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Moving from a Permanent Position to Contract Work?
duncan bayne asks: "I'm sure many developers in salaried, permanent positions have been tempted by the self-management, flexibility and higher pay that are the perks of being a contractor, while at the same time looking nervously at the uncertainty and irregular income. So, to all those in the Slashdot crowd who've made the change - what was it like, was it worth it, and what advice can you share?"
I think it was worth it to me. You have to realize that you won't always get higher pay and more flexibility; sometimes part of becoming your own one-man company is that you have less flexibility because you are the only one to do things. And while the pay may be more per hour often you get fewer hours, or spend huge amounts of time marketing yourself and doing research to setting up contracts.
Still, on the whole it is worth it. You do have more independence.
Traditionally people following this route have had former employers as their main clients. With sites such as scriptlance, rentacoder, guru.com, and etc., you can now get a larger client base, and even start doing it before you quit your old job.
However, I do have to say, that if insecurity makes you nervous, maybe you shouldn't do it, or at least save up money for a while first.
I used this resource when I did what you are considering doing: "So You Want to Become a Consultant?"
Switching to Contracting? KFN
I recommend getting a copy of The Career Programmer: Guerilla Tactics for an Imperfect World by Christopher Duncan.
I read this after getting my first (and very bad) job as a programmer. It covers many aspects of working in I.T., including some of the differences between working as an employee or a contractor.
Good Luck!
I think I think, therefore I think I am.
"Willful employment" is a common practice, even amongst full time "permanent" employees. So what if they don't want you back. They still have to pay. They do have to honor a contract...unless there's a stipulation that says otherwise...or they can afford a decent lawyer to help them weasel out of it.
What?
The office-in-home is a red flag from what I've heard. Of course, I'm not telling you to lie on your taxes, however, you probably wouldn't get audited for a similar deduction spread out over office supplies and mileage. ymmv.
Wanted: Clever sig, top $ paid, all offers considered.
I made a heckuva lot more money contracting but I worked my ass off. Sixteen hour days for three months at a time, no sleep, blood pressure issues. Did it pay off? Sure, but I can't do it anymore because of health reasons. If you're young (and it's not an age thing, but a health thing) I'd say go for it. The money I made contracting paid for my house, a couple sports cars, little things that make life a lot more fun if not a lot more meaningful. It beat the crap out of me, but was a million times better than my former job at a software company.
For me, I have very few clients, one of which makes up the bulk of my income. I was sort of forced into contracting when that primary client couldn't afford to hire me full time with benefits.
The working from home is very nice, and yet due to my 11.5 month old, I am far less productive. There's something nice to having a real office to go (away) to.
As a contractor, make damn sure you have enough potential clients that can support your needs- for me, if my main client dumps me, I'm toast and there is no clause in the deal that they have to give me x-weeks notice since I'm not an employee.
Anyway, contracting has its plusses- and if you've got a good client base, it can definately be better than working in a cubicle. But you're also off on your own and you assume all of the risk.
So if you decide to wing it, work really hard to get and keep clients.
I've actually had less autonomy. Whilst working for the company, they dictate your time and what they think you should be doing and so on. Since I went contract firm want a much stricter account of the time spent. For a person like me who'd prefer to get the job done and not worry about the paper work, that is very frustrating. All of a sudden lunch breaks and my many coffee breaks are a no-go or at east a keep secret. Same for cigarettes.
Oh yeah, there is also the finance paper work...
The pay is usally fairly good as compared to employee (even considering their benefits.) If you do not live in metro area though you may find yourself flying into a job on Monday and returning home on Friday. If you like that life then go for it. I did it while I was young and loved the travel. Now that I have a child, I don't want any part of it. Additional benefit, as an consultant I have worked for many different companies, IBM, Cap One, Citibank etc etc. I've learned a lot of business domains. As an employee somewhere you may not get that. This business knowledge has helped me start my own consultant business locally with a vast array of clients. Headaches: paperwork! Ensuring you have a good accountant who understands the business of a consultant so you get max return. May be hard to find. Sometimes you may be aware more so than you should that you are just a consultant, not an employee. It hasn't happen too me but others have personally told me they were treated unfailry because they were not an employee. I've been doing it 12 years now, no regrets! Oh yeah, big plus, no more freaking annoying 360 evaluations. If that does not mean anything, those annoying evaluations where you judge your fellow co-workers. Ahhhhhhh!
Two wrongs don't make a right, but three lefts do.
I had a nearly-ideal opportunity; my employer was closing, and our sole customer needed a development department. I knew their offer was a panic reaction, and wouldn't last, so I offered to consult (non-exclusively) for a few months. That allowed me to launch my independent consulting career, which lasted a little over four years.
