Working As A Contractor?

[onewhippedpuppy]

I have a possible opportunity coming up with a former boss now at a new company, from what I know it is something I am seriously interested in. The only catch is that the position would be contract for approximately one year, at which point they will be looking to bring me in direct. Obviously lots of questions surrounding that theme (why not direct now, what are the odds of direct, what are the dependencies, etc) but I wanted to gather some information on working as a contractor. My wife and I are working on figuring up my current total compensation as a direct employee as well as everything that we will be responsible for if I go contract. My list so far:

Vacation
Sick Time
Paid Holidays
401k contribution/match
Health insurance/vision/dental
Short/long term disability
Life insurance
Social security employer match
Tuition reimbursement
Higher taxes due to increased hourly rate and no employer deductions

The idea is that my contract pay - everything that my employer used to pay - now higher taxes = same or more (preferably) take home pay. What other things do I need to look at or take into account?

[KFC911]

Originally Posted by onewhippedpuppy

...What other things do I need to look at or take into account?

Matt, is the "contract" position with you directly, or through an intermediary? I would never do the latter (knowing what I know now) since the intermediary will likely be taking half of what the company is actually paying out. A "direct" contract can be golden, and should be SIGNIFICANTLY higher than a "permanent position" salary. I contracted once decades ago, and have worked with some folks who had been on "direct contract" for 10+ years (by choice). You'll work the numbers and figure it out...just don't let an intermedfiary make as much as you do off the deal imo. Good luck...

[onewhippedpuppy]

Originally Posted by KC911

Matt, is the "contract" position with you directly, or through an intermediary? I would never do the latter (knowing what I know now) since the intermediary will likely be taking half of what the company is actually paying out. A "direct" contract can be golden, and should be SIGNIFICANTLY higher than a "permanent position" salary. I contracted once decades ago, and have worked with some folks who had been on "direct contract" for 10+ years (by choice). You'll work the numbers and figure it out...just don't let an intermedfiary make as much as you do off the deal imo. Good luck...

One of the many questions that I have, and part of the reason for this thread. I'm meeting with them next week, and plan to have a long written list of questions. Your comment about being "significantly" higher does validate my initial thoughts, as there should be some reward for the increased risk.

[Paul_Heery]

When I worked as a contractor, everything was on my dime, especially health insurance. You need to know what that is going to cost you before you walk in the door. Also, self-employment taxes need to be considered. In short, know all of your costs for being self-employed.

Then, you need to know how you are being paid. As a contractor, expect to be paid only for the hours that you work. For vacation, days off and sick days don't expect to be paid. Total up the number of days that you would expect to be "off" and adjust your rate accordingly.

[onewhippedpuppy]

Thanks Paul, that's exactly what I'm trying to do. Since I will have to accrue for vacation, holiday, sick, insurance, etc I'm trying to determine what that will all cost me. I'm building a spreadsheet that takes those total costs and taxes and spits out a net paycheck.

[Seahawk]

Is this a 1099 position Matt?

I am not sure exactly what you are referring to when you use the term "contractor".

If it is a 1099 (no benefits, withholding, etc.) I can give you some pointers, things to avoid, etc.

If you trust your former Boss and you like the work, it can be worth it if you are careful and know the pitfalls going in.

I hire 1099's all the time for short fuse, high burn jobs. but most of those guys have specific skill sets and are retired from another career.

Make sure the level of effort is there, the time of the work is specified and that there is customer money attached.

[onewhippedpuppy]

By the way, don't do this if you don't want to get REALLY PISSED OFF about where your money goes. Forget for a moment the raping that I get on federal and state income tax, the money that you have to piss into social security is INSANE. I'm 32 and will never see a dime of that failed government program, I would kill to have that money to put into my ROTH IRA instead.

[masraum]

1099 or W2 contractor? It makes a big difference.

[onewhippedpuppy]

Paul, at the moment I assume 1099. Right now it's an engineer talking to a flight test pilot, so we're both dummies when it comes to the details. Plus he's an F18 driver, so most of his effort is expended simply trying to hold up his watch.

I'll get more details when I sit down with a larger group of folks in person, but I'd be happy to take any tips you have.

