Contract versus full-time
Submitted by matt on Sun, 08/19/2007 - 7:01pm.
I have talked to people who are consultants/contractors (independent or otherwise), and some have said they would never go back to being a full-time employee. The compensation is too good (even without the company benefits), and/or they enjoying getting experience from many different companies. And for contractors, if the company no longer needs your services, your contract is still paid out (per the terms of your contract).
So are these reasons representative? Companies offering pensions are few, and independent contractors can setup 401K's. Is it better to go the consultant/contractor route?
Will Dodge, SPHR, PMP
HR Professional
Please visit my recruiting Web site if you're in the market for technical candidates. It's a part-time endeavor I operate for friends and their networks. If you're interested in my services, request a brochure!
Don't get fooled by the numbers.
I've worked as an independent contractor off and on for about eight years. I like the variety (and sometimes choice) of work I get, but often miss having colleagues and the stability of regular full-time employment.
Because I cover my own additional taxes, office expense, insurances, etc., I need to charge an hourly rate at least 50% more than an equivalent full-timer's wage just to break even, and that's assuming I have a long-term contract. If I take short-term contracts, say a month on and a month off, that means that I need to double that rate (now 3x a full-timer's wage). Contractors with niche skills (in short supply or little demand) must multiply their rates even more just to reach full-time equivalent (FTE) rates.
A peer charged $400/hour for a week's worth of work. This might seem outrageous, but if taking that job means the person can't schedule other assignments that month, that's only FTE. For the employer, there are no recruiting or severance expenses, which can create good value even at this high rate.
Contractors also need to consider that prospective employers might not pay on time or at all (SigmaTel has earned mention here), so we also need to factor in interest and collection risk on our invoices. (Never bid or accept a job without a clause establishing that interest will be paid on overdue invoices; 18% APR seems typical.)
For the last five years, I've tried keeping my rates lower and make up for it by increasing volume, but found that there just isn't enough work in Austin. (There are a few full-time short-term contract jobs available at $50-60/hour, but only moonlighters can afford to work at those rates.) So, I now seek to get out of contracting and/or Austin.
If you're interested in finding consultants and/or other contractors, I recommend the meeting with IEEE Central Texas Consultants Network. (I'm its Web master, but am behind at the moment.)
- John
Hum, I charge at least $150 /hr, with minimums, and guarantees. Maybe you should have raised your rates?
Consider yourself extremely fortunate.
I can tell you how much work a software engineer would have if they asked for $150/hr these days... none. Even agencies can't get away with that high of a billable rate anymore. Maybe up to $120/hr for a very senior level person with skills in a non-glutted niche. And the rate to the contractor is likely to be < $60/hr regardless of the billable rate to the client.
Your milage will vary as apparently you do something that is a lot more valued by business than anything technical.
Oops, I do not do programming, but biz dev. Sorry. you are correct, and thanks!
Yeah, programming consulting rates have been undercut over the past few years by big foreign owned consulting agencies (Wipro, Tata, Infosys) who have thousands of H1Bs and L1s on staff and charge billable rates for on-site people as low as $25-30/hr... and off-shore developers as low as $10-15/hr.
It is hard to compete when so many companies will gladly choose low rates over quality.
The only good news on this is that the tanking dollar as well as rising cost of living in India and China has started to force some of the agencies to start raising their rates. Sadly it doesn't help American contractors that much when the cost of living here is also outstripping any increases they might see in rates.
I see! I stayed on a subject which could NOT be outsourced. That is: how to make money. To do that, you need to be near your customers.
Unfortunately a lot of us are not at the same place as you. While I personally believe that being near your customers helps an awful lot when it comes to successful software projects, it seems like a lot of PHB types that make the decisions don't think it matters.
The question is, for people like me, do we abandon what we've been doing and try to find a new career that is outsource/off-shore proof, do we fight against outsourcing and off-shoring or do we wait and hopefully the pendulum will eventually swing back if enough projects fail? That's the kind of decision that I struggle with on a continuous basis...
I believe STRONGLY in the power of "AND." If you can do both, fight and flight, do it. You will find that by just moving a little, a new, and possibly unforeseen opportunity is just waiting for you. Remember the Power of AND (or Both)
I agree, I've been trying to do what I can on multiple fronts, however it is hard to judge whether any of it has any kind of positive impact. As far as me personally, I'm pretty much still stuck where I have been for the time being.
