any insurance or benefits would be offered by my agency, not by . Since Texas is a right-to-work state, there is 0 stability - they can let me go with no notice, and I can walk with no notice.
1099 Contractors are where pays you directly, does not do any FICA or SSI withholding, and you end up liable for the other half of SSI (which the IRS will label self-employment tax on your 1040). You might run into some things like net-30 terms where it can be up to 2 months before you receive your 1st paycheck, and, if it's a small company with money problems, you might end up getting stiffed or run around on the check.
There's also a corp-to-corp contract where you incorporate yourself and do business that way. I've never encountered this type of contract, and recommend you talk with an accountant before considering this.
As far as insurance goes, if your wife works, get insurance through her. For 1 thing, your insurance can stay the same if/when you bounce around from contract to contract. For another thing, her insurance is likely to be better and cheaper than what you'll find on your own.
For a W2 contract, I'd ask for at least a 30% bump (50% if you can get it) from what they were considering for a full-time position. This allows you to be ill, take some vacation, and weather times like Christmas when the company shuts down for a week and you don't get paid. The instability is also easier to stomach if you're making more money.
Add at least 10% more for a 1099 to make up for self-employment tax. More if the terms are net-30 or worse.
Keep some (at least 2 month's expenses) cash in the bank in case you suddenly find yourself unemployed - remember that companies like contractors because we're so disposable when the quarterly numbers don't look so good.
Good luck
One of these days I'm moving to Theory - everything works there
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
Telephone interview from 10 miles away???
'Just do it' doesn't have to be a blind decision. If they're only 10 miles from home, talk to the hiring manager about coming on site for a few hours.
You'll want to meet the people you'll be working with, maybe go for lunch, talk about what work is like, find out if contracting is the norm, etc. Get any promises of actions, benefits, etc. in writing-especially things like 3 day weeks. That should be in a contract, reviewed by YOUR lawyer, and include things like rate increases or other compensation for extra hours past 3 days (if that's what they're promising).
You should also try to have an offline, unofficial conversation later with some of the non-PHBs that you meet in a site visit.
You may also already know someone who knows someone who works there through local user groups, former colleagues, etc. who would be open to a chat.
Also consider your options - are you already gainfully employed, will this advance your career in a way you're interested in, what other options do you have for job, etc.
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."
Being a succesful contractor is a lot of hard work and can be very expensive, particularly in your first year. If you're serious about going down this path, seriously think about the following:
1. Incorporate yourself into a company
The last thing you want is employeers/customers coming after your and your families personal assets
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.
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
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.
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...
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.
You need to make sure that you've got at least 1 months salary set asside in the bank for times between projects, times when your payments are late because you submitted timesheet too late/nobody authorized your payment, etc. IT HAPPENS. Don't get caught short.
As somebody who has been a full time employee (FTE), a contract employee and an employeer (plug: http://www.pstcompactor.com/ ) I can honestly say that being a FTE provides the greatest of securities... it is easier to let contractors go than FTE's.
Hope you find some wisdom in my ramblings.
It's no secret that lots of businesses like to unfairly take advantage of employees by calling them "independent contractors." I've worked for several bosses who have done just that.
The problem is that unless you're a principal or spend ridiculous amounts of money on work expenses, it's almost impossible to ever come up with enough dough to cover the 40% of your salary that you're going to lose in self-employment tax, let alone surpass the standard deduction.
The IRS has a pretty good outline of how to properly differentiate between employees and contractors (under the IRC) here.
Also, take a look at this PDF form from the IRS. It has the same series of questions, and can be filed with the IRS for a determination (even after the fact) if you should have been counted as an IC or employee for tax purposes. They can then demand that an employer pay the proper amount of your taxes, and give you a refund for what you've (improperly) paid.
There's a three year statute of limitations on filing the SS-8 form with the IRS, though, so just be aware. It's all on the 4th and 5th pages of the form.
Disclaimer: None of this is legal advice. Tax laws are weird and very fact-specific. If you need a solid answer, ask a qualified attorney or accountant or something. You could even ask Dave Barry. He has a blog.
First, there are three, not two kinds of hire. Employees, Contractors, and Consultants.
Contractors are like employees in that they are paid for time not results per se, and are direct reports to the company. Consultants do not do either (at least not real ones)
First, assume 40% goes to taxes. Bango.
Next, assume Healthcare costs are roughly 3 times what they are as an employee. Slammo.
Finally, understand you have no real rights and so can be terminated at will.
