Advice for first time contractor

[dmusicant]

I've been programming for around 10 years and working at it (W2) for 8 or so. I've had quite a few jobs. I am sometimes asked if I want to work as a contractor or as an employee and I have always said "employee" mainly because I've always done that. I figured I could probably easily take those jobs on a contract basis and figured that someday I'd have to (or even want to) but that day hasn't come until today.

A recruiter got my resume off an employment recruitment site and has been lining me up for a position at one of their client companies and yesterday I was told that the decision has been made that I get the job. I am to be paid on an hourly basis as a contractor. They emailed me papers to sign yesterday. Generally, when I sign preemployment papers I scan them and sign, have a general idea what it's about, the legalese notwithstanding. Since I was at home this time, at my "leisure," I took the time to read this stuff carefully. Most of it looks pretty OK, although I'm rather inexperienced at this, obviously. There's a nondisclosure agreement, a W9 form - pretty standard stuff. Then there's the 5 page contract with an "Exhibit A" tacked onto that, being a purchase order for my services. That's a bit weird from my perspective, but probably standard, I figure. It states my hourly rate, basically, with a sentence or two with yet another guarantee by me that I won't make any agreements with the 3rd party for a year after the completion of my assignment, things of that nature. In the contract they want me to guarantee that if I do start working directly with their client, I will fork over 20% of my salary. I guess I'm OK with signing on that. However when I got to paragraph 12 in the contract, I did a double take:

12. INSURANCE. Contractor will obtain for itself and its personnel before providing services, at its own expense, comprehensive General Liability insurance coverage for projects covered by this Agreement, for limits of liability not less than $500,000 and will name <insert name of recruiter here> as an Additional Insured, provide a copy of the binder and policy to <insert name of recruiter here>, and hold <insert name of recruiter here> harmless for any damages or expenses, including attorney's fees, incurred as a result of misconduct of Contractor or its personnel involving <insert name of recruiter here>, the TPU (third party unit), or any customer of client of the TPU.

Now, that's something I wasn't prepared for and I figure I'll be calling them first thing in the morning - their office won't be opening for at least 3 hours. You people with experience, can you tell me what this is about? Are they going to waive this for me? I can't believe that they recruited me with the assumption that I already have an insurance policy of this nature and didn't ask me up front. I'm a computer programmer, and they were careful to check out my references before making me the offer. In the past, the trust inherent in that type relationship has floated my boat.

Please, in addition to answering that specific question, can I get some tips and hints to give me a more solid footing in embarking on my first gig as a contractor? I've had quite a few contractor-like assignments, but never actually been on a contract basis. I always figured it was going to be principally a matter of filling out some different or extra IRS forms, but I guess there's more to it. For one thing, it looks like I'm going to have to manage my own withholding of federal and state taxes and SS. Do I do that at tax time or do I have to manage that during the work year? This job is 6 months+ (I'm told it's funded for a year, possibly with extensions) but I will be on a trial basis, especially at the start. The TPU is contractually entitled to send me home for any reason at any time. The contract seems to carefully stipulate that I'm entitled to zero benefits, just my hourly rate with no possibility of extra compensation for overtime, no possibility of being compensated for training of any kind, etc. Thanks for any help.

 

[MDXer]

First thing I'll say isn't don't low ball your hourly rate just to get the contract. Since you are responsible for all your own taxes, insurance and business expenses your rate needs to cover that and still provide you with a nice amount after. Also make sure it is in the contract how over time is paid and decided upon, is it Regular pay or 1.5X do you have to request approval for overtime? On my last contract they had enough work to keep me going 12-15 hrs a day to meet deadlines but they didn't want to pay that much over time. It was ultimately decided that over time would be on a as needed basis for more pressing issues.

Also you need to consider how sick time is handled? Can you work remotely?

The clause that if the client hires you on you have to fork over 20% I would have that moved to the client will pay 20% since the third party essentially acted as an employment recruiter unless the recruiter can guarantee you future contracts.


As far as the taxes go you should talk to a tax advisor or better yet a CPA. To make sure you track all deductions properly to maximize your income.

