REQ: Advice regarding 1099 consulting position

[super_joe_smoe]

Hi,

I've just been offered a 1099/independent position for 50$ an hour.
Since I'm new to contracting, so therefore I have much to learn, I
would like input to this offer I got. Specifically, how reasonable is
this rate? is it too low? at the end of the day how much am I left
with after taxes? what other expense besides taxes do I need to worry
about that might eat away at this 50$ an hour? how about business
insurance? Also in regards to contracts what else should I watch out
for? Your advice and expertise would be very welcomed. Thanks for
the help.

Alex

 

[Sudsy]

Hi,

I've just been offered a 1099/independent position for 50$ an hour.
Since I'm new to contracting, so therefore I have much to learn, I
would like input to this offer I got. Specifically, how reasonable is
this rate? is it too low? at the end of the day how much am I left
with after taxes? what other expense besides taxes do I need to worry
about that might eat away at this 50$ an hour? how about business
insurance? Also in regards to contracts what else should I watch out
for? Your advice and expertise would be very welcomed. Thanks for
the help.

Let's start with the basics. At $50/hr, 40 hrs/wk, 50 wks/yr, you're
generally looking at hourly rate * 2,000 = annual gross, or ~$100,000
per annum.
But that's a deceptive calculation. A full-time employee costs the
employer between 1.5 and 2.0 times the annual salary. That takes into
account the overhead, benefits, etc.
As an independant you'll have to shoulder those costs yourself. Ever
check out how much Blue Cross (e.g.) will charge you per month for a
"basic" health plan?
If you incorporate then many of these costs will be tax-deductable
but you still won't see more than ~60% of the rate as income, once
you factor in the tax withholding, etc. You also have the additional
overhead of keeping the corporation in good standing.
Quite frankly, unless you're charging more than $100/hr then you're
likely getting hosed...
Remember, at a full-time employee annual salary of $100K, you're
actually costing the company ~$150-200K. So why would you settle
for so much less? At the rate you've cited, you end up with as much
(or little) value as an employee being paid ~$60K.
If you consider your worth to be more than that then you might want
to consider renegotiating...
YMMV

 

[Matt Humphrey]

Hi,

I've just been offered a 1099/independent position for 50$ an hour.
Since I'm new to contracting, so therefore I have much to learn, I
would like input to this offer I got. Specifically, how reasonable is
this rate? is it too low? at the end of the day how much am I left
with after taxes? what other expense besides taxes do I need to worry
about that might eat away at this 50$ an hour? how about business
insurance? Also in regards to contracts what else should I watch out
for? Your advice and expertise would be very welcomed. Thanks for
the help.

Alex

Get yourself a book on consulting. Before you can answer the question of
whether the rate is reasonable you must understand business
financing--especially the tax codes. You MUST pay both the payroll taxes
and the self-employment tax (the employer's portion of the payroll tax.) as
well as federal income, state income and any local / regional income taxes
and business taxes. You can learn this stuff, but you must be able to
account for your expenses, including overhead (utilities, equipment,
consumables), taxes, insurance. Some places require business and / or
business automobile insurance, which isn't expensive but just one of those
things. You must be able to know which expenses are deductable and which
are not. Furthermore, the IRS would like consultants to be classified as
employees (W2) rather than 1099. You must be careful to steer clear of
anything that would make you appear as an employee or they will reclassify
you as an employee and you and your client will be liable for back taxes,
which will definately make your client not want to work with you again.
(Yes, they can arbitrarily reclassify you as they have others in the past.)
1099's don't get benefits and W2's do. Your client would be forced to give
you benefits--it's very messy.

