First time contract work things to be aware of?

As of 12/31, I was reorganized/RIF'd out of a 19 year job with a bank. My plan initially was to take a bit of time to get my PMP project management certification before seriously even looking for work, but an opportunity has come up that I'm seriously considering to do some contract work.

I've mainly worked operations/tech project management for the last few years. This project will be an operational process review/rewrite of operational procedures at another (much smaller) financial institution. Travel will be involved, initially 4 days a week, then less as the project gets rolling. Probably 6-12 weeks depending on scope.

What should I be looking out for when finalizing the agreement? They want to pay me per hour at a rate that's not quite 2x my previous salary. Obviously I've got taxes to consider, and my insurance has already been arranged independently. Where are the "gotchas" that people might not consider who are new at this? Should I hire an accountant? Any need for legal review of the contract if I'm already comfortable with it, etc?

The CEO who's hiring me used to work in management at my previous bank, and I like him. I'd worked on projects for him before, but not directly under him. So it's not that I think they'd try to screw me, I just want to set things up properly without getting burned on something inadvertently that I hadn't considered.

I'm not sure if I can do the travel due to my wife's work schedule and our child care needs. Obviously, I'd like the money, and I think it would be perfect to have on my resume to have a successful project like this post-RIF to make me more valuable if I stay in project management.

If they can pay you through their HR or pay-roll, it will save the hassle of a 1099.

Keep meticulous receipts and records, especially on travel. You can double dip into those with employer reimbursement and tax returns.

If possible, ask for a bit up front (say 10 percent). That gets them in for a penny early.

A prior relationship helps.

As for the contract, be sure you get what you want in there as well-pay schedule, amount, etc. In fantasy land contracts should be to protect both parties (and sometimes they even are). If you want payment Thursdays, by Noon, write it in. If you want weekly pay, not bi-weekly, write it in.

Lastly if they can set you some goals and deadlines, it helps stay on task. If not, set some of your own to make sure you stay honest. Faffing about while self employed can be easy.

Oh and not to overstate the obvious, but as a contractor no one will be withholding federal/state taxes for you. You may be getting much bigger checks than you were before but dont forget Uncle Sam will come calling on April 15. Woe is the new contractor who thinks they have all of this extra money to spend

You've nailed the 2 most important, Taxes and Benefits/Health Insurance. Sounds like from a straight comp standpoint, you are being compensated for both of those, so that is point 1.

While you don't have to hire an accountant, you may want one. As an independent contractor and self-employed, you can deduct your business related expenses from your personal taxes. You could do it yourself, but if you're not accounting-inclined, a paid accountant can give you guidance on whether or not you can deduct fuel/mileage expenses, meals, heck even a portion of your internet bill, and if he's really good, a way to break out say a "rent" or depreciation if you are working from home, and you're not being directly compensated for it.

If you are doing travel, you should make sure that is all figured out as well. As an employee if you have a $1000 expense report, and get reimbursed that is generally non-taxable. As a contractor, if you have to come out of pocket $1000 and the employer just pays you that extra $1000 as additional comp, there are tax consequences that you need an expert to give you guidance on.

Every state has its own contractor rules, so its hard to say what is reasonable in Tenn vs. in California where we are very anti-employer. From a pure contract standpoint, make sure the term is agreeable. In California, true 1099-contractors MUST have a clear term, it can't be open ended. Extended, yes, but not "you are a contractor until we say your'e done". It may not be necessary where you are, but a clear term has advantages and disadvantages to both parties. Are there any non-compete clauses during the term? After the term? What are the payment terms and are you ok with them? As a salaried worker you could count on your paycheck every xx weeks. If they swap you to say 30-day pay terms like most companies treat vendors, especially for travel reimbursement, that can be a big deal. Along similar lines, how often will you be submitting your time sheets? Weekly? Monthly?

Other things you may want to think about.. you say you will be travelling a lot... not sure if its by car or plane, but if you're on the plane for an hour do you get paid for that hour? That's obviously up to you as a contractor, but if you think you should, you may want to make sure your'e on the same page as your client as not everyone necessarily feels so. Are there any overtime considerations?

Anyways, that's a start... if you think you'll be coming out of pocket business expenses, you should seriously consider getting an accountant.

They're probably going to delay payment as long as they can get away with and then some, so if you're on a 30 or 60 day process keep in mind that might well slip to a practical 90 days and budget accordingly. Unfortunately they're a corporation and you're an individual, so they have the power in the relationship, and my experience is the larger the company the more they exploit that.

Thinking less on the legal paperwork side:

You're hourly, so scope creep is less of a concern. Check that box.

Watch out for expenses that you can suffer, but not charge for.

Invoice as formally as you can on paper, and agree to a service fee for late payment. Do not take things like "you'll get paid when we get paid" as an answer. It's not your job to finance your client's project.

The first thing you should know is that everyone there is out to get you. There are no friends, only enemies. Secondly, paranoia is frowned upon, so stop looking over your shoulder and acting like everyone is out to get you. Lastly, try to make long lasting friends while you're there.

Thanks for all the tips.

I'll definitely document expected pay schedules and keep good expense receipts.

As for taxes, while I live in TN, the work will be in TX. Luckily both of those states are non-income tax states, so hopefully that will keep things a bit simpler. I assume I'll have to pay quarterly estimated taxes to the feds.