Shoot Me! Shoot Me NOW!!!
- Daffy Duck

 

[dmusicant]

Thanks! At first, the recruiter asked what I would accept on a 1099 basis and I gave him a high and a low figure. The high limit was a bit more than twice the low figure. I said what I would actually accept depended on the nature of the assignment and many things that were at that point unknown to me. He kept pressing me and I said the same thing. He sent me an email later with a figure that he said was in line with what the client had budgeted for the position, presumably budgeted for one year. That figure was a little higher than my lower limit. I emailed him back that this was acceptable, however I still didn't know much about the position. That's the figure on the Exhibit A of the contract. I think I am a little lowballed here, but I think I am still in a position to negotiate on the rate, I suppose, especially since I had no way of knowing the terms of the contract when I made my _tentative_ agreement.

The contract specifically says I will have no overtime benefits whatsoever, that I will be paid the set rate stipulated for all hours, period. It also says I have no sick time. There's no mention of the possibility of working remotely. You are the 3rd person who said I should maneuver for better terms on a potential direct hire by the client -- either have it understood that the client will absorb any penalties or have the penalty-carrying period changed to one year from date of hire, not one year after the hire period or any future extensions, which is what it says now! I was surprised a bit when I read that. I've signed similar agreements but never one so unfavorable to me, the recruited. However, as I say, this is the very first contract I've ever seen that is designed for me as a contractor.

I just called my insurance agent and he tells me that the insurance companies he deals with are no longer willing to provide someone in my position with "general liability" insurance. He said that such a policy would only be written and approved if it included "professional liability" insurance. He said it would cost me probably around $3500 - $4000 per year. He told me I should talk my recruiter out of that provision. He thinks it may well just be boilerplate that they will be willing to strike.

 

[MDXer]

my issue about the over time is what happens if you need to work 10 hours for a week to meet the deadline. Is the clinet going to say :No Not covered we agreed to 40 a week" The thing as a contractor is that you are selling your time for a price and if you work 10 hours you get paid 10 hours not you work 10 and get paid for 8. You need to cover all your bases so your time is just that your time. I had a client that agreed to my travel itenerary and a week later demanded that I try to get on an earlier flight out which was always over booked I made it clear to him that I would bill them for the time since they had modified the agreement. Needless to say I sat at the airport for 4 hours and made a few hundred dollars while waiting for my scheduled flight.

Don't let the desire to not come off as being difficult affect your position simple fact is that you are now in business.

Shoot Me! Shoot Me NOW!!!
- Daffy Duck

 

[chiph]

One thing to do is annualize your hourly rate (assume you're working 40x52) and compare it to what you've been getting as an employee. It should be at least 25% higher (more is better!) This is to compensate you for a lack of benefits (health, 401k, pension, etc), plus the uncertainty of being a contractor (they could let you go the day after you start).

You'll also want to keep 6 months salary (not expenses -- salary) in semi-liquid savings to tide you over between gigs. I'm rotating money through a set of six 182-day CDs (better rate than traditional savings, plus you still can get the money out if you need it.)

Professional liability insurance is not a bad idea, but see if they'll let you out of that requirement. If you've been in the industry for 10+ years, and have a good reputation for getting things done, they shouldn't have a problem with it. A homeowner's umbrella policy will not cover your business liabilities.

Don't forget to sign up with someone for health, dental, and disability insurance. You might get a discount if you get all three as well as liability through the same insurance agent.

And like others have said, your first stop should be your accountant.

Best of luck, and welcome to the world of the contractor!

Chip H.


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[dmusicant]

Thanks for the encouragement. Fact is, I don't have an accountant. I've always done my own taxes. Maybe I should get an accountant. I use Turbotax and _presumably_ it helps you find those deductions others miss, but it may be a poor excuse for an accountant and be penny wise and dollar foolish.

This job at first looked like a definite increase in pay from my last full time job, but now, looking at it soberly and in light of the contract specifics it really looks about the same, all things considered. Maybe I shouldn't complain about the rate - if it works out (or even if it doesn't) I'll have a half-decent paying full time job for as long as it lasts.

I presently have enough cash for any emergency. My longtime job insecurity has fostered such habits. There's one thing I really loved about my last fulltime job - for once in my life, during most of the job (over two years) I actually felt like I was the MVP of the company, and they had well over 100 employees. The only time in my life.

