How to Advance your Career as a hi Tech Contractor
Let's say you're a recent college graduate, have worked for one company since graduation, and may lose your job due to down-sizing in the next couple of months. It's OK with you that you're going to lose your job; you're pretty bored with it anyway. You want to look into contracting, but you don't know anything about it.
What are the legal requirements? How do you get started? How do you get qualified? How do you find contract jobs? What kind of jobs can you expect?
As a full-time employee, a company has a higher level of responsibility for you; the things the company has to provide in terms of benefits, work environment, dismissal, and the like. These responsibilities can vary from state to state and even within different cities, so be sure to do your research and find out what is required where you are working.
Contracting is just like working as an employee except the arrangements are different. Many companies use contracting as a screening device to see whom they want to hire by "trying them out" for a period of a month, three months, or more. One advantage of contracting is that it might be easier to get a job - a contract - than it is to be hired as a full-time employee. This can be a major advantage if you don't have a lot of experience or have just recently graduated.
As a contractor, a company has much less responsibility for you. In many states you can be dismissed without notice, for instance, and the company might have no responsibility to provide benefits of any kind such as health care, sick days, vacation, and the like. So why would you want to be a contractor?
The major advantage is that typically the pay for contracting might be 15-50% higher than for the equivalent job as an employee or even much higher if it includes expenses. "All-inclusive" rates are sometimes more than double the expected hourly rate! It isn't that most employers are more generous to contractors; it's that hiring a contractor can be quite a bit cheaper for a company so some or all of that savings is passed on to the contractor.
Other possible advantages are that you'll have much more variety in your work, you'll have days off frequently (between contracts), you'll meet many more people, and work in many different areas.
Many contracts are handled through a recruiter organization, so as a contractor you might be working for Small Company B while you're physically within the walls of Big Company A. Your pay will come from your recruiter, Small Company B, who will also provide any benefits you might enjoy, and might even provide other things for your work such as a laptop computer, health benefits, etc. Big Company A can still dismiss you without notice in most states and municipalities, but, depending on your recruiter/contracting agency, you might be retained for some period of time, even with full- or partial-pay, while the company finds another place for you to work. This arrangement can vary greatly from recruiter to recruiter, as will the pay arrangements.
There are several ways to handle the formal work relationships:
W-2 - this refers to the Federal W-2 form required by the IRS for workers who are employees of any organization, and is the contractor's closest type of arrangement to actually being employed by a company. If you're handed a W-2 form to fill out, you will enter your name, social security number, and have an opportunity to calculate your deductions before work starts. This form is filed with the IRS by your employer.
You have the right to adjust those deductions at any time within your work history with the organization, so if your initial form selections don't suit you, ask for another W-2 form and change the deductions. Your options are 1, which is you, up to 10, which is you and your family, and many deductible expenses, up to the no deductions; "exempt." Filing a W-2 as "exempt" is sure to draw a great deal of scrutiny from the IRS as only a very special, narrow category of worker is qualified to work as "exempt" and most likely it isn't you!
For deductions, the differences are that with 1 deduction, you will pay the maximum income tax, while at 10 you will pay somewhere near the minimum income tax for your personal situation. The trick is to choose a number that will cause a deduction of about the same amount of taxes you actually pay come April 15. You really don't want the government holding a lot of money for you from the time you earn it until you file your taxes and you get your refund; neither do you want to have to come up with a huge payment in order to file your taxes on April 15! If this last condition is the case, the IRS may require you to lower your deductions to equalize your tax payments throughout your working months so that you at least cover your tax bill.
The IRS does NOT pay interest to you on money deducted from your paychecks which it holds until paying your refund! This is the major reason you need to carefully select your deduction amount so that you have the maximum benefit of your earnings. It really is a benefit to you to choose a number of deductions that will give you a reasonable balance between what is deducted from your pay check and what you owe come April 15.
Your withholding taxes will be deducted from each pay check you receive, and the organization with which you filed the W-2 will be responsible for filing all the required forms and for paying your deducted money to the appropriate agencies.
1099 - This is another IRS form that means that you, the worker, are responsible for all your taxes and deductions for the amounts paid to you. This can be good in some circumstances, providing you get a corresponding increase in pay to cover your additional costs. For instance, under a 1099 form you are responsible for the entire Social Security deduction which is shared 50-50 under W-2. Under W-2, your "employer" will pay half of your Social Security and Medicare deductions while deducting the other half from your pay, and will deduct the appropriate percentage of income and other taxes from the amount you earn before writing you a paycheck.
You'll have to adjust your pay by 7.65% upwards to cover the additional direct costs of Social Security, and maybe more for other taxes! Are you qualified to calculate all the withholding for the IRS, state, and in many cases municipality along with filing all the required forms on time? Will you have to hire a 3rd party to watch over and take care of this so you don't get in trouble? How much will this cost? You'll have to know all this and take care of business to successfully function as a 1099 employee. If you decide to save money and do all this yourself, be sure to get some good knowledge and take care of every detail! Believe me, you do not want to let these important tasks slip!
You will be required to file and pay your taxes periodically throughout the year, quarterly at least, and maybe monthly depending on what you're doing and how much money you make doing it. It is essential that you keep every receipt, log every mile you drive for work except commuting, and file and pay every fee and tax while working as a 1099 employee! Not doing so could result in not doing well financially and even with you being heavily penalized!
Corp-to-Corp - This is just like 1099, but the company or corporation you work for pays your corporation. There can be real advantages to doing this, particularly for your employer as they do not have to file any forms or make any kind of payments on your behalf. It should result in the maximum amount "hourly" or "daily" or "weekly" possible being paid to you. You and your corporation are then responsible for everything! The advantage for you is probably in terms of tax sheltering and maximizing the amount of money you get to keep from your contracting. At the same time, you have the highest level of responsibility for your taxes and appropriate government forms. You'll have a Federal ID and a State ID for your corporation and will become a known corporate entity in whichever state you get your Corporation.
