Percentage of Self-Employed IT Workers Increasing

dcblogs writes "The tech industry is seeing a shift toward a more independent, contingent IT workforce. About 18% of all IT workers today are self-employed, according to an analysis by Emergent Research, a firm focused on small businesses trends. This independent IT workforce is growing at the rate of about 7% per year, which is faster than the overall growth rate for independent workers generally, at 5.5%. A separate analysis by research firm Computer Economics finds a similar trend. This year, contract workers make up 15% of a typical large organization's IT staff at the median. This is up from a median of just 6% in 2011, said Longwell. The last time there was a similar increase in contract workers was in 1998, during the dot.com boom and the run-up to Y2K remediation efforts."

Comments

Re:Mostly because companies are bastards.

[cayenne8]

I'd like to hear from anybody who's opted for S-corp tax status as a self employed IT contractor with no income beyond his/her labor rate. Because my understanding is that the IRS takes a pretty dim view of writing part of your labor rate as 'profit' because presumably whatever you are charging for your labor IS a reasonable salary. My understanding is that S-corp status only makes sense (IE isn't likely to result in an audit) if you operate a business that generates legitimate profits; IE you sell products/services at a markup, which pretty much excludes any one-man IT shop. Maybe if you contract in some crazy niche market where you can command $400/hr then you can get away with this but if you are charging normal market rates for your normal work then it seems like an invitation for an audit and penalties.

I do the S-Corp thing and know many others that do too, as one man band things.

It works this way, let's say you bill out for $100K. You pay yourself a "reasonable salary" as president of the company of $40K.

You only pay employment taxes (SS and medicare) on that $40K.

The remaining $60K, you deduct for expenses, etc....and out of what's left falls through to your personal taxes which you pay normal federal (and state taxes if you live in such a state) on that, but no employment taxes.

It is perfectly legitimate and legal. The trick is to not be too greedy with what you propose a "reasonable" salary is. There is no guideline, but if you figure about 40% of your bill rate, that seems to be reasonable for myself and others I've known that do this.

Again, get a good CPA to help advise you.

But many folks in the IT contracting market do just this type of setup because it is legal and works. Just keep good records, be legal and don't get greedy and you'll be just fine.

I personally have had a number of years experience with this.