Tips for a first time contractor

By: Jill Reynolds, President and CEO

For those of you who have never worked as a consultant or contractor, it may seem risky and unstable….but there are some great advantages.  Contracting can provide opportunities for experiencing diverse employment environments and to learn new or different technologies, perhaps, there might be a little extra cash in your pocket.  Contracts usually pay more than an FTE role for a variety of reasons that we’ll cover in the points below.  If you haven’t contracted before, where do you start?  What questions should you ask?  What about compensation?  You may have no idea what your hourly rate should be.  And, what about benefits like health insurance, 401K, PTO, etc.?  At Quantix, we regularly work with candidates who have never contracted before and provide a comprehensive over view of “Contracting 101”.   We all like surprises, but not when it involves jobs or paychecks. 

Here are a few basics for the first time contractor: 

Duration: Contracts can vary in length from weeks to years.  Some contracts have a very defined duration, some can be open-ended.  Some contract roles can last longer than some “perm” hires, making those jobs not so “perm” after all.  The agency offering the contract role should be able to tell you the duration of the contract, if it is likely to renew or extend and if this client usually honors the duration of the contracts.  Of course, there can be unexpected terminations due to performance, budget cuts, leadership changes, etc.

Compensation:  If you have always had salaried positions, you might be unsure how to calculate an hourly rate.  A good rule of thumb is to take your annual salary, divide it in half, drop the last 3 digits and that will give you a good starting point for your hourly rate.  For instance, if your salary is $70,000; divide by two= $35,000; drop the last 3 digits, you come up with $35/hr., W-2.  In this scenario, if you work 2,000 hours ( this is a full year minus 2 week’s vacation/holidays) you would gross $70,000.  This is a starting point because the rate should be slightly hire to offset the “risk” of a contract and you should add enough to compensate for other benefits you may have lost (PTO or sick time) or are now paying for out of your pocket (health insurance).    Be reasonable about your rate, some candidates think contracting is like riding the Gravy Train.  Of course, some contracts can be more lucrative than others, but if you are a first time contractor, it’s not likely you will have earned a first class seat on the Gravy Train.  Seek guidance from your recruiter they should be able to discuss an appropriate rate range for the position.

Benefits:  Every agency provides different levels of benefits and employer contributions vary greatly.  By law, every employer is obligated to offer health insurance to their full time (29+ hours a week) employees after 90 days.  The employer paid contribution to the benefits can range from zero to 100%.  Dental and ancillary insurance, PTO, 401K (matching or non-matching) may also be available.  For example, Quantix offers group medical insurance with an employer paid contribution for the employee, dental and ancillary insurances, 401K and PTO.  If you already have coverage and do not need benefits, a higher pay rate might be offered because of the lower benefits costs for the employer.

On-boarding:  You may go through 2 on-boarding processes, one with your employer, one with their client where your work will be performed.  From the employer, you will be provided an employment contract that is specific to the contract engagement.  This will detail employer and employee rights, obligations and commitments, rate, client’s name, duration of the contract and benefits options.  Drug testing and background checks are customary.  As a side note, if there is something “questionable” on your drug screen or background check, the best thing to do is to discuss this with your recruiter beforehand.  These conversations are confidential and best handled early on.  Like the surprises we talked about at the beginning, these aren’t the good kind and you don’t want to be perceived as sneaky or dishonest.  As far as the client, each one will have their own on-boarding processes, paperwork and orientations for their contractors and they run the gambit.  Some are casual, even non-existent, others are very structured and extensive.

Conversion:  Some contracts are deemed “contract-to-hire”, this means there is a predetermined contract period, a try-before-you-buy so to speak.  After that period of time, if mutually agreed upon, the contractor will convert to a permanent employee of the client for a pre-negotiated position and salary.  Even if the position is not officially a contract-to-hire role, it is not unusual for the client to want to hire the contractor as a permanent employee.  Depending on the contractual agreement between you and your employer and between the vendor (your employer) and the client, this may or may not be acceptable or simple.  In most cases, however, these situations are worked out to everyone’s satisfaction.  If you are approached by the client for full-time employment, the appropriate response is to let your employer know so that everyone is in the loop and the proper procedures and protocols are followed.

These are a few basics for a first-timer.  The most important factor is to work with a recruiter you have good rapport with and can trust, they are your advocate.  They should be able to guide you through your initial contract engagement with as few bumps as possible.  Don’t be timid, ask questions and get good answers.

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