[RWebb]

roughly, just multiply current salary by 2x

SS will be there, so don't waste your time stressing about that

[VincentVega]

ROTH IRA instead.

Lookup SEP IRA instead

[Noporscheform]

There are rules that must be followed in order to call someone a 1099 contractor - if the company dictates every aspect of how the work is completed, then under the rules you are probably not a contractor - IRS is always looking for this violation.

Companies try to do this to save money (or to avoid making a long term commitment) - they want to avoid the costs associated with employees - all the things you mentioned - social security, vacation, sick pay, health care etc.

[Mike80911]

I have been working 1099 for years. If you think the SS tax you pay when on a company payroll is high wait until you go 1099. I have to pay the tax part as an employer and employee so it really adds up. The other problem is overtime because I am technically my own company I do not get extra pay for overtime. Those are 2 points you might want to discuss overtime and SS Tax. Maybe they are willing to contribute thier part of the tax. If your wife works and pays taxes that helps but if she dosen't you will be hit even harder. You will be able to write off a lot more things working that way though. Talk to your accountant also because when you do work 1099 you need to pay taxes on a quarterly basis and not just the end of the year.

[ltusler]

You should also check out any fed, state, local licesnsing, registration, bonding, and insurance you may need.

[aigel]

If your wife works and you and your family are covered under her insurance, contracting can be quite good. I would not take the job if I was your age and the only bread winner. It just sounds too shaky.

G

[RWebb]

another issue since you are young:

what will be a better resume builder for you? staying in the same job, or going to a an ind. contractor setup (with maybe employee status later)?

[Seahawk]

Originally Posted by Mike80911

I have been working 1099 for years. If you think the SS tax you pay when on a company payroll is high wait until you go 1099. I have to pay the tax part as an employer and employee so it really adds up. The other problem is overtime because I am technically my own company I do not get extra pay for overtime. Those are 2 points you might want to discuss overtime and SS Tax. Maybe they are willing to contribute thier part of the tax. If your wife works and pays taxes that helps but if she dosen't you will be hit even harder. You will be able to write off a lot more things working that way though. Talk to your accountant also because when you do work 1099 you need to pay taxes on a quarterly basis and not just the end of the year.

Excellent post. Matt, the quarterly tax burden is key and often not well understood.

Most 1099 folks I know are incorporated in some fashion or are attached to a parent organizer who handles multiple 1099's and charges a small fee to handle administrative issues, withholding, etc. But this is DC so 1099 folks are very common. You also have a wife who i an accountant!

[Flat Six]

Originally Posted by ltusler

You should also check out any fed, state, local licesnsing, registration, bonding, and insurance you may need.

^+1 on above, as well as comments re: 1099 vs. W2 contractor -- big differences. Your tax accountant can potentially save you $ now and huge $$$ later with good advice.

In addition, your employment agreement needs to be very clear on issues such as liability. You mention you're an engineer; if any of the work you'll do will be based on your professional opinion/expertise (e.g., as an engineer) then I'd make darn sure your agreement includes a liability release. If this is anywhere close to a possiblity I'd also talk to a (liability or employment) lawyer. My wife is sole proprietor of her own business (technical medical/pharma work) and carries a very large umbrella liability policy for just this reason.

IMHO there are many open questions that still need answers before I'd say yea or nay . . . .

[onewhippedpuppy]

Great stuff thus far, thanks all! Keep it coming.

As Paul mentioned I am married to an accountant turned professional mom, so the tax implications are the best understood part. It's the other details such as liability insurance and overtime that I need to ask questions about. On the upside I am going to speak with a former boss whom I trust implicitly, I'm confident that asking the correct questions will yield honest answers. I honestly don't have any long term interest in working contract, but this might provide me with an in at a company notoriously difficult to get into due to a focus on promoting from within. It might be worth the risk, but that's a big might.

[RWebb]

so, to what extent can you withstand risk?

wife is working & provides ind. income stream? wife's ins. covers you/family?

P() you can return to same co. if you leave?

P() of finding other work nearby? I take it you are an aerospace engineer(?) if so, how dense is the job map as you move outwards from Wichita?
... or willing to relocate?