Advice on considering the move from FTE to Independent Contractor?
Hi all,
I'm considering some independent contractor roles in the SAP space. I'm currently employed by a company and though my salary is quite a bit lower on paper, I do have benefits and some stability. At the same time, I dont make what I could earn and there are reorganization pressures in the background that have been dragging on too long.
Doing SAP work internally is an option, but I'd be travelling 100% for the same salary and the value prop just isnt there for me. So I'm looking externally and have some contractor role options. The hourly rate noted on two of the contractor roles i'm considering is about 90 percent more than I make now, but of course a portion of that will be consumed by self-funding my own family benefits 100% for the first time in my life. I'm trying to factor in all the things I can think of, like health insurance etc, but its all an unknown to me.
Do you have any advice for someone considering such a move from full time employment to independent contracting? Do you have any tips on things to be careful of when talking with the recruiting companies, that often catch someone new to this type of employment. I am unsure what to expect around expenses(i.e. travel), equipment, hidden costs, freedom to break the contract if it isnt working out, etc etc. For an independent contractor is it better to create a limited liability corporation or something along those lines, or is it enough to just be on a contract as a self-employed individual?
I was just curious to hear if any goodjers have made a similar move and had some lessons learned they could share.
Xbox Live: Irongut | Playstation ID: Irongut_GWJ
Check with Tek Systems and see if they're in your area. They offer benefits to their contractors.
Main thing to remember is that if you send resumes out to companies on your own you have to tell your handlers. Most companies wont accept a submission from a contract company if you already sent one. Which can suck if they have a good relationship with the company.
Gamer Tag: Rantyr
Couple of things off the top of my head, that we ran into when some of my partners started consulting under the umbrella of our side business.
1. Don't forget to factor in liability insurance. At least in California, any shops large enough to have an HR department (50 employees plus) required it. If the figures weren't buried deep in my tax cabinet, I'd go pull up what it cost us. I recall that it was more pricey than I thought was reasonable.
2. Some of the businesses they approached wouldn't hire contractors who were independent, or attached to small businesses. They wanted affiliation with a larger agency, probably due to contractual obligations with said agency, and the belief that they provide some kind of base level of competence assurance.
3. The period when your contract is about up and you haven't yet secured your next contract is very stressful, particularly if you have dependents.
4. Contractors are generally treated worse than FTEs, as you've probably already observed. Worse equipment, cubes instead of offices, bullpens instead of cubes.
Don't have any knowledge of how tough it is to break a contract, but I imagine that's one of the things you have to negotiate up front. Both of my partners went back to the FTE life after two years of consulting. Both overall netted more money while consulting. One cited the need for more stable income for his family, and the other got a great offer to come work as an FTE at his last contract.
XBLive: Ruckus
Here are a couple of things I ran into:
1. Business license. Some cities will come after you for a license once they find out you're running your own business from home. They'll typically hit you after don't file your taxes with a W2.
2. Cash flow. Make sure you have enough cash to float the 30, 45, or 60+ day window between when you send a client a bill and when they actually cut you a check.
3. Always be looking for the next gig. Mr. Crinkle is dead-on. You should always be chasing new business because you never know when you're going get your next project. If you're not comfortable marketing yourself, shamelessly networking, and being rejected, then you might want to consider sticking with the steady paycheck.
4. Keep good records. Running your own business is a great way to keep Uncle Sam away from your money, but you have to read up on tax law and keep good records.
5. Self-Employment and Estimated taxes. Speaking of Uncle Sam, you'll need to learn the joys of paying self-employment taxes and estimated federal and state taxes. Since good ole' Unky won't be getting a taste of your paycheck anymore, you'll need to figure out how much revenue you're going to make for the year (make a wild guess) and cut a check to him every 90 days. Overestimate and you'll be starved for cash, underestimate and Unky will come after you on April 15th.
6. Retirement. Unless you like the taste of cat food, you'll have to read up on SEPs, Keogh plans, and Roth IRAs as a replacement to your 401(k).
Good luck. If things go your way, you can make a pile of cash and the lifestyle is great. If they don't, you can expect to lie awake at night worrying about where the next project is coming from and how long your savings account will last.
These two points are what ended my consulting career after 18 months or so - I was doing very well, but if you're very busy, then you may have a hard time rounding up that next gig. Also, the taxes SUCKED. In the end, I wound up taking a contractor position thru a firm and then after 3 months of that, took a lesser paying FTE job at an industry leader-type company, holed up in an office and remembered how nice it was to just go to work and collect a nice, stable check...
-Ray!!!
Live Gamertag: texasRay
There's a lot of websites with info on this. FreelanceSwitch, WebWorkerDaily, etc.
If you'd rather be a W2 Contractor(TekSystems was mentioned) there are a lot of companies that do that.
I just got a gig with CSI Companies doing just that after the startup I was at imploded.
I have to buy my benes, but they're a lot cheaper than going through Humana solo.
Anyway, if you go solo, you really have to be able to market yourself and be pretty entrepreneurial.
You'll basically have 2 jobs - 1: the actual work you like doing, SAP stuff and 2: CEO, COO, CFO, CTO, Director of Marketing, Director of Sales, PR, etc of your company, even if you just file a DBA, you still have to run the business of yourself.
Depends on what you want.
"And my son, too, thinks everything is a launchpad, every bug a meal, and every sunny day a reason to take all your clothes off and roll around in the grass." - rabbit
As the owner of a contracting business, I'm firmly in the LLC camp. While the annoying (and sometimes expensive) paperwork you may have to file with the city, county, state and federal governments is greater than that of a sole proprietorship, it has one massive advantage: Your personal property is almost always shielded from lawsuits.
Personally, I wouldn't have started my contracting business without that protection. As long as you keep careful track of what belongs to the business and what belongs to you, and avoid any appearance of criminal fraud, the only things they can go after you for is what hasn't been paid out to the members of the partnership. If you're rigorous about cutting yourself checks, it should be at or near zero, making a lawsuit against the business a deeply unprofitable option for any irritated clients or other parties bearing a grudge.
Another potential benefit is giving a female SO a majority stake in the business. We haven't gone after any government contracts yet, but I've been told that our choice to do this can give us a significant edge over other firms due to our "minority" status as a woman-owned business.
One caveat is that single-owner LLCs can be treated differently (or completely disallowed) in some states.
The only other form of incorporation that I'd consider is starting a corporation or S-corporation. The advantages there for contractors are mainly your taxes (you can potentially avoid much of the self-employment tax and write the yearly vacation - er, "shareholder meeting" - off) and client tax filing requirements (clients paying a contractor in a LLC more than $600 in a year are required to file a 1099-MISC). Many businesses, especially larger ones, won't hire any non-incorporated contractors for fear of the IRS swooping down on them for violating the contractor-vs.-employee rules.
Unfortunately, the amount and complexity of paperwork and taxes for a corporation are much higher. It pretty much requires either that you hire or an accountant or learn enough about corporate finance that you could become one.
As far as health insurance is concerned, be very, very careful about moving out of an employer's group policy if you or your family members have had any significant health problems in the past. I know someone's who's almost completely uninsurable due to problems with depression in her medical history.
I thoroughly recommend the NOLO series of books on ownership structures. Good information about all your options, written with non-lawyers/accountants in mind.
Everything can be debated, but that doesn't necessarily mean it's debatable.
--Chuck Klosterman, Fargo Rock City