Jason Moran
Tuesday, July 08, 2008
  Salary Vs Contracting: The Other Side Of The Fence
I thought I'd revisit Salary Vs. Contracting now that I'm back in a salaried job.

I have now worked an even amount of hourly, salary, W-2 contracting, and 1099 contracting.

My overall take on it is this: I want to do pure 1099 contracting if I can help it at some point in the future...but I am enjoying the perks of a salaried job while I can.

I haven't gotten paid for holidays in years, and it is really nice to still get a full paycheck for 3 and 4 day weeks. I don't have any vacation days yet, but when I do and I take my vacation it will be awesome to not take the "double hit". When you are contracting it is a double hit because you pay lots for your vacation and you come home to no pay for the time you took off.

However, let me explain why the 1099 route is the best way in my personal opinion (for software developers). First of all, you don't 1099 under your personal name. You create a corporation (LLC, S-Corp, etc). The business at the front end is the key to the whole thing.

Since you are working for this newly created business you can pay yourself for your work and for rent (because you have to do your work at some physical place). Then you get to write off your computer, supplies, travel, and all kinds of other things on your taxes. Plus, it provides legal protection. If you did something stupid like break a non-disclosure agreement they can't sue the pants off of you directly, they would be suing your company.

Before I continue with a few more good 1099 points, let me tell you some of the bad. Your taxes are way more complex, so you'd better hire an accountant. You'll have to do some payroll stuff for yourself and any other employees you have, including their taxes and sending off IRS paperwork. Some of your clients won't pay, or at least not in a timely manner. Sure, you might make 30,000 dollars, but what if they give that to you in 5 months in a single payment? Can you survive until the check shows up? One last thing, you need to pay double taxes (employer and employee portions).

Anyway, the last couple 1099 pros: You generally make a bit more than salary/normal contracting so that covers your extra taxes and then some if you are writing off enough on your taxes. You can hire other people to do the work for you. Lastly, you can work on your own terms.

Let's say you are busy at a client but company ABC wants you to redo their website for $8K. You don't have the time. However, you ask your website-savvy buddy that wants to moonlight a little how much he thinks he could redo the site for. He says he could redo it for about $4K, but in case anything unexpected comes up it could max out at $5K. You take the contract, let your buddy do it, pay him worst-case-scenario $5K and bank $3K just for setting the whole thing up. You can't do that if you are working directly for an employer.

All that being said, I'm happy where I am at my salaried job right now.

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Comments:
Careful with having employees. In certain situations you are effectively required to set up, administer, and match contributions to a retirement plan for any employees.

You best bet? Take your 1099-self and 1099 anybody you use as a subcontractor. Sure, you might have to hold their hand a bit, assuage their fears, and you're essentially helping them leave the nest, break away from you... But it's probably far simpler.
 
And for the record... I think you currently make exactly what I make, but you get paid vacations and holidays and sick days, and I don't. And you probably have a 401(k) match, and I don't.

Then again, I pocket an extra 400 smackers in the week when I work an extra 10 hours, and you pocket nothing but some english lavender candles and a pretty pretty princess mug.

Unless you get a bonus. You might get a bonus.

Now... what you NEED to do is convince your boss that he should bring on another contract resource... and since you can vouch for me, you can bring me in on a direct 1099 basis... and your boss will realize vast savings by not paying a middle-man.


My captcha word is "vwugnyva". Dirty.


I think that's Russian or something.
 
No 401 (k) match, in fact, not even a 401 (k).
 
Am I supposed to pity you?
 
The Problem with Annual Pay Increases for salaried employees
 
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