My problem, however, is that I'm not good at sales: cold-calling, lead-tracking, pavement-pounding. Once in contact, I could generally make a sale, and deliver solid work for good prices, but it was only enough work to break even after rent and taxes. When things temporarily slowed down, I didn't have much cushion.
I'm very glad I did it, but I wouldn't do it again without a bigger operating buffer or a sales partner. You really need to combine technical and sales skills to succeed.
Having done both at various times over 24 years, here's the poop for USA:
1. you'll have to make more than 50% as self-employed as you do salary to keep about the same benefits and have same income after taxes counting time between gigs making $0.
2. mediocre health insurance not including dental or eye for whole family: $430/month near chicago area, other posters might also give some rates.
3. Bookkeeping will be a pain: educate yourself on estimating and making quarterly tax payments or just opting to pay penalty, keep record and receipts, know tax laws for business expensing, entertainment expense, and use of vehicle, which is complicated. Tax software for the self-employed helps a great deal, highly reccomended.
4. Don't quit your day job and then start a business or look for contract work. Start your business while you work, or get a contract with appropriate start date and then quit job with proper two weeks notice, don't burn bridges. If you help your current employer to make a smooth transition you can usually use them as a good reference later. So no mooning/flipping the bird/taking dump in desk drawer of the CTO or your boss on the way out
5. Having a search engine friendly resume on internet has lead to most of my 6 -8 month contract jobs in last five years, not bulletin boards or job sites or snail mail or newspaper ads.
6. You can't restrict yourself to projects that are cool or exciting, some might involve some boring/legacy/archane junk that you've done before and the client needs someone with that hard-to-find skill. Happened to me twice in last 3 years.
5. You're in sales/marketing now, baby! of yourself - you need to network with people to see what opportunities are there, let people you you're willing to tackle projects, aggresively pursue follow-on projects and look for other work at clients.
I left my own company because my friend and I were going to team up and work freelance. When I told my bosses that I was going to leave (as expected) they first tried to convince me to stay but after they saw that I was not going to stay they said "Well, I guess that is all" and I said "Well, not really" and explained that I can still be contracted to do some of the projects that I worked in. Then, they were really excited and we both saw that it could be a good deal. They didn't have to pay for health insurance and for a flat rate have me work on smaller contracts. I still get emails from them about issues they have with environment I set up for them. And I help them for free for small issues.
I sent them a proposal and quote for how much it would cost to finish a major project they wanted me to work on. I quoted them at half the rate that it would cost for someone internally to do. It was a lot of money for me since at half their rate I would get enough to live on comfortably for a few months and still give me time to work on other projects.
They were slow to respond and never got me feedback on the proposal and eventually got an email telling me that they would like to continue the development internally. It was a bad economic blow for me and was living on the small projects that I expected to have fillers around that big project. I was making a fraction of the salary that I made at that company for many months, but I stuck with it. I ate less went out less. I cut down my bank statements from having hundreds of a transactions per month to a few dozen. The decision to leave was made in the beginning of this summer and used up a lot from savings to sustain, but I learned that a lot of the seeds that I planted a few months ago are just now becoming fruitful. I am in the process of signing 3 major contracts with people who I talked to months ago and I expect to be able to live on this easily for at least a year.
If I were to do it all over again, I would. It was the best decision I ever made. Freedom is great. I work more than I ever did at my old company. I am doing more advanced things and I am learning more. Because I don't have to be at the "office" I work whenever I want. I read more about other topics I am interested in.
BUT! discipline is everything. I make sure that I worked a minimum of 8 hours a day. I tried to do 10 though. If I wake up late, I work late. My housemates always comment about how disciplined I am and how I am always working, and it's true. Every moment you have, work. You also have to set boundaries. I never work on Saturday and Sunday. I turn of my cell phone and computer and don't touch my computer. I have another friend who does this and I suspect he's going to burn out pretty soon (i.e going to grad school).
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The 2 states that have contract positions paying $60/hr consistently is NY and CA. The rest of the country rarely go above $50, and that goes for even the most hardcore tech positions. The contracting market is IMHO dead compared to couple years ago when it was actually worthwhile to take some chances.
And 401k is absolutely overrated. You save by evading tax now. But if you didn't evade tax and withdraw the amount, tons of financial companies have better ways to make greater gains with your money.
One thing to consider - you might make a higher wage, because the company doesn't have to pay for your health insurance. Make sure you have health insurance for your family!!, and you. This can be quite expensive, and maybe worth sticking to the company, as opposed to being an independent contractor. You might want to look at the cost and see if you really are making more as an independent vs being a company man.
