Independent Contractor

I work at home. I’m an independent contractor, working for the same firm for the past eight years. That means that I’m not an employee and the company I work for doesn’t withhold income taxes, Social Security and Medicare taxes or unemployment tax on the wages I earn. I receive a 1099 instead of a W2.

It’s technically up to the employer to classify your work status. The IRS has a nice article online for further explanations for determining Independent Contractors vs. Employees.

The particulars of working as an independent contractor are as varied as the companies or individuals who hire them. Some might require you to sign a non-compete to keep you from working for other competitive firms in the same industry. Some cover a portion of the operating expenses for the contract worker, others don’t. Some independent contractors work in-office, others telecommute.

Back in the 80’s and 90’s my dad worked as a senior systems analyst for various companies. Instead of staying in one place, he’d contract by the job – working for one firm for two years, the next for six months and then back again. He was an independent contractor. Freelancers, ICs, consultants and free agents are also, for the most part, independent contractors.
For me, being a telecommuting independent contractor works out great. I signed a non-compete, I am responsible for my own expenses and my own taxes. I am not an employee of the firm yet the few contract workers and employees and owner are a tightly-knit, well fundtioning group of individuals in various stages of life and family and schedules. We all seem to make it work. Everyone I work with on a daily basis appreciates the accompodating work environment our company provides. We, I think, all lead well-rounded personal lives with little conflict between getting our jobs done well and keeping an even keel outside of work.

The hardest part of telecommuting as an independent contractor (for me personally) is having to keep up every aspect of having a functional office at home. Most days are good days – where computers work and back-ups happen and things run relatively well in the background. Other days, like those I’ve been having for the past couple of weeks, include outside ‘office-keeping’ duties that I’d rather not deal with. There are occassional days lost to having to repair malfunctions, shop for equipment, convert or upgrade to new programs and so on. Sometimes, on those dark days, I think it might be nice to work in an office setting where when something does go wrong I simply pick up my purse and leave my desk to go out for a nice long coffee break while some young kid comes in and fixes all my glitches for me.

As an independent contractor I also miss out on additional benefits commonly offered to employees; benefits like paid sick leave, paid vacation, 401K opportunities and so on.
But I like being my own boss and having control over my income and how I use the money until tax time. I worry at times about job security – but I think that’s a worry for both independent contractors AND employees alike!

14 comments

  1. I make $30/hour in one of the companies through one of the contract house without any benefit. The middle company is making some money in between.
    The company may be interested to contract me directly.
    My question is how much I need to ask the money from the company if they hire me as contractor without any benefit.

  2. Let me see if I understand your question correctly. Company A currently employs Company B (the company you work for at $30/hour). Company A might be interested in hiring you directly as a contract worker and you’re unsure of how much they might be willing to pay you.

    If you have not signed any non-compete with Company B, you should consider working directly for Company A to cut out the middle man. You can likely ask for $40/hour without jeaopardizing the offer but it would help if you could find out how much they’ve been paying Company B before giving them a quote.

    You should also be clear on whether or not they expect you to quit working for Company B all together and, if so, how many hours per week they intend to provide you with.

    Good luck, and let us know what happens!

  3. I will be moving soon with my fiance and have the opportunity to become an independent contractor for the company I’m with now. Do you have any suggestions for a beginner on people I should speak with and questions I should ask? Are financial advisors and tax consultants good people to turn to for advise?

    Also, do you have any advise on what I should request for an hourly contractor’s rate? This is difficult for me since I am used to getting a salary from this company.

  4. Jennifer,

    Congratulations on your upcoming marriage! Yes, a tax consultant (or the cpa who helps you file your taxes every year) can give you great advice for claiming your expenses. Depending on the work you do, you’ll need to keep careful records of any money you spend on office supplies, phone lines or calls, internet service plans and so on. As an independent contractor you’re responsible for paying in your own taxes and your cpa or tax consultant can tell you the best way to do that. Some contract folks even pay an estimated tax quarterly so that the burden doesn’t come all at once.

    It’s important you do use an hourly rate. If you’re already working for a company, take your annual salary and divide it by the number of working hours in an average year (about 261 days or 2,088 hours if my math is correct). That’ll give you a good idea of what you make an hour now.

    Another good way to ‘price’ yourself is to do comparison shopping. Find out how much others in your field make when hired on a contractual basis.

    You’ll also save a bit of money if you’re able to telecommute. By not commuting to work, you’ll save yourself an average of 12 days per year just in travel time to and from work! Then there’s the gas money, the clothing expenses and the occasional lunches.

