Slashdot Mirror
Switching to Contracting?
SoonToBeWorking asks: "I recently did a telephone interview for what I thought would be an absolutely wonderful job. It is primarily embedded Linux, with a stable employer that was less than 10 miles from my residence. The interview went extremely well, until the end. The position was listed as full-time but they want me to come on as contractor because the approval is easier to get. Then, I am told they would move me to full-time. I'm recently married, and looking for stable income because I have more than myself to look out for now (kids are not present or on the way for several years yet). I've never contracted before, so I am in unfamiliar territory. I hear a lot of good things -- 3-day work weeks and crazy amounts of money, but is the lack of stability worth it? I know I need my own health & life insurance, but what else? How do I convert my base salary to a contractor rate? Without a 401k or a 403b, how do I take care of retirement?"
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
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
If you get a high salary from a stable company and are a competent worker then you have little to fear.
The terms of employment may say contract or permanent but in reality people get dumped from both categories when hard times come and the least needed persons (in managment's perception) get droped 1st.
In reality the 2 to 4 weeks notice required for termination of a permanent worker don't mean squat. Health insurance etc.. just cost money so make sure the pay is enogh.
--= Isn't it surprising how badly I spell ?
Companies will tell you its easier to get contract employment.
I've know companies who will hire someone on as a contract employee for six months and if they are any good then they will switch them to full time.
It's simply easier not to renew someones contract then fire them. If you fire them they will persue unemployment and that in itself can imvolve some time.
I'm not saying this is the case for this company... I've just seen this tactic more then once.
"You should always go to other people's funerals; otherwise, they won't come to yours." -- Yogi Berra
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.
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.
As for me, I quit my full-time position to start contracting (for my former employer and a new customer) in October. I had had enough. I actually expected my employer to be petty about it...but they surprised me and have been very cool; so I'm still working with them...only not as an employee any longer.
I was freelance for a while a few years back anyway; so, it's not as scary to me. It is somewhat scary, though. I have three children and one on the way. One of them has a genetic disorder. My wife is a stay-at-home Mom. But my job was really that bad. And besides, ownership has always been my goal.
Insurance is going to be a b***h no matter what. Look into COBRA. If the guy's married, but his wife has employment that offers insurance, he should check into getting covered under that. If not, he should look into getting coverage minus dependents. As a last resort, if he would incorporate (form an LLC, S or C corp) he could include his wife on his payroll (if she really does help out say 25 hrs/week) and then qualify under group plans instead of individual plans. The benefit there is that an insurer can generally turn you down just because they don't like you for individual plans. But for group plans, they can't.
Again, the best advice I could give you is this:
- Talk to a trustworthy accountant
- Find a decent lawyer as well
- A financial advisor is a good idea as well but will overlap functionality with the accountant
- ask for guaranteed minimum terms on your contracts (six months or a year)
- work your tail off
I like working for myself tremendously. But the money only comes in if I work. For instance, if I don't work this Thanksgiving, I don't get paid.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.
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.
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."
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.
You should carefully weigh what you feel. Do you have a natural drive or are you more interested in things outside your sphere of work? If you have the need to charge forward and can self-motivate then, assuming you have decent social skills, you could probably make yourself a better living as a contractor. As for your questions about health and retirement I would suggest you check with a local expert. Perhaps your bank or your lawyer could point you in the right direction. That direction, of course, is a decent accountant (similar to a geek but it doesn't count in binary, it counts in $).
What is important to remember is that you really will need to have good social skills, I have seen so many "coders" try to go independant and fail because they think that they can just "geek" their way through.. uh uh uh... nope, wear that suit and articulate properly, yes, go for aftershave! As an independant, YOU are the executive and you must look the part. I cannot stress this enough!!
Good luck and Go get 'em tiger!
-if at first you don't succeed, stay the heck away from paragliding.