Contract or Captive: Which is right for you?
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Have you ever wondered what becoming an independent contractor would entail? Have you ever been confused by W-2 vs 1099 status? Are you currently between positions and not sure whether to take a contract job or hold out for a full-time employee position? Technical communication consultant, author, and STC Fellow Brenda Huettner answered all of these questions and more in her presentation, "Contract or Captive" at the November STC Phoenix Chapter meeting.
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Contract or Captive: Which is right for you?
- 1. CONTRACT OR CAPTIVE: WHICH IS RIGHT FOR YOU? Brenda Huettner STC Phoenix, November 2014
- 2. Contract or Captive: Which is Right for YOU? @bphuettner It’s about where and how you want to live (and work)
- 3. Contract or Captive: Which is Right for YOU? @bphuettner Sometimes, it’s about compromise
- 4. Three Steps @bphuettner 1. Know your options 2. Know yourself 3. Living large as a contractor Contract or Captive: Which is Right for YOU?
- 5. Three Steps @bphuettner 1. Know your options 2. Know yourself 3. Living large as a contractor Contract or Captive: Which is Right for YOU?
- 6. Work status @bphuettner Contract or Captive: Which is Right for YOU? Employee Temp Agency Contractor Freelance Consultant Contract or Captive: Which is Right for YOU? Employees Independents A little of both
- 7. Contract or Captive: Which is Right for YOU? @bphuettner Payment Options
- 8. Contract or Captive: Which is Right for YOU? @bphuettner Compare and Contrast: Money and Benefits • Contract • Higher Hourly Rate • Must pay expenses (but they’re deductible) • Pay for own professional development (training, conferences, etc.) • No pay for time off • Must arrange and pay for insurance • Don’t forget retirement! • Captive • Steadier rate of pay • Employer pays expenses • Employer (often) pays ofr professional development • Paid vacation, holidays, sick time • Employer provides insurance options • Employer helps with retirement funds
- 9. Contract or Captive: Which is Right for YOU? @bphuettner Compare and Contrast: Taxes and Admin • Contract • Must always be looking for next client or opportunity • Responsible for paying estimated taxes (1099) • Responsible for 100% of Social Security • Must submit invoices, sometimes several times • Captive • You usually know what you’ll be doing next year • Employer withholds taxes (W-2) • Employer pays 50% of Social Security tax • Some companies require time cards, status reports
- 10. Contract or Captive: Which is Right for YOU? @bphuettner Compare and Contrast: Legalities • Contract • It isn’t called “contract” for nothing! You need one for EVERY job • You can negotiate which rights belong to you and to the client • Be careful of your status! IRS “20 questions” • Not generally covered by labor laws • Captive • Employee Handbook (if any) spells out what you need to know • Employer usually owns all rights to everything you do • As an employee, you have certain rights (IRS vs. Microsoft) • Laws exist for things like overtime, breaks, protection from unfair termination
- 11. Contract or Captive: Which is Right for YOU? @bphuettner Compare and Contrast: Time Off • Contract • Take as much vacation as you want, when YOU want it • Vacation, sick time, and holidays are unpaid • Unpaid time between assignments • Captive • Predefined number of vacation days, and sometimes sick days • Employer pays for vacation, holidays, sick days • No unpaid “down time”
- 12. @bphuettner 1. Know your options 2. Know yourself 3. Living large as a contractor Contract or Captive: Which is Right for YOU?
- 13. Contract or Captive: Which is Right for YOU? @bphuettner Pop Quiz! Count your “YES” answers: • Are you self-disciplined? • Do you get along with different types of people? • Do you like working by yourself? • Are you good at planning your time? • Are you good at paperwork like doing taxes? • Are you good at networking? • Are you comfortable telling people how good you are at your job? • Do you have a wide range of experience and tools knowledge?
- 14. Contract or Captive: Which is Right for YOU? @bphuettner Pop Quiz! Count your “YES” answers: • Do you have a cash reserve so you can you pay your bills while you’re getting started? • Are you disciplined about saving for a rainy day or during down time? • Do you have a home office and all the equipment you’ll need? • Do you have or are you willing to buy the required software packages? • Can you accurately estimate how long it takes you to perform specific tasks? • Are you covered under an insurance plan?
- 15. Contract or Captive: Which is Right for YOU? @bphuettner Pop Quiz! Count your “YES” answers: • Are you flexible about when you work? • Are you flexible about how much you work? • Are you flexible about the kind of work you do? • Can you handle many tasks at once? • Do you have a strong personal support system? • Are you good at what you do? • Do you enjoy what you do?
- 16. Contract or Captive: Which is Right for YOU? @bphuettner How did you score? 1 5 10 15 20 Bottom line: Decide for yourself! Happier as an employee Happier as a contractor
- 17. @bphuettner 1. Know the options 2. Know yourself 3. Living large as a contractor Contract or Captive: Which is Right for YOU?
- 18. Contract or Captive: Which is Right for YOU? @bphuettner What kind of business do you want? •Sole Proprietor (sometimes called Schedule C) • Limited Liability Corporation (LLC) •Subchapter-S Corporation •Corporation
- 19. Contract or Captive: Which is Right for YOU? @bphuettner Tax Issues W-2 1099
- 20. Contract or Captive: Which is Right for YOU? @bphuettner Do Your Homework STC Contracting and Independent Consulting Special Interest Group http://www.stcsig.org/cic/index.html Internal Revenue Service http://www.irs.gov/Businesses/Small- Businesses-&-Self-Employed/ Small Business Association http://www.sbaonline.sba.gov/ NOLO “Law for All” http://www.nolo.com/legal-encyclopedia/ small-business.