For that reason, Contractors on site for short duration (1 week to 3 months) tend to cost about twice the loaded salary of an employee. A "loaded" salary is about 1.5 * base pay. For longer term contracts, the pay is much closer to that of the employee because that's pretty much what you're doing.
Short term example: So a $50,000/year job cost the employer around $75,000 and should be paid for a contractor at about $150,000 per year.
Longer Term example: So a $50,000/year job cost the employer around $75,000 and should be paid for a contractor at about $100,000 per year.
The best thing about being a contractor, is you get a lot of experience by moving from company to company. The worst is that you never really know your job, have no security, and may be unemployed at any time. Vacation time is hard to get, and in some companies you're dirt.
Consulting is the best -- if you have the stomache for the ups and downs, are a REALLY self motivated person, and have communication skills that come close to matching your geek skills.
The problem with quotes on the internet, is that nobody bothers to check their veracity. -- Abraham Lincoln
I have only seen this mentioned once and it was buried, so I wanted to tack it on here because it was a wonderful point:
d =10905562
http://ask.slashdot.org/comments.pl?sid=130655&ci
Incorporate in Delaware.
However, that user did not explain a point that many people do not know: you can incorporate anywhere. Your business does not have to be located there. Delaware has lots of nice provisions for the startup corporation. If not there, do some investigation first, and don't necessarily incorporate where you are located.
Most business courses suggest that if you incorporate, you do so in Delaware.
Good luck!
*-*-*-*-*-*-*-*
"We are Linux. Resistance is measured in Ohms."
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!"
Comment removed based on user account deletion
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
As someone who's been contracting for a while now, I think it's great.
/1.145 (self employment tax) - all actual benefits like health insurance. Generally if your own company pays for your health insurance in a situation like this, it's deductable but IANAL and IANATA.
You should calculate your income as your income
That assumes that the job is as stable as your other job (which isn't always a bad assumption, depending on your other job) If it's not, I'd use roughly the formula:
(new income from above - old income) * time before they fire you = contract severance.
You need to weigh this severance against what you current severance would be (usually a "normal" job gives you at least a couple weeks warning) and the variable probabilities of getting canned. I'd go with something in the couple months for a new job, and make sure you can afford it.
Of course, the time before they fire you is made up, and the math is really harsh if it happens quickly. If they're enticing you away from your current employer, get them to put in an early termination penalty equal to the amount you would've been paid if they kill it earlier than a year or something. This lets them not have to hire you "forever" but it gives you a reasonable amount of capital to survive them failing to come through.
Finally, up to its limit a Roth IRA (in diversified stock or an S&P500 index) is a better retirement vehicle than your 401k, unless the matching is extreme, the vestment significant, and the mutual fund choices not sucky - which is a lot of ifs. For more advice on how to save, I recommend the Motley Fool - www.fool.com But the broad principle is that your company MIGHT have been giving you a bunch of money, which would count as a benefit, above. But probably it wasn't huge and you're not massively worse off otherwise.
Looking for freelance Actionscript (Flash/Flex) or ColdFusion work and/or freelance developers. Email me, put Slashdot
Contracting is fine, but you need to address the differences. If you want some of the stability, you can write that into your contract, like minimum 1 year at minimum 250 8 hour days. Or you can do it by project. As far as compensation, figure at least 1.5-3X what you would expect in a standard salaried position. This is to cover lots of expenses, from tangible factors, like FICA (9%), health insurance (for the whole family! not cheap), retirement benefits, sick time and vacation time, etc, to less tangible factors like stability, title, overtime/exempt, etc. A typical "overhead" rate is 35% (the amount over and above the annual salary that institutions charge for FICA, benefits, etc). So it is easy to see where you need at least 1.5X your expected annual salary. 2X would be better. Point is, make sure this "we'll put you on a consulting basis for now", isn't a ploy to short change you. If you were expecting, e.g. $70,000/year, then you want at least $50-70/hour for 2000 hours/year (which works out to be $100-140K).
P.A.C.E. http://www.pacepros.com/ will give you a W-2 so things like buying a house, and doing your taxes becomes much easier. Their fee is EXTREAMLY reasonable considering the services offere to contractors. They give you all the benefits of being a contractor, and an employee at the same time. Tell them Scott Skaife referred you....
I've been contracting for the past two years and that formula worked for me. My difference was that I work through an angency so I file W2 for my taxes. In that situation my formula works because they pay for my payroll taxes.
Also there is something to beware in Washington State. There is a law here due to a lawsuit against microsoft that as a contractor you may only work for a company for one year then they must let you go by law.
