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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.
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
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"
Depends on the job. Most contracts I've taken have been short-term for almost that reason: if you don't work out, they want to be able to get rid of you.
If you're right for the job, then chances are the contract will be extended (depending on what kind of job it is). I've never had a contract that only lasted as long as the initial duration, and about half of them have lead to full time positions.
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!
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.
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.
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
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-- 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.
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.
For a company I would think that it makes sense. Where I work we continually hire VERY bad employees. Getting them through the system, getting them acclimated, only to find something very wrong, then going through the process of getting rid of them is a huge burden on the company. Now of course this is all because of the idiots in management who hire these people, but what do I know?
Seems to me that if I contract someone and they prove that they would make a decent employee, then by all means hire them. Think of it as a sort of test drive for people. I'm not saying that you're not right, but I can see why a company would do it.
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
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.
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.
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.
Use the rule of 1,000 A job paying 65k per year should pay $65 per hour as a contractor. See PACE and the contract employee's hanbook. --Damon
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).
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.
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 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.
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 *
Also remember that once you are in 1099 land, the world can become your tax deduction. Have a home office? It can be used as a deduction. Your computer, cellphone, blackberry, portable hard drive (aka ipod), gas money, car depreciation (and even the whole car purchase price), etc. can all be deducted from your taxes. Obviously talk to an accountant, there are very specific rules about all these things, but even if you are conservative, you will be laughing your ass off as you pay that extra 14%. And as the parent stated, using an S or C corp can also be used as a vehicle to defer or reduce your tax bill (but most importantly reduce your personal liability!).
About an accountant- It is highly recommended but not entirely necessary to go through an accountant for these things. Accountants are people just like you, and you can read the same books and tax codes that they do. Accountants make mistakes and get too aggressive too and YOU are the one signing the tax return- having an accountant doesn't reduce your liablity one iota. If you have the techie spirt figuring out what you can and cannot deduct should not be too difficult, and won't leave you a whimpering uneducated mess if the IRS comes a knocking for an audit.
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.