Contracting work, does anyone pay?

Hans Fugal hans at fugal.net
Mon Apr 23 13:26:32 MDT 2007


On Mon, 23 Apr 2007 at 10:39 -0600, Daniel C. wrote:
> Fourth, talk to a tax expert.  Now.  As an independent contractor,
> you're going to get slammed with about twice the taxes you would as an
> employee.  There are ways to mitigate the taxes you have to pay, and a
> good tax... person (lawyer?  CPA?  I don't know) can tell you what
> they are, so you'll know what things to keep track of.

I didn't talk to a tax expert, but I did get a good book[1] on the
subject. It helped immensely. But do it if you can. When doing my taxes
this year, I did talk to a CPA at church about a question or two I had
about my tax return, and it saved me about $700 in federal tax liability.

You'll hear two camps on what you should charge: a little bit more than
you would get in hourly wages as an employee, and a lot more than that.
The latter is the better figure. People contracting with you save a LOT
of money by hiring a contractor instead of an employee. At the same
time, you will be utterly amazed at how much money gets sucked away from
you for taxes, health insurance, etc. A rule of thumb that I've heard,
which has the added benefit of being really simple to calculate, is to
take the annual salary you would ask and divide by 1000 for your hourly
rate. i.e. if you would ask 45k/yr with standard benefits etc., then ask
$45/hr. 100k/yr, ask 100/hr. Of course you can be flexible, just like
you can be flexible with what salary you ask. One nice thing about self
employment is you can ask a lot more for jobs you'll enjoy a lot less,
and vice versa, and you can change your rate with much more ease than
you can as an employee.

Charging the right amount will actually help in weeding out the
deadbeets. They may not pay (easily) but they'll still balk at the
proper rate for the job. The people that will agree to pay the rate you
really deserve will be better clients, happier with your work, and less
likely to be dead beets. Even the same people, when charged a higher
rate, will behave better.

Oh, and never agree to do work except hourly. (Except when you do, of
course, but don't give up this point on any single job without a fight).
It's not only better for you, it's better for them. They should expect a
reasonable estimate from you, and you should honor that estimate within
reason (i.e. if you go over a little that's fine but if you go over a
lot then eat it). As a result your time will be well-compensated, you'll
quickly learn how to not underestimate, they will have a cost attached
to featuritis (don't add features to the spec without them acknowledging
that it may take more time/$$), and all around it's usually better for
everyone.

-- 
Hans Fugal ; http://hans.fugal.net
 
There's nothing remarkable about it. All one has to do is hit the 
right keys at the right time and the instrument plays itself.
    -- Johann Sebastian Bach
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