By: Jill Reynolds, Quantix President and CEO
Have you ever considered making the shift from a full-time, permanent employee to a contractor or consultant? How do you know if it is the right move for you? If you have never been a contract employee, there is a lot to learn and many questions to ask yourself:
1) Do you have a skill set in high demand or do you have a skill set that is rare?
If you are highly skilled in your area of expertise, that’s a good start.
2) Do you want to work as a W-2 contractor or corp to corp/1099?
If you want your employer to continue handling pay roll deductions and taxes, W-2 is the way to go. This is perhaps the safest route if you are contracting for the first time. To work as a corp to corp, not only do you need to incorporate and work under your federal tax ID number but also carry your own business liability and workers’ comp insurance. Consulting with your tax advisor is the best first step to be sure you fully understand the IRS compliance and tax liability unique to your overall financial picture.
3) Do you need health insurance or other benefits?
Are you the sole provider of health and retirement benefits for you or your family? If so, do you have a plan to provide the benefits to meet your needs? Some staffing or consulting companies can provide benefits to their contract employees, but only if the contractor is employed as a W-2 employee.
4) Are you prepared to make the shift from a salaried role to hourly?
In a contract role the “billable hour” becomes your friend or foe. If your contract has the opportunity for extra hours, your earnings can bump up; if your contract has capped hours or you are not working for any reason (i.e., vacation, illness, holidays, etc.), your earnings take a hit.
5) There is consistent buzz about the “big bucks” to be made in the consulting world. Is this really true?
The answer is “it depends.” The market demand for your skill set is the biggest factor to determining the pay rate to the contractor. Contracting should provide compensation higher than a traditional FTE role with salary and benefits in part because the burden of benefits likely falls to the contractor. You are also compensated at a higher rate to offset the risk associated with a contract engagement. Even if a contract is projected to last for a defined period of time, nothing is guaranteed. Budgets and funding can change quickly. Management changes can also result in resource changes.
6) Knowing your contract status could change without notice, are you financially prepared for lapses between contracts?
Ideally, one contract will seamlessly follow another, but unfortunately, it doesn’t always follow that track. Could you go one two or three months before you found your next engagement? For the most part, a contractor works at the discretion of the client so change in inevitable.
If you are the type of person who likes a predictable and defined path, this might not be the right direction for you. If you feel comfortable in fluid situations, confident in your ability to “sell yourself” and have a financial cushion, then it might be the right time to put out some feelers.