I wouldn't be afraid of taking a job at $50 / hr to get my foot in the
consulting door. (Having multiple clients is a great way to convince the IRS
you're not an employee and one client often leads to another if you're as
good as you think you are) Just be aware that consultants don't always get
2000 hours per year, so you have to consider your load rate. If you figure
that you'll pay 30% of your income as taxes, 10% as expenses (internet,
phone, paper, equipment), and you'll only be working 75% of the time, your
$50 / hr becomes

50 * 2000 * 70% * 90% * 75% = 47250

And this assumes you can privately afford health insurance, life insurance
etc. (YMMV)

I run an S-corporation called Iviz, Ltd http://www.iviz.com/ through which
I do consulting work in visualizations and innovative design--Java, C#, Open
GL and other languages. The S-Corp structure gives me a measure of
liability protection (a disgruntled client cannot take my house.) and
reinforces the fact that I provide specialized services to clients (not an
employee). Being a corporation gives clients confidence that I pay all my
taxes and that they won't be held liable for problems (I am employee of my
own company, not their company.) I advertise, have business insurance and
an account that files my yearly taxes and taught me how to file taxes 4
times per year. My standard charge rate is about $100 / hr (time and
materials contracts) but I have and will continue to do a few at lesser
rates in order to broaden my client base and to keep my load rate close to
100%. (Fitting in a low-paying client at $50 / hr is better than having yet
another enforced vacation.)

I hope this encourages you to find out more about what you're doing. I
started Java consulting with the "Consulting for Dummies" book and I've had
to learn ALOT about taxes and business processes, but I'm happy doing what
I'm doing and I wouldn't go back to being an employee for anything.

Cheers and good luck,
Matt Humphrey (e-mail address removed) http://www.iviz.com/

 

[super_joe_smoe]

ok, thanks for the info, that was very helpful. it certainly helps to
put things in perspective once you figure in all the different
expenses and taxes. but on a different note, do you know what is an
appropriate margin a broker should make off of me? the client is
offering to pay my broker $80 and my broker will pay me $50, so my
broker will end up with a $30 margin. too me that seems to be a large
margin and my broker will basically not provide any benefits at all.
so the $30 translates into a %38 margin, is this normal and should I
try to renegotiate the margin lower? thanks.

 

[Matt Humphrey]

ok, thanks for the info, that was very helpful. it certainly helps to
put things in perspective once you figure in all the different
expenses and taxes. but on a different note, do you know what is an
appropriate margin a broker should make off of me? the client is
offering to pay my broker $80 and my broker will pay me $50, so my
broker will end up with a $30 margin. too me that seems to be a large
margin and my broker will basically not provide any benefits at all.
so the $30 translates into a %38 margin, is this normal and should I
try to renegotiate the margin lower? thanks.

The broker is providing a service by connecting you with the client. Many
clients are reluctant to take on a new consultant because--as good as you
may be--they don't yet have confidence in you. If you set aside the
broker's margin for the moment (although 38% seems a bit much) you should
consider the bigger picture. At some point, or after a certain number of
hours, you will want to be able to work for the client directly. Your
contract with the broker should not specify that now and for all future time
you will be charged the fee. It's more normal (although this varies) that
the broker can take a cut until 1 year after your last work with the client,
or after 550 hours or something like that.

A consultant lives by repeat business from his or her clients, so paying a
fee for the first 6 months is not so bad if you expect to eventually pick up
new work from that client a year down the road. In the mean time, you'll be
working for a second client and keeping in touch with the first, etc, and
building a cadre of people who have confidence in the wonderful work you do.
Moreover, these later contracts--negotiated directly by you--can have higher
rates, especially since the broker will no longer be around. Also, if you
can get your brokered client to introduce you to their business partners
(while avoiding their competitors) you'll be able to make direct connections
without a broker and essentially pocket the 38% yourself. When times are
lean, brokers are a good way to get exposure, but everything really rides on
your relationship with your clients. You can be as smart and quick as they
come, but arrogance or disrespect can quickly flush their confidence in you.
You must be able to deliver what you promise in a respectful and
professional way.

Considering your original question--if you want to negotiate the rate you
must be able to explain (and support) why you deserve a higher rate. Rather
than trying to get the raise up front, you may want to insert a clause for a
review after 3-4 months with an increase hinging on (and at no cost to) a
letter of appreciation from the client.