For my money, I'm OK with getting paid once or twice a month. Interesting thought about getting money up front before the work starts, but I'm not sure I'd push it. I got decent severance money, and the wife still has an income. I'm was set up pretty liquid before the job loss, fortunately. Not that I want to end up waiting forever for money, but I have some flexibility.

Grenn wrote:

The first thing you should know is that everyone there is out to get you. There are no friends, only enemies. Secondly, paranoia is frowned upon, so stop looking over your shoulder and acting like everyone is out to get you. Lastly, try to make long lasting friends while you're there.

Understood. I've been on the other side of this, frustrated at the contractors who don't know half of the stuff the real employees know. One thing on my side here is it's not a hatchet job, the bank is growing rapidly, so while people might end up in different departments, works still going to be there.

Ghostship wrote:

Thinking less on the legal paperwork side:

You're hourly, so scope creep is less of a concern. Check that box.

That was good news. As for creep, I know how bad that can get. And I'm going into a bit of an area where I'm not as experienced, so I'm not sure how long this will really take. I'm going to try to get at least a good basic project charter agreed to as quickly as possible so that I can hopefully at least get in the ballpark. After all, this isn't a long term job, just something to do while I'm getting my PMP and working toward finding long term employment.

Invoice as formally as you can on paper, and agree to a service fee for late payment. Do not take things like "you'll get paid when we get paid" as an answer. It's not your job to finance your client's project.

Good thought on the service fee. Thanks.

Keep the thoughts coming. Very helpful.

Grenn wrote:

The first thing you should know is that everyone there is out to get you. There are no friends, only enemies. Secondly, paranoia is frowned upon, so stop looking over your shoulder and acting like everyone is out to get you. Lastly, try to make long lasting friends while you're there.

This works so well in Zapp Brannigan's voice.

@ OP - I've done my share of contract work but usually through a tech agency. The good news is agencies handle the details for taxes and insurance. The bad news is they often take a 30% or more cut of the total contract. Of course you never find out how much the company is actually paying the agency, but that's what I've been told by a friend who formerly worked at the agency's home office.

Also, my experience working at a place like Microsoft as a contractor is you're given all the responsibilities of a full-time employee but none of the respect/perks.

Your exact experience sounds quite a bit different, so there are only two downsides I can think of.

1. Here in Washington state, independent contractors are often considered "small businesses" and can get hit with significant B&O taxes. Worse yet, they have less write-offs available.

2. Have you already filed for unemployment or plan to do so after this gig? You may want to make sure that this new job doesn't throw off your ability to collect benefits down the road.

jdzappa wrote:

2. Have you already filed for unemployment or plan to do so after this gig? You may want to make sure that this new job doesn't throw off your ability to collect benefits down the road.

Yeah, I did. That's one of the things I was confused about. I'd probably still take even if I was going to lose those benefits, but it's a consideration.

My biggest problem with accepting it is child care with my wife working nights and what we'll do with our daughter when I'm in TX.

Honestly, it will be a miracle if you actually ever get to collect a "service fee" for late payment. I write 2.5% into my contracts but I've never collected it.

Either because its a repeat client that I want to keep, or they pay on time. For one time clients that I don't know I work on a, deliverables for cheque basis. Like a ransom exchange.

I have one repeat client that pays late, but pays, and keeps coming back. I've never dropped that marked up invoice on him.

Use it carefully, but write it in there ahead of time.

Ghostship wrote:

Honestly, it will be a miracle if you actually ever get to collect a "service fee" for late payment. I write 2.5% into my contracts but I've never collected it.

Either because its a repeat client that I want to keep, or they pay on time. For one time clients that I don't know I work on a, deliverables for cheque basis. Like a ransom exchange.

I have one repeat client that pays late, but pays, and keeps coming back. I've never dropped that marked up invoice on him.

Use it carefully, but write it in there ahead of time.

Yeah, my experience is service fees are there so that you can act magnanimous and waive them in order to actually get the client to pay you.

Our company had a 10% overall discount with one of our larger clients if they actually paid on time, which worked for a bit then didn't. Eventually we had to do a full on work stoppage before we could get the pay they owed us, so that's something you might have to put into any budget considerations.

If you do have to do a work stoppage, either due to non-payment or because of the project going on hold, don't let yourself be caught in limbo; have other clients ready and be clear with your current client that a work stoppage means you might not be available when the work starts again.

Edit: Also, f*ck you, pay me is very true.

bnpederson wrote:

If you do have to do a work stoppage, either due to non-payment or because of the project going on hold, don't let yourself be caught in limbo; have other clients ready and be clear with your current client that a work stoppage means you might not be available when the work starts again.

They know that I'm looking for permanent work at some point. My first goal was to get my PMP cert before working at finding something too hard, as I think having that under my belt will affect my salary. If I'm around when they actually implement the new software, there might be more work then as well, but that's probably a couple of months later.

Just spent my first week in TX. So far so good, except I think some of the stuff they're implementing systems wise is not as close to being done as they think. The time they expect me to be there keeps growing, which I suppose means I get paid longer, so I'm not too upset if I can keep the child care issues here at home covered.

Of course, I walk in and get told we have a big deadline in a bit over two weeks that needs a lot of detail review of end to end operations, but I think I've got them understanding what we can turn around that fast is more high level.

So far I'm liking it, and the money's not bad. So I'm in good spirits after my first week as an outsider. Feeling productive again after a month and a half of unemployment.