If your contracting, keep track of your mileage. Check with your tax preparer, but you might be able to deduct it from your business income - no sense in paying self employment taxes on deductible items.
A fine is a tax you pay for doing wrong and a tax is a fine you pay for doing all right.
I'm 32 and have been an IT contractor since 1993 and only deal with direct clients NO AGENCIES -- so I think I could lend some much needed insight to this post.
Here's my 10 commandments:
Thou shalt LEARN TO SPEAK ENGLISH!!!!
Time and time again, I get the contract over those from India and even other Americans BECAUSE I CAN TALK TO A CTO/CEO/VP/Director in PLAIN ENGLISH and not mumble, talk in lingo/jargon and not act impersonally.
Thou shalt not do a personal website if you have 1+ yrs experience -- be it a wedding site, a blog, a mom and pop shop or joe shmoe trying to setup an "Enterprise Application". These "people" are DEMONS and will fight tooth and nail and try to bleed bleeed bleed every last detail ESPECIALLY if you are doing them a "favor".
You shalt give your client nothing more than due in your most rightous and holy contract. Face it: if the money comes from some one's personal bank account, YOU DO NOT WANT THIS MONEY. these people will fight tooth and nail about parting with it, no matter how "nice" they seem.
Thou shalt not work for less than 2x the amount you can get as a fulltime employee with salary+benefits including medical with dental and atleast a 2 week per year vacation package. To do less is cutting yourself short. As a contractor you pay your own medical insurance (mines 260 a month for a PPO), you have no employment insurance (no work means no money, don't bother trying to collect unemployment -- unless you've been paying your own UE insurance), what about your retirement? You better account for PUTTING MONEY AWAY in savings.
Any contract over 1 month REQUIRES SUB-CONTRACTORS!
Face it, no one man can be king of all things, nor should you want to be. If you are a contractor, the end all and be all goal should be delivering what you promised ON TIME and ON BUDGET. So this requires that you adhere to the previous commandments and calculate ATLEAST your rate+20% as a lesser skilled subcontractor cost UPFRONT. If your subcontractors are SPECIALISTS, you shalt pay them your at least your rate and tack on 20% to cover thine ass.
Thou shalt write off EVERYTHING that has any silicon inside it.
A 42" Plasma TV is a "presentation device" a 40G iPod is a "data transfer device", a dvd read/write/player is a media transfer device. Thusly it is devinely mandated that your home entertainment system is a tax write off. Just provide hook-ups to your devices.
Thou shalt NOT host for free. You are a developer NOT in ISP. if your client needs permanant hosting, charge them for your service of procuring a list of acceptable hosting/colocation services if they require it. DO NOT offer permanant hosting or support -- you are a developer and developers religiously beta new services/features in order to develop for the upcoming language/software specs -- YOU ARE NOT AN ISP unless you have 5+ servers and can offer 24/7 tech support without a fee and still sleep and eat.
Thou Shalt not price compete. Bottom dollar developers are just that. Customers that tell you that your rates don't match up with a newbie are not clients you want in the first place. NO MATTER HOW BROKE YOU ARE. Remember -- clients come in packs. one pr two of the pack will be ones you want, the others can eat tripe.
Thou shalt not hop projects. You take a project, you finish it.
Bottom line: keep your promises. If the client can not fulfill the needs of the project or breaches the terms of the project and no remedy can be agreed apon: SUE THEM. Do not take a hit because the client hurts the project, charge them and let them know about it before you do. Extra work or delays in the project are BILLABLE. Remember -- you are a service provider and you do not have to accept any harm from your client in regards to profits.
Thou shalt collect money UPFRONT! At the bare minimum you shall invoice all flat rate projects at 33% at project start -- 33% upon an agreed mid-development milestone -- 33%+REMAINDER upon completion. Smart and more skilled negotiations will get you 50% AT START -- 25% at mid and 25% upon completion.
I was contracting when it was good back in the 90's. I miss it. Not because of all that stuff above about 1099 vs W2, getting insurance (don't forget disability), etc., etc., etc. Not that it isn't Important. It is very important. Do the math and don't forget to budget time for vacation, sick time, Social Security, etc.
But here's what I loved about contracting: You get paid for when you are working and you don't get paid when your not:
Up against a deadline? They pay. You are there with all those full-timers getting there dinner on their own time. They pay you and you get the dinner too. I always used to tell my boss, if I'm here, and I'm not eating lunch, you are paying me.
But there's more: perfomance appraisal time is when they renew the contract, no BS. No BS company meetings, no six-sigma/Q+/pick-your-quality-program nonsense, no company gatherings on your time, they don't want you there and you (well, I) don't want to be there. I like doing my job, they can keep all that other crap.