I still haven't talked to the recruiter to see if they'll waive insurance. My agent quoted me high, so I don't know if I can line anything up reasonable. Seems to me it would be stupid to pay out a lot, but maybe I can have an out if the job doesn't work out.

I have HMO insurance already, so I'm not worried about that.

"Don't let the desire to not come off as being difficult affect your position simple fact is that you are now in business."

Good point! Thanks!

 

[BJCooperIT]

What some folks do not realize is that many consulting contracts are negotiable. It is different than the "take-it-or-leave-it" benefits offered by employers.

I was offered a three month contract whose non-compete clause basically would have prevented me from working in my hometown for one year after the contract wrapped up. I had already interviewed and the client wanted me right away. I refused to sign the non-compete and told them they needed to reword it to the effect that I would not accept work with the client for the duration of the contract. Low and behold, they changed it that same afternoon!

Realizing how much bargaining power I had, I had them change a few other things too. Since I had to go on the road, I insisted on a travel advance and suddenly the was a Fed-Ex package with a check the next day.

Moral: If you don't ask you will never know.

Good luck with consulting. My best advice:
1. Always be a member of the team, not the outsider
2. Be aware of the client's politics, but do not play the games
3. Never guess at an answer you do not know

^{Beware of false knowledge; it is more dangerous than ignorance. ~George Bernard Shaw}
Consultant Developer/Analyst Oracle, Forms, Reports & PL/SQL (Windows)
Author and Sole Proprietor of: Emu Products Plus

 

[dmusicant]

I just talked to the recruiter and he assures me that the 20% penalty for direct hire by the client only applies to contract work. He tells me that if and when I am hired as a "full time" employee (i.e. W2 basis), I will incur no penalty and the client will pay a "hiring fee" to the recruiter. He says he very much does anticipate that this will indeed be how this situation pans out. That appears to be the wishes of the client and is anticipated by the recruiter.

He told me that the insurance paragraph I can totally disregard. I wonder if I should have that in writing. After all, it's in the contract. I asked him if they would send me another contract and he said they wouldn't, but I should simply disregard that paragraph. I suppose I should take him at his word on that, I don't know. They aren't going to fire me for not being insured. However, I guess it's conceivable that I could get sued at some point - not likely, but theoretically possible.

I asked him what percentage the recruiter is getting in comparison to me and he said that's "confidential." I was told by one contractor that he'd personally never accept a position from a recruiter who wouldn't reveal that information. I don't know that I can afford that luxury.

The contract says I won't get reimbursed for training or travel, but he tells me that if the client decides I should have training or need to travel for the job that the client will be picking up the tab. I thought the language of the contract contrary to that sentiment, but the recruiter says otherwise and wants me to fax him my signed endsheet.

 

[johnwm]

Just remember that a verbal contract (or amendment to a contract) isn't worth the paper it's printed on!

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[dmusicant]

It seems odd to me but they want me to fax them my signed endsheet - the one sheet that requires a signature. I have a mind to add a note to that sheet that paragraph 12 (the one saying I'm required to have 1/2 million dollars insurance) has been striken at the behest of the recruiter. However, I don't know what to do about the recruiter's assertion that I will have no penalty if hired by the client on a W2 basis. Should I ask him to send me a signed letter with that information? The contract, to me, seems to say otherwise.

 

[dmusicant]

What I decided to do was to scan the sheet they want me to sign and place it in a desktop publishing software (Pagemaker), add a signature and some text stating my main concerns. That way it will be worth the paper it's printed on. If they don't like that I figure they will have some explaining to do.

 

[chiph]

I asked him if they would send me another contract and he said they wouldn't, but I should simply disregard that paragraph.

Then cross through the section and initial it before faxing it back to them. Keep a copy for your records.

I asked him what percentage the recruiter is getting in comparison to me and he said that's "confidential."

I'm curious about what the billing rate is (of course), but it's not something I just gotta know. My negotiating point is what my rate is, not what the client is being billed. If I'm getting what I want, that's enough for me. Other people I know consider that to be leaving money on the table. YMMV.

The contract says I won't get reimbursed for training or travel, but he tells me that if the client decides I should have training or need to travel for the job that the client will be picking up the tab.

