Permanent employee or Contract employee, contract employee or permanent employee. I catch myself debating this scenario fairly often. The Dallas Java IT job market is really doing well. The JavaMUG jobs mailing list has daily job offers. I’d say that they are around 60/40 contract to perm job postings.
For the longest time I had no idea why people would want to be a contract employee. The idea of having to find a new job every, 6, 9, 12 months seemed to be a crappy problem. The idea of having ZERO benefits. ZERO paid vacation. NO retirement. NO job security. I could go on and on.
Then after talking with friends I’ve made in the Java community here I hear from some that swear by Contract status. They love the control they have. They love the idea of being able to work on new and exciting projects. They mention the fact that they make better money.
I’d love to hear from some readers out there what there thoughts on the subject are. What reasons do you have for staying Perm or Contract? Is there a magic formula to knowing when to switch to contracting? How much per hour should I be looking for as a contract employee? How are you contract workers handling insurance, retirement, etc?
I work for a small consulting firm. I have the option of being contract or perm. I’d say the company is split pretty evenly between contract and perm. I’m about to have to make some big changes in my life and understanding the differences between contract and perm status will be necessary as I work through the changes. The changes are big, but I can’t talk about them today. Some readers might even know about “the change”. I will be sure to disclose the exciting details when I can, probably in a month or so.
Anyhow, I’d love some feedback on my above mentioned questions.
Contract or Perm, good question… Over the span of my career, I’ve had the luxury of working for many different companies across the metroplex, the greater majority being contract. The breakdown is eight years contract/consulting and three years perm, contracting vs. consulting is a WHOLE ‘nother topic I’m not addressing at this point, we’ll have to save that one for a rainy day. Listed below are my reasons why I prefer contract over perm and some cons:
1) More choice when it comes to the type of project. I get to choose what technologies, business sectors, etc I’ll get to work with, such as Hibernate, Spring, Banking, Telecom, the list goes on.
2) Compensation is higher if one goes about it the proper way. The proper way meaning, creating your own business entity, either by incorporating, LLC, etc… So that the contractor can take advantage of writing business expenses off, such as laptop, books, conferences, etc. I’m not a tax expert, at the time I made the move to contract it was suggested to me to incorporate, form an S-corporation, which was in 1998, since then there may be a better way. Perhaps someone out there could educate us on a better to maximize our tax strategy. Now, I must mention that with a higher compensation comes more headaches. I suggest a contractor that has their own business entity must use an accountant to file their taxes, which is money well spent, especially when it prevents an IRS audit. Also, there are monthly deposits to Uncle Sam and quarterly filings to Uncle Sam and the Texas Workforce Commission.
3) The ability to work w/different people on a higher frequency compared to perm. Since contracts are typically short lived, 6 – 24 months, the contractor gets the opportunity to learn from many others, I think this is paramount. There are lots of brilliant minds out there and IMO one of the best ways to learn something new is to work in a daily fashion with that person.
Cons for contracting:
1) As Erik said NO benefits, NO vacation, to get around that just simply factor that into your rate.
2) NO job security, I feel that even w/a perm job there isn’t more job security compared to contract. As long as the contractor keeps himself/herself marketable they shouldn’t have anything to worry about, this circles back to point number one above, “Having more choice as to the types of technology one works with.” 😉
What if you don’t have many items to write off? I haven’t talked to a tax lawyer yet but I still haven’t figured out how you pay less taxes if you don’t have much to write off.
The two biggest write-offs are your home office and vehicle, please talk to your tax lawyer on the exact verbage needed for the IRS. For your vehicle, you basically lease it from you as an individual to the business, thus making it a “company car”. Once this occurs maintenance (oil changes, brakes, etc) gas and mileage can be deducted. Be careful w/the mileage, again consult your tax attorney on the thresholds.
For your home office, you are basically renting office space for your business, this amount can be deducted, the same goes for utility bills.
By doing this you are getting your taxable income down as much as possible, with what’s left over pay yourself a reasonable salary and do some “equity draws” to get money out of your s-corp. Keen in mind equity draws will be considered income by the IRS, however equity draws do not require state and federal payroll taxes, which is a benefit to you.