- 21. Contract or Captive: Which is Right for YOU? @bphuettner Math Homework: What do you make per hour now? • Salary 60,000 • Value of Benefits • insurance premiums 14,400 • 401K matching 1,200 (2%) • bonus or profit sharing • Social Security 3,600 $43/hour • Hours worked per year • 40 hours/week x 52 weeks/year 2080 • - Holidays -80 • - Vacation days -120 • - Sick days -40 • - Travel time, if any =1840 • Current Hourly = Salary + Benefits/#hours worked
- 22. Contract or Captive: Which is Right for YOU? @bphuettner What Will Your Market Pay? • Phoenix Metro averages: • $63,320 annual • $30.44 hourly • BUT close to $50/hour in the utility industry
- 23. Contract or Captive: Which is Right for YOU? @bphuettner What will your expenses be?
- 24. Contract or Captive: Which is Right for YOU? @bphuettner Bottom Line INCOME – EXPENSES = NET INCOME NET INCOME – TAXES = PROFIT
- 25. Questions? @bphuettner 1. Know your options 2. Know yourself 3. Living large as a contractor Contract or Captive: Which is Right for YOU?
- 26. Thank You! Brenda Huettner @bphuettner bphuettner@p-ndesigns.com
Editor's Notes
- STC Phoenix, 4/10/2001 STC Phoenix, 11/18/2014
- Solo vs in a group Finding your own food (work) or having it given to you Outside or inside
- Options: types of arrangements, working situations Market: where you live or where you want to work I.e. specific to Phoenix? Yourself! The hardest?
- Options: types of arrangements, working situations Market: where you live or where you want to work I.e. specific to Phoenix? Yourself! The hardest?
- Temporary Employee – working for a company as an employee, with salary (usually hourly), they withhold taxes, may have some limited benefits (ie. Holiday pay, 401k if you work more than so many hours in a year) Agency employee –again, usually hourly, more likely to have benefits, clients can vary, can be very steady if you are good at what you do and reliable! Contract w/company–can be longer-term, multi projects, usually hourly harder to get started, often one you were employed by previously MAKE SURE YOU HAVE A GOOD contract –no one is going to look out for you but you Consulting– often per job, for a specific task “consultants” get higher pay for more experience, unlikely you’ll start out this way Freelancing—per job, think “magazine articles”, chance of nonpayment if job not acceptable, but you retain rights to resell to others. Captive Contractor– a full-time employee of a contract or job house
- Annual Hourly Daily Per project (fixed bid) or flat fee Fixed term Retainer
- IRS 20 questions as handout
- Know Yourself – maybe the hardest?
- Self disciplined: if you have a deadline, do you do a little everyday or put off until almost due? Would you sit down to work if no one is watching you? Can you get the job done if it is a nice sunny day or the kids want to swim or the dishes need washing? Is it hard to distract you from the task at hand? Types of people: You still need to 1. Convince the client you are the man or woman for the job, get info out of SMEs (same as employee) but also deal with accounting/bill payers, and often a “permanent” staff who may be thrilled you are helping but may also resent you. Working by yourself—may be contradictory to getting along, but isn’t really—need both skills Planning: You’ll need to schedule your own time, learn to prioritize, particularly if you have multiple projects .
- Home office can be a range of things – from kitchen table to separate building. Some jobs (as we’ve seen) want you in their office, others don’t. Estimating, a learned skill—the more you do the better you get at it. You might lose jobs (if bid too high or too many hours) or lose money (if too low) until you get it right. Insurance – health, dental, life, but also (sometimes) errors & omissions or other liability plans. No worker’s comp, no unemployement insurance
- When – could be late nights or early mornings (think India time zone at 12.5 hours difference) or could be weekends. How much – could be nothing for two weeks and then two 80-hour weeks. Kind of work – if you’re an editor, you might need to sometimes write (and vice versa) . Also consider subject matter issues (personal values) Support system – family, esp. when working at home, need to give you space/time/quiet or whatever you need. Good at what you do? Remember the triad – time/money/quality (fast, good, cheap) Won’t work without passion.
- Work arounds: example: not good at bookkeeping? Hire someone. Not good at marketing? Go through an agency. No home office? Start with onsite work.
- Check out books, articles, and websites related to contracting Research the going rates in your area Be ready with a standard contract (even if you end up using theirs) Make sure your finances are in order Books, websites, etc—see handout Going rates: STC salary surveys, also surveys online, certain calculators, (see handout) Standard contract – MUST state your status, what you’ll do, how much you’ll be paid, who owns the resulting work,liability, how to terminate the agreement, SHOULD include confidentiality statements, schedule and other specifications. Finances: you need some money in the bank: even if you get a job the first day you look, you may have to bill monthly and then they get 30 days = 60 days before you get $$--and you may not find work the first day!
- This doesn’t include 50% of SS
- Types of businesses: software? Hardware? Dot.coms? Optics? Types of work: writer, editor, reviewer, layout, graphics, web consultant Types of output: user guides, intros, marketing, sys. Admin, programmer, reference, quick reference, posters, video?
- For ME, 1. Yes (S-corp) 2. No (I get enough word-of-mouth) (but look at RayComm for a great example of parlaying a website into a stand-alone business 3. I like to speak at events
- Options: types of arrangements, working situations Market: where you live or where you want to work I.e. specific to Phoenix? Yourself! The hardest?