Good luck,
Matt Humphrey (e-mail address removed) http://www.iviz.com/

 

[super_joe_smoe]

Thank you very much. Your answers are very enlightening and they are
definitely helping me to understand the world of contracting better.
On the matter of the $80's from the client, this number was made known
to me by the broker. Given that the broker would try to maximize
margins, can I trust the $80 an hour number? And as a general
question, what hourly rates do client companies usually offer for an
experienced java developer these days? Is it wise/legal to contact
the client company directly to find out what the actual offered hourly
rate is?

Alex

 

[Matt Humphrey]

Thank you very much. Your answers are very enlightening and they are
definitely helping me to understand the world of contracting better.
On the matter of the $80's from the client, this number was made known
to me by the broker. Given that the broker would try to maximize
margins, can I trust the $80 an hour number?

Have a little more faith in people. The broker is probably not trying to
maximize margins, but to maintain long-term success. This does mean making
money, but also having happy clients and consultants. I don't see any
reason to not trust the number.

And as a general

question, what hourly rates do client companies usually offer for an
experienced java developer these days? Is it wise/legal to contact
the client company directly to find out what the actual offered hourly
rate is?

This question pops up periodically on c.l.j.p, but I don't know what typical
rates are. Personally, I wouldn't ask the client company for 3-6 months
until I was certain they trusted and valued my service and would find it
useful to discuss.

Cheers,
Matt Humphrey (e-mail address removed) http://www.iviz.com/

 

[Ike]

Make sure you get paid and paid in a timely manner. Implement a legal
mechanism to provide for that. Further, ask about companies who have stiffed
other member of this group. I would avoid a company named Design Nouveau if
they want to "contract," with you.

-Ike

 

[Matt Humphrey]

Make sure you get paid and paid in a timely manner. Implement a legal
mechanism to provide for that. Further, ask about companies who have stiffed
other member of this group. I would avoid a company named Design Nouveau if
they want to "contract," with you.

Thanks for bringing that up. I nearly had to sue a client to get paid until
I found out that in Virginia unless the contract says they pay court costs
for non-payment I would have to pay. Fortunately for me they eventually
paid.

Cheers,
Matt Humphrey (e-mail address removed) http://www.iviz.com/

 

[super_joe_smoe]

how about on the matter of insurance? since i'll be working as an
independent what are the risks i need to consider? do i need to buy
insurance to protect myself? and if yes, are there specific
programmers insurance? and what is approximate cost of the insurance
and some recommendations as to where to purchase the insurance?

i know i've been bombarding you with questions lately and I want you
to know i really appreciate you advice. you advice is sound and seem
to stress long term goals versus short term which i think is smart.
Anyway, thank you for your advice.

 

[super_joe_smoe]

well, since i got a copy of a pre-finalize agreement, there is a
clause in it which says basically that my bi-weekly payment is
contingent upon my broker being paid by the client. is this
arrangement typical and should i have this clause changed? the broker
seems pretty adamant regarding this clause. what worries me is that
if the client pays and the broker does not pay me, what can i do to
protect myself in that situation?

 

[super_joe_smoe]

Thank you for the analysis, it certainly makes it easier to see what
$50 per hour really translate into. as another poster suggested, i
will probably take the contract, take the hit in lower pay now, but be
in a position to renegotiate a higher rate later on since i am new to
the contracting world and my goal is to have long term success in this
field. so given that, and that my broker does not provide any
benefits, can you provide me some ideas to the health insurance aspect
of independent consulting? what basic coverage should i seek? on
average, what does a health benefit package mean in terms of dollars
per month? and perhaps some recommendations for health benefit
providers specifically for consultants? Thank you for your time and
advice.

Alex

 

[John C. Bollinger]

well, since i got a copy of a pre-finalize agreement, there is a
clause in it which says basically that my bi-weekly payment is
contingent upon my broker being paid by the client. is this
arrangement typical and should i have this clause changed? the broker
seems pretty adamant regarding this clause. what worries me is that
if the client pays and the broker does not pay me, what can i do to
protect myself in that situation?