    I hope this helps. Best wishes on both new ventures in your life.

  5. I’m working as an independent contractor right now and I’m not sure how my vacation situation would work, most likely I still talk to customers and prospects while I’m on vacation (I work remote). But I wanted to be sure that I get pay while I’m on vacation or if should still travel and work at the same time. It doesn’t show in my contract! Could you give me some idea how to manage this situation?

    Thanks,

    Jose

  6. Jose – It’s a bit of a tricky question because the word “vacation” can really mean two different things: (1) Paid Time Off and (2) Time Away From Work. And in either case, you may be staying at home or perhaps traveling. The huge draw-back of being an independent contractor is that you don’t get the traditional benefits that cubicle hounds do (like paid vacation, paid sick days, paid holidays). If you travel and are able to work while you’re traveling – you get paid for that work. If you travel but aren’t able to work or are taking the entire time off to relax and sight see, then you’ll not be getting paid.

    However, the situation would vary depending on who you’re working for, too! If the idea of ‘vacation’ time isn’t structured into your contact, I’d assume there’s no paid vacation in the traditional sense. Ultimately you’ll have to receive clarification from the company you’re working for (and your human resources connection is the one to ask to clarify your particular situation). You should also find out what the protocol is to notify them in advance of any vacation plans (meaning time you’ll actually need to be away from work entirely) you might have.

    Good luck, and please feel free to come back and share what you learn here!

  7. Hi! I’m working for a company as an independent contractor and wanted to start my own business doing the same thing. I have not signed a non-compete. Do you think this could become a legal issue if they find out about it? Can I just begin my own business and not worry about them?

  8. Jess – I guess that depends on a lot of factors. Legally, since you haven’t signed a specific non-compete I would think you’re safe. But I’d also consider the ethical obligations of whatever it is you do. If going out on your own directly interferes with your ability to do your job for the company you are currently working for (and you intend to continue doing that as well), I’d think twice about it. If you’re simply going to stop working for the company you currently work for and hang out a shingle I’d make sure you don’t go after that company’s clients, use proprietary information or documents owned by that company, or disclose any information about that company or it’s clients when you’re out there doing your own thing.

    It’s always best to be as upfront as possible but make no bones about it — you’ve got to also protect yourself as an independent and do what’s best for your own survival. At least that’s my philosophy.

  9. I worked as an independent contractor for the last 3 weeks. I had to resign this last Friday because for the 2nd time my paycheck was late. I now think I might never get payment from this company. I can’t seem to find any sites that list what the laws are for indep. contractors. I really just want to get paid and be done with these people. Any advice would be great. Thanks.

  10. Kelli – As an independent contractor, it’s up to you to set the payment guidelines (or agree to payment guidelines set forth by the company you’re doing work for). As far as I know, there are no laws regarding paying independent contractors, it’s more a matter of debt collection.

    You can find some good info in the Career Advice section over at eHow. For example, take a look at How to Create an Independent Contractor’s Agreement, which outlines that you should specify not only how much you’ll be paid for the work you do, but also when payment will occur.

    It sounds like the company you worked for agreed to pay you weekly and you worked a total of 3 weeks, resigning because payment wasn’t issued regularly as promised. If you signed a contract with this company, that’s how you’d pursue it, as a breech of contract perhaps?

    Without knowing much more, I think I’d simply contact a lawyer’s office or two and ask them what your recourse might be. They’ll often answer questions like that for free. You could also file a complaint with the BBB as a way of prompting them to resolve the issue (and warn others that it’s possible they don’t always pay their independent contractors in a timely fashion).

    Good luck! And feel free to let us know what happens.

  11. Kelli I would tell them that you were contacting the BBB and see what they do. You can also use a collection agency to attack their credit until they pay.

  12. The company calls me an independent contractor, which is fine, until it is time to get paid. The boss sets up the pay schedule as every 2 weeks and does not follow thru. On top of that the boss is deciding to pay 20% on “jobs” or “invoices” is that her right to do that or is the boss manipulating the employee/independent contractor relationship.

  13. Amy – I’m not clear on what’s happening, but independent contractors generally have the pay built into the initial work contract or agreement. If you’re paid every 2 weeks, then you should be paid every two weeks. If you’re paid X for X then 20% of X isn’t exactly acceptable. Review your contract and consider if the situation is working for you or not to make a decision about whether you continue to work as an Independent Contractor for this particular company!

Leave a Reply

Your email address will not be published.