Working as an Independent Contractor

[Anonymous]

A small company with which I have been working on a part time basis for the past four years wants me to come work with them full time, as an independent contractor. I am currently employed full time at another company and would have to quit this job in order to take the new job.

I currently make $55,000 plus generous reimbursements, a 401K match, and solid other benefits including carrying my family of three on our PPO health insurance.
I make about $18,00 a year on the side working with this other company as an independent contractor.

They now want to hire me for $78,000 a year. If things go well, I believe this figure will grow 30% in two years.

I am considering making the move because I believe that there is more growth potential in this new position and there is none in my current position.

My concerns are that as an independent contractor, I will be responsible for paying higher taxes, figuring out health insurance for my family, and no longer benefitting from a 401K or potential unemployment.

Is anyone able to provide a better idea of the tax situation or speak to anything else I should be considering? Also, should I meet with an employment lawyer to go over the contract?

[Anonymous]

Look closely at how much you will pay in self employment. Taxes. I did contract work for a few years and the tax rate was painful. Get as much pay as you can and also keep in mind to check if it will tip you into the next tax bracket.

I would consider talking to a tax consultant to run the numbers. It will cost you a few hundred but might save you a nasty surprise later.

[Anonymous]

Also build in time off as you won't get paid vacations.

I have been an independent contractor for about 13 yrs now and love it, with a 1 yr stint as perm. Compensation as a perm was great, but I prefer being independent. Everyone's different. I like being independent.

[Anonymous]

Independent contracting is the new indentured servant/slave economy. Watch, they'll make you sign a no-compete clause with a 25k+ penalty if you want to leave in the future. Don't do it.

[Anonymous]

You'd be giving up a lot, and right now you're making almost the same amount if you include your 18000 extra, but you only pay the extra taxes on a small portion. You will not come out ahead and I would be hesitant to work for a company who are trying to cut corners by misclassifying employees.

[Anonymous]

Anonymous wrote:Independent contracting is the new indentured servant/slave economy. Watch, they'll make you sign a no-compete clause with a 25k+ penalty if you want to leave in the future. Don't do it.

I guess it must depend on the industry and your expertise. I've been an indie for 10+ yrs. Never felt like an indentured servant. Quite the opposite. When I converted to a perm for a year, then I felt like an indentured servant. Went back to indie. I feel so free.

[Anonymous]

Don't do it. You'll have to pay 15% self employment tax and probably about $2000 a month for health insurance.

[Anonymous]

NP here. Do most of you indies have corporations or just self-employed? I'm about to negotiate my indie contract and would like some advice.

[Anonymous]

PPs quit saying indies, this isn't the "mommy" forum. OP add up all of your compensation now and all of your compensation as an independent contractor and compare. Factor in unpaid leave and instability. Also, many independent contractors are NOT covered under an employer's D&O and employers liability coverage. Will you be supervising or otherwise exposed?

[Anonymous]

OP here. Thanks for the advice. I will not be supervising, so D&O is not an issue, but excellent point.

I reckon another way to put it would be to ask what percentage more would you want in order to be an IC instead of an employee?

Assuming I make $65,000 including salary, reimbursements, 401K contributions, etc, what % more would you want to make to lose the benefits and go IC. 20% or $13,000?

[Anonymous]

They're probably flouting IRS rules by hiring you as an independent contractor. It doesn't sound like you meet the definition of an independent contractor. IRS has been cracking down on this. You could report them (anonymously?) and they'll be forced to take you on as an employee (or fire you.)

[Anonymous]

Anonymous wrote:You'd be giving up a lot, and right now you're making almost the same amount if you include your 18000 extra, but you only pay the extra taxes on a small portion. You will not come out ahead and I would be hesitant to work for a company who are trying to cut corners by misclassifying employees.

Bingo. What they are doing is illegal / unethical. If they want you so badly, they should hire you as a real employee.

[Anonymous]

Anonymous wrote:OP here. Thanks for the advice. I will not be supervising, so D&O is not an issue, but excellent point.

I reckon another way to put it would be to ask what percentage more would you want in order to be an IC instead of an employee?

Assuming I make $65,000 including salary, reimbursements, 401K contributions, etc, what % more would you want to make to lose the benefits and go IC. 20% or $13,000?

Figure I've heard is 30% (this was advice from my HR on how to compare the comp of candidates who were independent contractors previously to salary that we can offer). Self-employment tax is 7.5%, plus employer 401k match is often 6%, so there is almost 14% right there, and that doesn't even include health insurance, or any other benefits (disability etc). That can add up quickly.

[Anonymous]

Anonymous wrote:They're probably flouting IRS rules by hiring you as an independent contractor. It doesn't sound like you meet the definition of an independent contractor. IRS has been cracking down on this. You could report them (anonymously?) and they'll be forced to take you on as an employee (or fire you.)

Can you clarify this? Why can't a 1099 work full time?

[Anonymous]

Anonymous wrote:They're probably flouting IRS rules by hiring you as an independent contractor. It doesn't sound like you meet the definition of an independent contractor. IRS has been cracking down on this. You could report them (anonymously?) and they'll be forced to take you on as an employee (or fire you.)

I know a company that hires its contractors through other firms. For example, the Company has a contract with the Firm, and the Firm has a contract with an independent contractor ("IC"). IC works full time from the office and on the equipment of the Company, performing the duties of a regular Company's employee for years. However on paper, the IC isn't in any way related to the Company because he/she has a contract with the Firm. IC definitely isn't an employee of the Firm because they only communicate a couple times a month exchanging invoices, but how would that be possible to prove that an IC is an employee of the Company, if they don't share any employment paperwork at all?