Naturally, the broker doesn't want to be forced to pay you out of his
own pocket if the client doesn't meet its obligations. On the other
hand, he also doesn't want to be stiffed any more than you do. I am not
speaking from experience in this, and I would advise you to consult an
attorney, but you might be able to insert language requiring the broker
to take action to secure payment from the client, up to and including
suing them at his own expense, should they fail to pay. Make sure that
the contract ensures that you eventually get your full cut if the client
delays payment; you might even ask for a cut of any court-awarded
interest. This may go down easily for the broker, as he would probably
be inclined to take such action anyway, and you'd be getting more
service for that 38% margin the broker is taking.


John Bollinger
(e-mail address removed)

 

[Matt Humphrey]

Thank you for the analysis, it certainly makes it easier to see what
$50 per hour really translate into. as another poster suggested, i
will probably take the contract, take the hit in lower pay now, but be
in a position to renegotiate a higher rate later on since i am new to
the contracting world and my goal is to have long term success in this
field. so given that, and that my broker does not provide any
benefits, can you provide me some ideas to the health insurance aspect
of independent consulting? what basic coverage should i seek? on
average, what does a health benefit package mean in terms of dollars
per month? and perhaps some recommendations for health benefit
providers specifically for consultants? Thank you for your time and
advice.

Sorry, I can't help with that. Try the web.

Cheers,
Matt Humphrey (e-mail address removed) http://www.iviz.com/

 

[Matt Humphrey]

how about on the matter of insurance? since i'll be working as an
independent what are the risks i need to consider? do i need to buy
insurance to protect myself? and if yes, are there specific
programmers insurance? and what is approximate cost of the insurance
and some recommendations as to where to purchase the insurance?

i know i've been bombarding you with questions lately and I want you
to know i really appreciate you advice. you advice is sound and seem
to stress long term goals versus short term which i think is smart.
Anyway, thank you for your advice.

Business liability insurance is tricky. I didn't get any until I had a
client that required it. However, I also operate as an S-Corp, which
provides some natural protection. It may be legitimate for you to not have
any insurance at all. The question you have to ask is, if something went
wrong and (for whatever reason) the client decided what I delivered was crap
and sued me, how badly would it hurt?

That's about the limit of my knowledge on this. If the broker doesn't
require it, I wouldn't worry too much.

Cheers,
Matt Humphrey (e-mail address removed) http://www.iviz.com/

 

[Liz]

Business liability insurance is tricky. I didn't get any until I had a
client that required it. However, I also operate as an S-Corp, which
provides some natural protection. It may be legitimate for you to not have
any insurance at all. The question you have to ask is, if something went
wrong and (for whatever reason) the client decided what I delivered was crap
and sued me, how badly would it hurt?

That's about the limit of my knowledge on this. If the broker doesn't
require it, I wouldn't worry too much.

Cheers,
Matt Humphrey (e-mail address removed) http://www.iviz.com/

But aren't you working for the broker, so doesn't this isolate you from the
client?

 

[Matt Humphrey]

....

But aren't you working for the broker, so doesn't this isolate you from the
client?

I would think it depends on what the contract.says, although even that may
not be any guarantee.

Cheers,
Matt Humphrey (e-mail address removed) http://www.iviz.com/

 

[Roedy Green]

Let's start with the basics. At $50/hr,

On the other hand university-trained Russians and Indians are working
for $10 an hour. You can get the creme de la creme for $20.

I would count yourself lucky in these days of outsourcing.

I just discovered that Canada is friendlier to small business than the
USA. I don't have to incorporate to deduct my business expenses.
There is nothing in the way of paperwork other than a yearly tax
return.

You can obviously work for far less overhead than you can when you
work in an office. You already have a home office, desk, computer,
phone etc. You get more of the money to take home if the employer
spends the same amount. You also get to deduct part of your rent for
the room you use as an office.

 

[johnwatson149]

REQ: Advice regarding 1099 consulting position

Thanks for sharing Information, its helpful & knowledgeable,I hope you can stay strong for Luke & continue living your life without any problem..I am new user and I feel great to join in this community.


Courier Van Insurance