You are there to do X and thats what you do. When X is done, and If they like you, they find Y for you to do. Its a good system.
That much said, here in the Boston area, rates still seem way down (but I haven't been looking all that hard either).
Finally, if you go through an agency, ask them what their mark-up is. Most will refuse but some do answer. If they refuse, I'll ask if its more than 35% (high typical on a W2). Most will answer that with a no but some will be lying. I have known agencies back in the day to mark up by as much as 65%. I doubt they can get away with that now. Its best to talk to someone that has worked with a particular agency to find out if they are good or bad.
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And while you are seen as overhead, as a salaried employee, I am seen as "free" labor. I was having a conversation with a director the other day, who happens to be my boss. I was trying to get across to him the concept of planning, and how there are 4 things:
Cost
Functionality
Schedule
Quality
You can Optimize one, Constrain one, and you have to accept the other two. I was using a current example, where we were constrained by schedule but wanted to get the most functionality in the release. Therefore, we had to accept the cost and the quality. His response? "Cost doesn't factor into this, because as a salaried employee, your cost is free. You can just work overtime and you don't cost any more. Problem solved."
That is how salaried employees are treated.
My beliefs do not require that you agree with them.
You've gotten a tremendous amount of good advice from long-time contractors, and I'd advise you to take it to heart. Taxes, insurance, and retirement are things that you will have to do on your own, and that's a substantial burden.
On the other hand, you're young and have no kids. This is a time for experimentation. If you are really hot shit, then you will thrive as a contractor. If you were working for some big company, you'd never be appreciated (read: compensated) for that, most likely. As a contractor, you can really see what you can do, in your most ideal work environment.
If it doesn't work out, oh well. You can try to get a more stable job somewhere else. Note well those that have said in previous comments that the idea of a "stable job" is almost as extinct as the dodo and passenger pigeon.
I own a small visual effects company, and pay my contract employees more than I take home myself -- and happily do it! No kidding, it's the way of the future, and can work out well for all concerned.
Thad Beier
I love Mondays. On a Monday, anything is possible.
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."
I was applying for an internal position at my employer and to treat me as equally as the other applicants, my co-workers sat in the conference room and gave me a phone interview while I was in my office a few hundred feet away.
If your going to use a K5 artical as the basis for your post you could at least link it.
Really, I know what I'm doing...Ohhhh, look at the shiny buttons!
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."
I am reading such a lack of understanding, experience and total misinformation when it comes to contracting that I couldn't resist posting. There's a lot of garbage, but some very good truth posted here. If you can't tell the difference, or take the time to research the differences, then you probably shouldn't be contracting.
I used to own a 15-person company that operated in the health insurance field. I am now an employee of one, working at home, and I'll be starting an MBA program shortly after the new year.
The one major benefit I can point out, and one that many business owners are unaware of comes down to health insurance. If nothing else, incorporating can save you a lot of money when it comes to health insurance. (By the way, there are many, MANY benefits to incorporating, and in this day and age, anyone operating a serious business as a sole proprietor should have his/her head examined.)
Contact any insurance broker you can find in the yellow pages. In the span of about 15 minutes, you should be able to channel through a few different brokers to find what you are looking for. You want an insurance broker that handles group benefit administration. This is the entity that can help you get health insurance.
The premium that I pay for my health insurance is pretty cheap. (Working in the health insurance industry, I know what to look for, so trust me, I have GOOD health insurance, not some crappy, no-name HMO plan with no coverage.) What I found out in my experience, and what many small business people don't know is that group health benefits can be setup to cover a single person (you), or two people (you and your wife, but from my experience, most of the time, it's cheaper to setup two different individual policies for each of you.)
Another interesting fact is that the premium you'll wind up paying (I pay around $285 for a top of the line, brand-name PPO plan with a tiny deductible, modest office co-pay, full pharmaceutical coverage, and 100% hospital coverage. Vision and dental are also included) won't change until your small business group benefit program reaches 25 - 50 employees, depending on the insurance carrier.
What does that mean? That your company of one pays the same as most companies with fewer than 25 employees, which constitute the majority of employers in the United States.
Once you find a good group benefit admninistrator, the vendor can also put you in touch with a payroll processing company (which I use, and which is great for cash flow management. Also, your payroll company assumes 100% of the liability for withholding payroll taxes. Trust me, the last thing you want to deal with is getting a letter 4 years from now telling you that you withheld too little and now owe the difference plus fines.)
