Subcontractor questions

[Hippie]

Hey guys, after 25 months out of work I finally have a job offer! The only draw back is that the company doesn't want to add another on-the-books employee yet, so they are looking to take me on as an outside contractor to start. I don't have any experience with this sort of thing, so I was looking for any advice people may have for me; like what are the pluses and minuses of this sort of an arraignment, should I get a written contract, what types of things should I have written into it, etc...
They are telling me that I will be covered by their workman's comp. while on the job. Is that standard or something I should get in writing? One of the considerations I asked for was that when (if) they take me on as a regular employee is that they waive their 90 wait period for benefits, but I don't have an answer yet. Is there anything I should ask for? I am not taking the position that they need me more than I need them by any means, but at the same time I will step in as one of the more experienced guys and don't want to hurt myself by not getting what I can/should.
Thanks in advance for any help that anyone can give me.
-John

 

[Sean]

Being an independent contractor can sound appealing, but some things to consider. As an independent contractor you will be saving your employer a good bit. They know this for sure, it is important that they understand that you do too.

You are in Vermont so the laws may be a bit different, I have experience in Florida and NC.. First, It is almost assured, you will not be covered by their workers' comp. If they offer a different type of insurance that is something else.

Another thing to consider is that you will be responsible for paying the employers portion of Social Security and Medicare, known as self employment tax. Which means 15.3% instead of 7.65%, and they don't take that out of your check so be sure to plan for it. When tax time comes that can be a real shocker (15% of your pay plus income tax.)

Third, You have less job security, and no unemployment. You work at their need.

Positive side:
1. You will have more deductions, health Insurance, tools, travel etc. but probably not enough to make it worthwhile. Remember that, in order to get a deduction, you have to actually pay for what you are getting the deduction for.

2. It is a good way to get a foot in the door. If you are good at what you do, you can probably make yourself valuable in a short time.

3. It is a great feeling to work for yourself!

Luck to you.

 

[Dunerunner]

I would think that as a contractor, you would be responsible for your own retirement, healthcare and unemployment. Get a formal written contract delineating exactly what work will be done and the compensation to be paid you for said work. If you want to add benefits, make sure they are in the contract. Insure it is notorized.

I forgot....

Some professions require a contractors license. Think about that one, too!

Of course any legal advise you get on a beer forum should not be taken (to the bank)!

 

[Hippie]

Thanks guys! and just to clarify, I haven't updated my profile, but I am now living in NC and that is where the job is. I'll be happy to take any more advice that people have...

 

[paulthenurse]

Hip,
Sean is correct. You need see a certificate of insurance to know that you are covered by their workers comp. You won't know that they are filing a 1099 on you until after the end of the quarter but insist on seeing one then. There are all sorts of regulations to differentiate between true subcontractors and employees. For many good reasons the gubmint doesn't want employers beating the system by doing what your potential employer wants to do and has a bunch of mechanisms to catch that. Those regulations are for your benefit. Lets face it, you are the one taking ALL the risks. Just know that going in and price yourself accordingly.

PTN

 

[freakshow10mm]

Always get agreements in writing. This is the contract part of being a subcontractor. You will most likely not be covered under their insurance policy, since WC covers only employees, not subs. Be sure to take 15.3% out for Self Employment tax (Medicare/Soc. Sec). For payroll employees, the employer pays half and the employee pays half, up to $8,000 in wages. After that point the employer doesn't pay and only the employee pays the "half". It's far easier for the employer to have subs because it's less paperwork and just a 1099.

 

[Bills Brew]

I have been an independent engineering contractor for the last 8 years. So, here is my 2 cents worth.
1. Like others have said, get all of the details in writing. If it isn't in writing it doesn't exist!!
2. You will probable set yourself up as a sole proprietor. There are other option like an LLC, etc. As sole proprietor, you will be required to make quarterly tax payments based on your previous months income. I was a sole prop for 7 years, and recently formed an LLC to protect my personal assets in the case of a liability issue.
3. As others have said, you will be responsible for your own health insurance, the total SS contribution, your own retirement contributions, and to cover yourself during the down times. So, set your hourly rate accordingly. Check out what the market will bear in your line of work and area.
4. The IRS has rules governing what constitutes a contractor vs an employee. Check out this IRS site: http://www.irs.gov/businesses/small/article/0,,id=179115,00.html
5. Yes, there are a larger number of tax deductions including mileage, tools, office supplies ( I have a home office, so a portion of my home operating expenses are deductablle, based on the office to house square footage ratio).
5. Plan for the down times. We put aside 6 months savings to cover those times. Most likely you will not be working 52 weeks a year, and there is no umemployment for independent contractors.
6. Network. The best way to keep yourself busy is to get the word out to your industry that you are in business.
7. Have fun. It is your business. Treat it, and your customers with respect. It is easier to keep servicing an existing customer than it is to have to go out and try to find new ones. But always keep your eyes open for opportunities.

Hope this helps