The contract should say something like "client-directed travel and expenses will be reimbursed by the client within 30 days or the next expense payment cycle, whichever is shorter."

Should I ask him to send me a signed letter with that information? The contract, to me, seems to say otherwise.

Initial each page and fax them the entire contract back. Remember when you closed on your house, you had to sign a bazillion things? Same thing applies here, too.

Chip H.

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[dmusicant]

The rate is $35/hour.

The stuff I'm faxing them seems clear enough to me. I'm not going to bug him to get that stipulation about the 30 day reimbursement. At this point, I have no reason at all to think they want me to travel and if they want me to get training I have to think they won't be nasty about it. On the contrary, they would probably go out of their way to make me feel like they are taking care of me. A disgruntled student is not a good student. I very much appreciate your assistance. I do really like everything you said. Does may rate seem really low? Cost of living is fairly high around here. I can be canned any time, but it's supposed to be 6 months+ if they like me and really a year "budgeted" and a hire after that, if I'm to believe what tne recruiter told me on the phone this afternoon.

 

[chiph]

Oh, sorry. I wasn't interested in *your* billing rate. After rereading my post I realize that I wasn't clear. If you want, go ahead and red-flag these two posts, and the site management will delete it for you.

I can't really offer an opinion on whether it's a good rate -- I don't know your skills, what the job demands, and what the going rates are in your area. You should do some networking (local user groups, etc) to see if you're being low-balled by the recruiter. If you multiply it out like I said earlier:

$35 x 40 x 52 = $72800 before taxes.

would be roughly equivalent to a salary of $58240 (using the 25% premium I mentioned earlier for a no-benefits job). Compare that with your previous pre-tax earnings to see if it's a good rate for you.

The net-30 part of your contract is there for your protection. Since you're not an employee, companies aren't as motivated to pay you on time as they would be for a full timer. To them, you're just another vendor. So, you want to make sure that they know you want to be paid. You should set some mental limit on how late they can be before you stop work. Which is not saying that they'll screw you. It's just that you need to be prepared for the possibility of that happening, and you need to set your personal limits of how much float you're willing to give them.

Hope this helps.

Chip H.


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[dmusicant]

The contract says I can request that the recruiter pay me sooner than the 45 day limit stipulated, a weird contract statement, it seems to me. I'll do that and keep tabs on them. I imagine they will try to be more "timely" than 45 days! I thought you were clearly asking me my billing rate without seeming to pry. I complied simply because I don't like to hide information whenever possible. The rate as you have shown is somewhat greater than my last full time job which terminated 4 years ago, so it's not so bad for me. My skills aren't up to some other people's in my area, but I can make up for it in other ways in many instances and on top of that I'm available. I do have my strong areas, too, just not the width and breadth of experience that some of the senior people have. I know, because I belong to a professional organization and I rub shoulders with them frequently and have a fair sense of how skilled some of the local programmers are. Fact is, there's a relative glut of people doing what I can do in my area. If I were in L.A., for instance, I know it would be easier for me to get work. I'm sure there are plenty of programmers there with my skills but there seems to be a lot more work there.

I'm hoping in this job that I will pick up some new skills. I know they have other people for those but I'm hoping I will be in a position to make significant strides into other languages and technologies. Almost all of the job postings I've been seeing are mesmerizing in the extent to which recruiters (3rd party or otherwise) are seeking multi-faceted programmers!

If you think I should have the moderators delete those posts (if it's really inappropriate), please say so and I'll get on that.

 

[fredericofonseca]

It's not inappropriate, but it is information that only relates to you, and that many people would take offence if asked.

What many people would do on a situation like this would be placing 3/4 theoretical rates, and ask for an opinion on each one.

chiph,

I'm curious about what the billing rate is (of course), but it's not something I just gotta know. My negotiating point is what my rate is, not what the client is being billed

I consider this to be important because of the following.
Suppose the client is asking and paying for a top of the range contract, and is therefore paying 100x.

The agent goes and gets a not so top contractor and says "work is y, and pay is 40x".
I as a contractor look at this, agree with the 40x rate, and work accordingly. But the level of work can be way below of what the client is expecting for what he is paying, and this will reflect on the opinion he has of me as a contractor, with all the rolling effects it can have on future contracts, either with the some customer or not.