A good administrator will also be able to put you in touch with a lot of the other insurance product you might need. A group administrator can also help you setup a variety of retirement accounts. (I saw one person point out that you can contribute more into a 401(k) retirement account than you can into other self-employment accounts. This is true, but you can combine different types of accounts (like the IRA accounts), and in a year or two, Congress will be enacting a whole new slew of retirement products. Additionally, VERY few people max out their retirement accounts.)
Like I said, there are a lot of resources out there that should allow you to filter the garbage from the truth, but the area of health insurance is kind of a black box.
If you (or any other Slashdotter) have any questions, contact me. I'm more than happy to help answer them.
By the way, it's about 12:30 in the morning, and I'm a bit fried at this point. (Sorry for all the () marks and rambling.) I don't know everything when it comes to healthcare, but unlike many of the backseat drivers on Slashdot, I've walked the walk. I'm self employed, incorporated, and my company has gone from 1 - 15 and back down to 1 person over the course of 3 years. I work in
i want to live life, not just go through the motions
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 *
I'm not sure I'd want promoted in a company that treats current employees exactly the same as outsiders when a job needs filled.
Just then the floating disembodied head of Colonel Sanders started yelling Everything You Know Is Wrong!-Weird Al
That tax rate is only perception. If (and I stress IF) you are paid via 1099, then you pay self employment tax which is at the 14% rate. But if you're a regular full time employee you already pay 7% and the other 7% is paid by your employer.
However, if you're paying the self employment tax, then you can take (yep - you guessed it) half of it as a deduction.
Now if you're incorporated as a C or S Corp, then you're in a different category. You're not using 1099s anymore; rather, you file a separate tax return for your company, as well as your individual return.
But there are pros to each. With an S-Corp you can funnel money to yourself as dividends and keep your salary (and corresponding tax bracket) rather low. With C-Corps you can take advantage of things like using company funds to cover medical bills and use that as a tax writeoff. Plenty of good books on the subject. Needless to say, you can do quite well on your taxes as a contractor IF you are smart about it.
The real reasons you want to ask for a lot more money as a contractor are that you aren't getting:
- retirement benefits
- medical coverage
- unemployment insurance
Anyhow sorry to bore you all with tax garbage but the parent's fearmongering was unwarranted. IANAL, just a small business owner.
As a "contractor" I am an independent businessman. I'm only one, but I am a corporation.
When I price myself, I take into account the following:
Of my 100% fee, I must subtract:
Direct compensation (salary)
Direct Benefits (10%)
Indirect Benefits (vacation/sick) (5%)
Downtime/Admin (15%)
Marketing (5%)
Insurance, business, all types (10%)
Other Expenses (10%)
Taxes (5%)
Profit (10%)
As you can see, my rate is 30% salary, 70% other expenses. In this scenereo, my breakeven point is about 100/30=333% of my salary. If a full time employee would be 60,000/yr, the hourly rate would be 60k/2087*3.33=$96/hr. Which, just so happens to be close to the $90/hr I actually bill.
QED, YMMV
Is it just my observation, or are there way too many stupid people in the world?
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.
To clarify, you're actually not "just overhead"...which is actually a more costly option to a finance person than a contract worker. Overhead is the stuff the number crunchers try to reduce - rent [real estate], utilities, capital expenses [materials the company 'owns'], etc. This stuff can stay on the books for longer than the actual 'purchase' [or employment] of the item/person, which adds to the expense of running the business. If you were overhead, you would be more expensive to the company - insurance, severance and whatever other bennies are in there.
Contractors are more like a line-item expense...need to reduce it? Then let a few go next month. Have budget for a new project? Then add a few.
Who put this thing together? Me, that's who.
Although it is generally true that a C corp or a corporate-taxed LLC would allow you to pay some of your money as dividends, if you are the sole owner of a corporation, the IRS deems it an "insignificant entity". That means you might get the benefits of limited liability, group health insurance, and other corporate perks, but that the money it earns will be treated as self-employment income.
1099 work is not corp-corp, and most companies will not pay a corporation with one shareholder/employee, since that makes them somewhat liable for your tax evasion (they don't report checks to corporations to the IRS). Microsoft got busted with paying non-declared corp-corp consulting fees a couple of years back, and now there is a huge set of hoops one has to jump through to consult for them.
Talk to a CPA or tax attorney when you set up your payment structure, or just take 1099 work and be done with it. Remember, 1099's are declared to the IRS like W-2s, so you need to pay those taxes.
My account always says that the difference between tax evasion and tax avoidance is 3-9 months in Camp Fed.