Just keep spreading your knowledge about and letting people know what you like to do. Like fertilizer, the more it is spread, the better things grow.
Fertilizer... How apt an analogy to my career the past few years!
Seems like I've done a pretty good job of growing mushrooms and weeds, but not much else. I guess I just have to be patient and keep waiting for the right seed to come along and take root.
Some fungi can be worth $1,000 per oz...
That's true... but if s*** ever becomes of value, its pretty likely that I will be constipated!
Oh x-lax
Its also worth noting that many contract gigs are done through agencies, and that as middle men they skim a certain percentage of the billing rate off before they pay the contractor.
Please note that I'm not saying there is not necessarily anything wrong with this, as agencies often fulfill a valid purpose in terms of marketing contractors to employers and many times also handle things like billing, etc.
Unfortunately, some agencies skim a pretty huge percentage of the billing rate, while there are reasons why an agency probably legitimately needs 15-25% markup to cover their expenses, they often skim 30% or more and 50+% is not completely unheard of. I've heard in extreme cases agencies will sometimes charge more than double what they were paying the contractor. That overhead can make it very difficult for contractors to be competitive and still make ends meet. And worse than that, in many cases bad agencies add too little value to justify the amount they take out of the deal.
Some contractors I know refuse to deal with agencies, but it can be hard to get contract gigs w/o them as many companies sign preferred or even exclusive agreements with agencies, have extensive requirements of contractors as to their bonding, insurance, etc. which make it virtually impossible for the small guy or they just plain outright refuse to negotiate directly with independent contractors.
I've heard of cases where a really big skim percentage by an agency can lead to troubles between the contractor and the client because the client had expectations based on the $120/hr rate they were paying that weren't the same as what the contractor was understanding out of the $40/hr rate on 1099 he was getting.
Good point, but when you are just starting out, this is the way to go. Also, go to sologig.com. They have a pretty nice website for independents.
Thanks for the insight here. It seems there are definitely some insights and war stories that need to be told here.
That is a huge percentage. I wonder if contractors banding together in cooperatives would provide any relief in keeping the overhead costs down so the contractors see most of the profits.
Cooperatives and other such things have been suggested in the past and probably tried, but I've not heard a lot about how well they work in practice. I think that if a movement like that was seriously started their might be backlash from the agencies who wouldn't like the competition.
Well, a cooperative would just be an agency started by a band of contractors with good reputations. But that's how any contracting agency is formed, I suppose. The difference would be in the management style and philosophy -- the most money should be made during contracting, and not by someone running the agency.
I'm a noob here when it comes to contracting, so what overhead is required for an agency? For example, you mentioned bonding, insurance, etc. What type of bonding / ins. do you mean?
Many big companies insist that all of their contractors be bonded and insured. This is similar to contractors in other industries (like construction). The bonding is like completion bonding... so if the contractor fails to complete the contract the client gets paid to hire someone else to complete the project. The insurance is basically like malpractice insurance.
Most of the big employment agencies have a blanket policies which cover all of the contractors they use. However, few small independent contractors can afford such coverage, and many aren't even aware they might need it until they try to negotiate directly with a big client who insists on it.
Matt, yes. I would rather be an independent contractor than a full time employee not because of the money (which is better as an independent), but for the freedom. As soon as you start working for a large company, your individual contribution is really no longer appreciated. You are sort of taken for granted. When someone hires you for a specific piece of work, you are seen as a guru (even if you are doing the exact same work).
The first company I co-founded was a cooperative of 3 contractors looking to market their and others' skills and get local projects. It worked quite well, until everyone went their separate ways.
BTW, such an arrangement did help reduce overall costs while getting better individual hourly rates.
The biggest challenge was the marketing aspect, someone or several people taking the time to find additional projects as needed. Of course as direct contractors working on projects, we didnt have time for that side of things.
But I'd much rather work independently or with a small cooperative over a formal agency, just because of the better pay that makes its way to my pocket.
Finding a balance between marketing and doing the work that is sustainable and mutually agreed to be fair and equitable tends to get more difficult the more and more varied the number of people involved gets I think.