You do not have to have a corporation from the state in which you work, or even in the state in which you live! The idea is to incorporate in whatever state or nation gives you the best advantages! Presently, the best states in the USA in which to incorporate are Nevada, Wyoming, and Delaware, but this can change so be careful to select the best one, and select one that matches what your needs are and what your income and other conditions dictate. It is even possible to incorporate off-shore for perhaps some additional benefits. It will pay you to research carefully if you decide that Corp-to-Corp is the way you want to work.
If you work in California with a Nevada corporation, for instance, your corporation will still have to be registered with the state of California, and you'll have taxes and fees to pay both to California agencies and to Nevada. Failing to pay those and take care of other details could cause you a great deal of pain as the controlling agencies have tremendous power and are not afraid to wield it over you! With Corp-to-Corp, you will be an employee of your corporation and you choose how much you get paid, and how much is retained by your corporation for expenses, investments, and the like. You could be paid $200/hour all-inclusive by your contract, then pay yourself $20/hr because that's all you need to make ends meet. That would be your taxable amount, and the rest would be for expenses (all tax-deductible!) and to build "operating capital" in your company. This money, other than that for expenses, would be taxed at the corporate rate, most likely lower than your personal income tax rate plus Social Security, Medicare, and the like if you chose your incorporation place carefully. Be aware that if you incorporate, you have very high financial responsibility! You can be arrested and charged and convicted for taking even a small amount of money out of your own corporation for your own use if you take the money out incorrectly! To be successful for any length of time, you WILL have to learn the rules and play by them!
There's an additional potential benefit to working Corp-to-Corp: you could take your small, personal corporation public! It can be a little expensive and is very complicated, but the benefits might very well be worth it. A public corporation has additional reporting and fiduciary responsibilities, but with a few years of "clean" operation, the corporation can start to have a very real financial worth over and above the money that has flowed through it, and the public corporation can possibly be sold for hundreds of thousands of dollars! You will have a small group of stockholders and will be registered with the FTC as a "reporting" company until you qualify to be a public corporation, and will be required to buy independent audits of your corporation quarterly which can cost upwards of $10,000 each, but do the math; you could probably do three years with a total cost of around $150,000, but the public corporation might be worth $500,000 - $600,000 or even more... a nice "bonus" you can pay yourself for doing your homework and putting in some extra time.
So how do you find contracts? You will be selling yourself and your talents, your education, knowledge and abilities, your experience, your appearance and your personality. For the most part, no one will care which of the above work relationships you use to do business, they are solely interested in what you can do for them.
First, get a good resume. This is your core "advertisement" for yourself. You may think you can write it better than anyone else but you're most likely wrong! A professional resume writer will do a great job for a relatively small fee, usually between $150 and $250, and it will probably be the best money you'll spend towards your new career as a contractor. Your new resume should use the key words that employers use to find workers in your field. Your professional resume writer knows what these key words are and how to use them to your benefit. You can find resume writing professionals at the big job boards or by searching on the Internet. You'll want both a Word version and a PDF version. Use standard fonts so the layout of your resume doesn't break when you email it. Two very standard fonts are Times Roman and Sans Serif (Arial and Helvetica). These fonts exist just about everywhere so a nice layout will still be a nice layout for those that view your resume.
Get your resume out there! Nowadays that does NOT mean printing and mailing hundreds of copies of it to employers! It means registering at the job boards using your rsum and carefully selecting the type of employment you're seeking and even where you want to work. In fact, resist the urge to send your resume directly to employers. Doing so may actually interfere with you getting a contract! Your best sales people are the recruiters and technical agencies that find you and then pitch you to employers. If the employer already has you in their system, you will not be considered for the job. The recruiters and technical agencies are your unpaid sales force and cost you nothing! The employer pays them a percentage of your rate; they're paid every time you are and so are enthusiastic and effective advocates and sales people for you. Treat them well! Be honest! These people are your bread and butter! You will likely be pre-screened by the recruiter, and this pre-screening can vary from something that feels like an employment interview to a few simple questions, but is the precursor to them presenting your resume to the employer.
Usually the employer will do a phone screening of you, then if you pass their inspection you will probably be asked to present yourself in person for an interview or interviews. Just like the recruiters, these interviews can vary in depth from a half-hour of chit-chat to a full day of presenting your portfolio and interviewing with many people. Regardless of the type of interview you have, your getting the job depends not so much on what you have actually done, but on how you present yourself and the way you answer the questions. How to interview will be the subject of another article, as it's much larger and more complex than the scope of this article, but the basics are; be honest, look your interviewer in the eye, relax, know in advance what questions you want to ask the employer (you will almost always be asked what questions you have for them!), dress appropriately, arrive on time, be gracious.
If you have skills that are in demand, and know how to present yourself well, you will most likely be able to succeed as a contractor! In addition, you will likely have many unique experiences and have work experience with many different employers.
If you are a contractor for several years, though, you may find it difficult to find full-time employment as some employers have the mistaken idea that once a contractor, a person will never be a good employee. You can do much to counteract that mistaken opinion by being the best employee you can be for every contract. As mentioned above, some employers seek employees from the ranks of their contractors, and so will choose the best, most reliable, and most effective of their contractors to become employees. This can be you if you want, and if you work so that your employer appreciates you and what you do.
Be "refer-able" so that previous employers gladly speak well of you when contacted by new possible employers.
Make friends of workers in your areas of expertise and maintain these contacts, because large bonuses are sometimes offered for referring an employee to a position. These bonuses can come from the employer and/or from the recruiting agencies and are paid directly to you! It is really worth networking while you work!