If your life goes perfectly and you don't have any problems then great - you gambled and you got lucky. But what if you get into a car accident/ get appendicitis, or something worse? - Do you really want to pay out of pocket for medical expenses? What about eyeglasses or dental?
People get into accidents through no fault of their own. It's nice to be an adult and PLAN ahead for the unexpected, instead of just gambling on everything being perfect.
..........FULL STOP.
I think that people fresh out of school should seek out salaried positions for the first 1-5 years to build experience (learning the real consequences of a missed deadline is the single best lesson during this timeframe). After that, I think they should think seriously about going into the contract market. The "risk" associated with being a contractor (depending on your location) is no more than that of an employee. It's just a matter of different illusions/perceptions. The best job security, in my (not so) humble opinion, is always the ability to secure the next job . Unfortunately, most people tend to be too timid to realize that in most cases a company will take care of the bottom line, not the employees, first.
But your mileage may vary.....
Before I funded Feeling Software, I researched the market for several months. I also contacted hundreds of former colleagues, industry contacts, etc. I made sure I had enough cash in the bank to last at least 6 months. (It takes on average 2-3 months before I get paid by my clients, partly because currency exchanges from USD to CND means that checks are frozen for a month.) I read several books, e.g. "Getting started in Computer Consulting (Meyer)". I had nearly 10 years of commercial experience for highly reputable companies. I also did managed the R&D for a start-up for over a year. I knew about government subsidies, how to deal with investors, etc. Basically, I was prepared for the next step. It's been 8 months now and overall we've been quite successful. 4 employees (myself included), a dozen excellent clients, including regular ones. Cool projects. I'm still not making as much salary as I could if I worked full-time. But that's because we keep money to invest in the company. Overall the company is profitable and we're always ready to hire top talent when we see it. Note that unless you're pro at what you do, and therefore already able to keep a good and satisfying full-time job, you're not going to enjoy contract work more than regular work. Good luck. Christian Laforte 3D Graphics Expert http://www.feelingsoftware.com/
Typically contracting you'll make 50-100% more per year (if you keep busy) than you would as an FTE. That MORE than makes up for the extra self-employment tax hit and benefits. You don't have to amortize a computer over 5 years -- write it off the first year as a Section 179 deduction. The rule varies in how much you can deduct each year; it's been rising from $20K up to around $25K now, I believe. One or two years in there it was up to $100K to stimulate small business spending in the economy.
Pay for a CPA to give you advice and do you're taxes. The $1-2K/year you'll spend will MORE than be recovered when they show you how to correctly deduct things, etc.
I've always opted NOT to deduce my home office. It's only 150 sqft of a 3500 sqft house, so I can't deduct all that much, and it's not worth the flags in IRS or the hassle in figuring out how much you have to repay when you sell the house in a few years...
The legal side of it is covered in section 1706 of the Tax Code. See the "Safe Harbor" Provisions.
From the sounds of it, you're not a contractor at all; just a temporary employee, who isn't paying the proper taxes.
The problem here is that you're exposing your so-called client to legal risk. The I.R.S. can recategorize you as an employee, and force your employer/client to pay all the back taxes that they should have been paying, along with penalties.
In general, it's not a good idea to expose your clients to unnecessary legal risks. A real contractor WOULD know the the legal side of things, and not do this.
Before a business partner and I decided to go on our own, I made a point to have at least six full months of money at my current standard of living *before* we made the leap. Because of certain choices I/we made in landing some of our contracts, it got dicey towards the end. Luckily, it has gone well since.
I'll tell you what: Once I saw how quickly the six months passed with contracts dragging on and on, I've since made two pledges to myself:
A.) to have at least 1 full year of loot in the bank in cash and solid investments (low risk bonds and the like) juuuust in case
B.) to always save at least 10% of my gross income monthly even after I'd achieved A.
I personally watched four good-sized to lucrative contracts all at once drag on FAR longer than any reasonable person would have expected. Then there's the normal invoicing and payment delays, particularly so when working with very large companies, government, or educational institutions.
As for the mechanics of savings, IMHO ingdirect.com is a great way to do just that as they offer superior rates.
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I've been freelance since 1998 and I'm on my wife's benefits. Yes, it would be much tougher without her (at least WRT benefits).
There are other ways, although I haven't thoroughly investigated them, such as through The Freelancer's Union. It's expensive there, but not really out of line for what your employer's paying for you in a "real" job.
A "contractor" is the field of programming is somebody who works at a company, doing a regular job, but gets his/per paycheck from a head shop. I worked as a "contractor" for 5 years, and was never once freelance, and I never "consulted" with anybody: I just worked.