So as a principle I do required that information to be known to me, and if the agency does not supply it and I take the job I WILL discuss with the customer what I am being paid and what he is paying the agency so that there are no surprises.




Regards

Frederico Fonseca
SysSoft Integrated Ltd

http://www.syssoft-int.com

 

[dmusicant]

Ah, OK, so it's not inappropriate for me (at some point, anyway) to ask the client what he's paying the recruitment company, I take it. That's very interesting. I have a part time consulting position that's all but dead (but not officially dead) which is on a W2 basis. The person I worked with most closely with the client company (I service my employer's client) confided in me what they are paying my employer. This was well after a year. I was surprised to find that I was getting only half.

Thank you for these insights.

 

[chiph]

I consider this to be important because of the following.
Suppose the client is asking and paying for a top of the range contract, and is therefore paying 100x.

The agent goes and gets a not so top contractor and says "work is y, and pay is 40x"

A good point.

Obviously, you (as the contractor) should work to the best of your ability. But at the ssame time, if they're paying "junior developer" rates, there's a difference in expectations, and that needs to be discussed with the client.

Reputation is extremely important in the contracting business. I recently did some interviews to bring some additional contractors in on the current job, and a couple of them had checked up on me with previous co-workers, and said that working with me was a primary reason for accepting the job. It's nice to hear that I must be doing something right.

Hopefully when I go for my next job, I can return the compliment.

Chip H.


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[dmusicant]

OK, like I say, this is my first contract. I've never even negotiated for a contract. There's been a weird turn in events. A couple of hours ago I get a call from the man I interviewed with at the job site. I'll call him Mr. A. When I met Mr. A, he told me he'd been retained 2 months previously and he evidently oversees the project to migrate to a new browser-based data access and maintenance system for their information management system for the overall system that this company (We'll call it Company A) maintains for a State of California program. I'd thought that Mr. A was an employee of Company A. That turns out not to be the case. Please read on.

I'd assumed that the "client" company specified in the contract I signed was this Company A. The contract was in generic terms and there was no specification of the identity of the client company. This didn't seem strange to me until I had this conversation with Mr. A a couple of hours ago. However, Mr. A told me some things that have confused me in a big way. He told me that he himself is a contractor with Company B, as is a person (call him Mr. Programmer) with whom I'm to be working closely from the first moment I appear on the job, being tomorrow morning.

Let's call the recruiter here, Company R. Company R, as I would expect, is specified many times in the contract I signed - they have contracted for my services at the stipulated rate. On the phone 2 hours ago, Mr. A tells me that I should represent myself to people at this job site as being contracted by Company B, the same company that he and Mr. Programmer are contracted by! I'd never even heard of this Company B until this moment. I say, "but I've been told only that I'm contracted by Company R, and it says so in my contract." He tells me that the CEO of Company R is also the CEO of Company B! I say that I will call Company R first thing tomorrow morning and ask for a clarification of the circumstance. I do NOT say that I will represent myself to anybody as being a contractor with Company B when my contract says I'm a contractor of Company R.

This guy I talked to, Mr. A started assuring me that his predilections and preferences are to be very above board and clear on things, and he makes this assertion again and I figure this is a good time to pop the question I've been told I should probably ask, namely how much is actually being paid for my services by the "client." He says a figure 29% higher than my rate (you can calculate that from the figure higher in the thread, prominently stated). I say this seems pretty OK, and he assures me that over the some 8 years that the relationship has gone on between the companies they have come to a point of being firm (if they had ever strayed from it) about keeping the disparity between the rates within reasonable bounds.

Now, I'm left at the moment wondering what my contract is about. Have I signed a contract wherein the recruiter and the client companies have the same CEO? IOW, it appears that the client in my case may be the other company that's run (CEOed) by the person who signed my contract. Now, like I say, I am new to this game. AFAIK, there's nothing shady going on here, maybe it's all completely legal and standard and even ordinary and above board, but I have to wonder about all this. Can someone please speak to this? Thank you!

 

[franklin97355]

As I see it you signed a contract with Company R and they are paying you. You will take orders from the person specified by Company R and direct complaints to Company R.