Once in a while I run into online discussions about working as IT contractors vs. employees. Having a decent experience wearing both hats, I decided to write several blogs on this subject. This blog is about IT contractors. Some of my comments may sound cynical to you, but this is how I see things today. This might change, if someone will give me a really good reason to do so.
1. Contractors work for money. Period. They do not have any other objectives such as creating a great software, making a career, earning a new title, or helping your firm to succeed. They work for your firm mostly because they like the rate, and in some cases, they are interested in learning technologies used in your firm. Can you have peace of mind if you spend all day working on something you do not really enjoy? In a perfect world, people will work on very interesting and well paid jobs. But since our world is not perfect, work on the interesing stuff after hours for free. This hobby may turn into a paid job in the future.
2. Most contractors work with their clients through another firm that was lucky to get on the client’s preferred vendors list. Such firms are often referred as pimps, which does not mean that contractors do not like them. Over the years, experienced contractors create their private lists of reputable pimps and maintain friendly relations with them.
3. In terms of paying taxes, contractors (in the USA) can work in various ways , for example “on W2 form”, which means that the pimp pays your taxes: you'll receive the net income according to your tax brackets. Creating your own corporation can be more rewarding in terms of taxes, and in the industry jargon , this way of working is called "corp-to-corp". There are some other ways of working, for example “on 1099 form”, when you are a sole proprietor (a.k.a. independent contractor). Here's another term: "contract-to-hire". This is also called "try-and-buy": sometimes, the client company wants to try you as a contractor first, and then convert you to an employee, if they like you. If this is does not meet your career objective, either do not take this contract, or negotiate upfront if working as a contractor only is an option.
Most likely people use other forms of businesses too, i.e. LLC, but I’m not an accountant and can’t talk about those.
4. There is an opinion that working directly with the client is better than going through the pimp. This is not necessarily true. For example, if your direct client goes out of business, you’ll never receive your last check(s). I’ve been in such situation myself, and my lawyer said, “You can’t get blood from the stone”. In this regard, pimps are more reliable parties to deal with.
5. How much client pays to your pimp for your services? Typically your pimp enjoys a 15-30% markup. The larger the pimp, the higher this number. Is this a reasonable amount? Try not to worry about it. Your rate should be your only concern. You do not like it? Try to find a better rate somewhere else. Can’t do? Sit down and shut up. Welcome to capitalism.
6. Hire a professional accountant to do your taxes. Never try to save money by filing your taxes with the help of this inexpensive software. Reputable accountants know how to save your money based on the current tax laws in your geographical
area.
7. Is it ethical to terminate your contract before it ends? Yes it is, but play by the rules: always give a two-week notice to your client. The client may not be as nice to you and can kick you out without any warning at any moment. This is not typical but happens. I remember, when I was signing my very first contract with a large Wall Street firm, I did not like the clause that I’d have to give a notice but the client could have terminated the contract at any moment without explaining the reason. I was trying to fight, and the client’s manager pointed at their open-space floor with lots of people working there and said, "Half of these people are lawyers. Do you think you have a chance to win if something goes wrong? No way. If everything goes well, we'll always give you an advanced notice". This put my mind at ease.
8. Does your client like you? Your manager likes you because you help him/her to complete the project in time, which means that you help is his/her career. Your peers don’t like you, because they suspect that you earn a lot more than them, do not have to put up with the corporate politics, et al. They may respect you though for your expertise. Sort of a necessary evil.
9. Why companies hire these expensive contractors? Here’s the short answer is: they need a person (a.k.a. resource) with a specific set of skill for a short period of time. I’ve explained it in more details
over here.
10. Should you work as a contractor? Yes, if the following statements are true:
Your title is not important to you
You like to have a chance to work with different technologies
You enjoy the learning process, and prefer to keep your technical skills current
You hate corporate politics
You like meeting new people and work in different environments
Neither you nor any of your immediate family members need good medical coverage
11. To have an idea about contructors' rates, check out
this Web site.
In the future blogs of this series, I’ll write about surviving in a corporate world as an employee, comparing earning, dealing with annual reviews, writing resumes, passing job interviews, outsourcing effects, etc.
To be continued…
tags: it carrer
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Hey Yakov,
