Working Solo:
An Introduction to Life Outside the Corporation

Where do I find work as a consultant or contract employee?

As a consultant, your bet way of obtaining jobs is through contacts from previous work and contacts in the industry. Some work comes from advertising, web sites that demonstrate your abilities and knowledge, and participation in work related discussion groups and news groups. If you are working as a consultant you should plan to spend part of your time participating in professional organizations, publishing articles and papers, participating in news groups or other on line forums, and otherwise expanding your contacts.

For contract work through an agency, there are several good sources on the web:

CE Weekly (www.ceweekly.com) lists jobs from agencies in may areas of work, both short and long term. The site allows the ability to search based on key words, location, and other criteria. You can register a set of search criteria and receive e-mail alerts when jobs are posted that meet your criteria. In addition to the job listings and resume distribution there is helpful information for contractors on the site. There is a subscription fee of $20/year. It is well worth the price of the subscription.

Net-temps (www.net-temps.com) is similar to CE Weekly except that there are no subscription fees. Like CE Weekly the job listings are from agencies.

Other sources specializing in consulting and contract work are:

Guru (www.guru.com) covers mostly information technology with listings from agencies and direct contract work.

Sologig (www.sologig.com) charges $25/month, a little high for what you get for $25/year (CE Weekly) or even free. They allow job searches without paying, but can't see details or contact information.

Other job sites that specialize in permanent placement also provide listings for temporary contract work.

Monster.com, one of the largest and best known of the internet job sites has a special site for contract and temporary employment at www.ctmonster.com.

Headhunter.net provides contract listings.

What is the difference between an Independent Contractor and an Employee?

The difference primarily affects tax status. An independent contractor (IC) is not an employee of anyone but himself (self employed) but instead invoices and is paid by the client just as the client would pay any contractor. The client reports the payment to the IRS on a form 1099 but does not withhold taxes or pay social security tax. Other laws and regulations concerning employment, such as wage-hour (requiring overtime for certain employees) and workers compensation do not apply.

A contract employee is an employee of a temporary service agency. That agency reports the employee's earnings to the IRS on a form W-2, withholds Federal and state income tax, and pays the employer's share of the social security tax. All federal and state employment laws apply. The employee is not an employee of the client, for whom he performs his services. That client actually is a client of the temporary services agency.

Advantages of 1099 status:

The IC has more freedom to negotiate his terms of payment than an employee. The various state and federal laws regarding employment do protect workers from being taken advantage of by employers. However, many professionals feel that they do not need such protection and can take care of themselves. For example, many employees must be paid overtime of 1.5 times their regular pay for any time over 40 hours per week. However, this requirement reduces the amount of work an employer will want an employee to perform (as intended by the law). A consultant, working away from home, may prefer to work more than 40 hours per week, allowing him to finish the project earlier, reducing the cost and allowing more time at home. With IC status a consultant may negotiate pay at a flat hourly rate, encouraging the client to allow more hours of work per week. Consultants have been known to entice the client to allow (and make arraignments for) longer hours by offering a reduced rate for overtime. Consultants can often make more money by quoting a fixed "lump sum" price for a well defined project rather than being paid by the hour. This requires IC status.

The IC does not have withholding tax deducted from his pay check, although he must pay quarterly estimated tax instead. Also, the client does not pay the employers share of social security; that must be paid by the consultant (known as "self employment tax"). These two items are a wash. However, an IC may often be able to deduct expenses related to his consulting business that would not be available to an employee.

An employer must also pay certain required benefits, such as workers compensation insurance. (while paid by the employer, the cost will reduce the amount available to pay the consultant). Often the workers compensation insurance duplicates insurance the consultant already has.

Advantages of W-2 status:

Working as an employee (contract or permanent, direct) also has advantages. Taxes are taken out of each paycheck, and the employer (for a contractor, the agency) pays the employer’s half of the social security tax. While this reduces the size of the pay check, it eliminates the need for the employee to pay estimated taxes and file the additional tax forms for a small business. For many people, this will eliminate the need to hire an accountant or lawyer to prepare the taxes (although for a family there may be other reasons to use a tax professional).

Often the decision of 1099 or W2 status is based on the circumstances of the work. If you are going to work directly for a company to complete a project, and are to be paid a fixed amount for the project, then there is usually no choice but 1099 status. The company will issue a purchase order to you, you will complete the work and invoice the company.