As a contractor, I was paid significantly more. I was paid hourly instead of salaried, so I was actually paid for my time. I got to take off time between contracts as I liked, because most of the contracting firms had tons and tons of jobs waiting. Also, I wasn't generally involved in inter-office politics. I got to "job-hop" without being damaged by it on my resume... I simply chose 3-6 month contracts so I wouldn't get bored. Switching jobs that frequently allowed me to grow my skill set and experience very quickly. I never did any more paperwork than anybody else because I was a regular W-2 employee. I had all of the benefits that I wanted because I could easily afford benefits and much more.
As a contractor, I usually felt bad for the "permanent" schlubs.
General Advice
Pros
Cons
I switched to contact hack about a year ago.
Can't say how it will go - so far I have been able to fill the pipeline with prior contacts and projects, and a few new projects that come by.
Good: I could take 3 month (planned) vacation this year.
Bad: It's a lot of work to manage the pipeline. It's bit unnerving when the pipeline gets pretty short.
Don't know how it will develop - may get back into being an employee, who knows. But you definitely learn a lot. I realized how insulated I was when working in a development outfit in a company as an employee. If you are practical/professional programmer/engineer (as opposed to researcher types), I think it's definitely worth it take the turn to see how it is.
Good luck,
Anonymous coward programmer
PS: You may want to set up with a sales/rainmaker type of outfit eventually, unless you like doing the adminstrative/sales work.
I switched last January from being employed at a bank to being a contractor at a primarily software development shop. The switch was kind of scary for me because I got a family which needs certainty and health insurance. So I got blue cross which isn't as good as what my employer used to provide but it does the trick.
Things I love? No more idiotic bank rules to follow, which only seek to prevent me from actually doing any productive work. Being able to work in an agile environment. Being able to actually focus on software development versus idiotic worksplace politics. Not having to sit in meetings half my life coming up with specs that will never be followed.
Things I don't like? You pay more taxes because you are self-employed and you have to deal with it (quarterly payments, etc...). That's my only complaint.
I've been a contractor most of my 25 year career and I think it's the best way to go. You have no politics, fewer meetings, managers listen to you more than they listen to their own employees, and they don't waste your time as much. If you need something they tend to get it for you right away. There's also the variety, and for me the knowledge that I have a planned end date helps alleviate any frustrations and negatives there might be. I don't take jobs that I don't want, and I get free training by going after projects where I know most but not all of what's needed and can convince them that I'll be able to learn the rest quickly.
The only downside I can think of is that sometimes I do get attached to a place and don't really want to leave. But usually I can think of a couple negatives that balance that out.
To find jobs I use temp agencies such as Volt, and smaller ones that spring up all the time. I just send out my resume to the usual suspects when a project is winding down, and they find the jobs and arrange the interviews. All I have to do is show up. On average my projects last 6 months to a year and I have 3-4 weeks off between.
Agencies hire you a a W2 employee, so they pay their half of social security. I work a little over 45 weeks a year. Taking health insurance cost into account, my situation is roughly equivalent to having a full time job at $70-75k/year with 5 weeks paid time off and benefits. Not bad for web/db dev, and with no downtrodden-masses feeling that can come with a permanent job. Best of all, no maintenance assignments or beeper-carrying. All my work is new dev.
All in all it would take a mighty big carrot on a mighty big stick to lure me back to FTE.
Many programmers like contracting because it's a way to run a business without having to deal with people. They give themselves a company name, write off their apartments as work expenses, and speak to no-one for days at a time even though they occasionally need to win clients.
Most of all the experience of running a company/contracting is fair game for getting into corporate management later on. Most of the managers in multi billion dollar corporations are former contractors who listed their contracting job as "president of X".
Contracting does not produce more income than full time employment. Contractors devote a substantial amount of their income to higher social security tax, medicare tax, health insurance which companies provide their permanent employees. In fact, most contractors are paid less then "permanent" employees because they don't get annual bonuses or severance.
The payoff is the corporate management promotion. The contractors of today may be broke, but in a few year's they'll be multi billion dollar corporation, homeowning, plasma TV watching, managers while the rest of us are still sleeping in shipping containers.
You're employer is allowed to stipulate whatever they like in the contract. You should read the proposed contract quite carefully before signing it. Usually you will be signing a standard contract from an agency that specifies that you will work the standard core hours of the client, unless agreed otherwise with your manager.
The former contractor I made reference to has been in court for a couple of years, has lost his house and his wife over this, and imho, the pimp doesn't have a leg to stand on
I think the company (at this point) is just fighting 'cause it knows he's broke... :(
If you think imaginary property and real property are the same, when does your house become public domain?