On the other hand, if you are a contract employee working through a temp agency the agency may not handle 1099 pay, or requires that you be incorporated to avoid a W-2.

The 1099 vs. W-2 issue is one of the most contentious issues regarding contingent employment. The IRS has strict requirements that limit the ability of workers to be classified as independent contractors.

1099 vs. W-2 Links:

Nolo, a seller of electronic and print legal information for the non-lawyer, has information on its site for the independent contractor. http://www.nolo.com/lawcenter/index.cfm/catID/EC0EEB1C-16EA-4F81-833ED5890B19383A

The IRS has many publications of interest to consultants and employees. Two related to the IC vs. employee issue are IRS form 15A http://www.irs.gov/pub/irs-pdf/p15a.pdf and IRS brochure on IC vs. Emp status http://www.irs.gov/pub/irs-pdf/p1779.pdf.

Guru.com, which has many articles on subjects relating to contract and consulting work, has two on the W-2 vs. 1099 issue: http://www.guru.com/articles/subtopic.jhtml?chanid=taxes_w-2vs.1099 and http://www.guru.com/channel/hiring/guide/G213.jhtml

Working away from home

One reason many professionals are working on a consulting or contract basis is because they cannot find the job they want in the same location they, and their families, wish to make their home. The normal salary ranges for professionals will not allow them to maintain a home for their family while traveling to and from, and living at, a job site in some other part of the country. Companies hiring permanent, direct employees usually expect them to relocate to the location of the job (and, of course, expect to pay relocation expense).

However, consulting and contract work (particularly short term), is often based on the fact that the worker will be living away from home and have the expense of maintaining a second residence and of travel. Therefore rates paid to consultants and short term contractors usually are sufficient to allow them to live in a location remote from their home cities and periodically (every week or every few weeks, depending upon distance) travel home for weekends and holidays.

In most cases the individual pays for the expense and his net earnings depend upon how cheaply he can live away from home. The success of failure in consulting or contract work can depend on ones ability to travel and live at a reasonable cost.

Housing Cost

One of the most expensive parts of work at a remote location is cost of lodging. Even low cost motels can be a significant expense over a long period of time. And living for week after week in a small motel room, dependent upon restaurants for all meals, can get old very soon. There are lower cost alternatives.

If you do not need the services of a hotel or motel and will be in one location for a few days or more, an alternative is a suite type motel that provides limited housekeeping, a front desk that is not open late at night, but a much lower cost.

An example is the Extended Stay America chain. (www.extstay.com) The chain comprises the Studio Plus, Extended Stay America, and Crossland properties. Typically these facilities provide a typical motel room but with a full size refrigerator, two burner electric stove top, and microwave oven. (Studio Plus provides a separate bedroom and larger kitchen) There is weekly housekeeping service. Coin laundries are provided in the building. For those willing to make up their own beds these chains provide a room with more of the comforts of home with a lower cost (typically from $300 to $400 per week, including tax), compared to about 75% more for a Holiday Inn Express room.

An even lower cost, and more comfortable, alternative is renting an apartment or condo unit. Many apartments are available as "corporate" apartments, which are full size apartments that are fully furnished, equipped with cable TV, phone, linens, and kitchen equipment The rental company will provide everything for one monthly payment, usually for a short term monthly rental. Corporate apartments are usually designed to be rented directly to corporations so relocating personnel can move their families and start work while waiting for a house to be available. Two nationwide chains that provide corporate apartments are Suite Options (www.suiteoptions.com) and Oakwood. If you have the time, the best way to find an apartment is local contact (real estate agents often have information available for use by clients before they can buy and move into a new home). The best values can usually be found through local newspapers (there is usually a "furnished apartment" classification). Many local newspapers also list their classified ads on-line. They can be found through a search engine. Many apartments are condo units owned and rented by individual investors. In general, and depending upon the type and size of apartments, furnished or corporate units can be rented from $900 to $1500 per month.

If furnished apartments are not available, or if you are confident that your stay in one location will be for longer term (six month to one year) it may be a better choice to simply rent an unfurnished apartment, rent furniture, buy some items, and bring some from home. Cort Furniture Rental (www.cort1.com) is a nationwide firm with offices in many cities that rents furniture, linens, kitchen equipment, and appliances to furnish apartments.

Many apartments listed by apartment complexes can be found at www.apartments.com.