View Full Version : Independent Contractor vs. Full Time Employee
Intel_Airman
12-28-2009, 20:52
I'm sure a good number of you guys have been faced with this at some point after your days in uniform. I currently got the offer tonight to switch from IC to Full Time Employee. Besides looking at the benefits package and how my tax situation would change, what else should I consider?
I've been doing this IC thing for a year now and feel that I have an ok grasp on it, but this would be a major step in a different direction. One thing that makes me kind of shy away from it is that I'm only 28 and the freedom to take time off between contracts is pretty nice. Any recommendations or advice from you pros on the matter would be greatly appreciated. :munchin
A couple of weeks off between contracts can be enjoyable.
A couple of years off when Co. A is underbid by Co. B, can be less than comfortable. :D
I'm sure a good number of you guys have been faced with this at some point after your days in uniform. I currently got the offer tonight to switch from IC to Full Time Employee. Besides looking at the benefits package and how my tax situation would change, what else should I consider?
I've been doing this IC thing for a year now and feel that I have an ok grasp on it, but this would be a major step in a different direction. One thing that makes me kind of shy away from it is that I'm only 28 and the freedom to take time off between contracts is pretty nice. Any recommendations or advice from you pros on the matter would be greatly appreciated. :munchin
This is sorta like dating a woman. Most men do not take the next step until all options have been exhausted, or not seeing her is not an option either. Most men are happy with current situation until woman says, in not so many words, "uh hum, where might a ring be in our future, do you want a future with me?" The man says, "I've considered it, but never knew until now that your were serious...". Then woman gives man other 6 months. This might happen 2 or 3 times. When episode 4 arrives, man better be prepared for one of two scenarios, either you move forward or not.
Is your employer giving you the option of full time employment or telling you that you must become an employee or not work as a IC?
28 yrs. is still very young, but know this, the years will only begin to start passing quicker with each approaching season. At some point, you will want to consider a retirement, if that is important to you.
I would not make a decision until you have too, but that's just me.
Good luck.
WD
Intel_Airman
12-28-2009, 23:26
No, I don't feel like they are pushing me into it at all. I think they just are happy with the way I've worked for them and would like to keep me around long term. That was a fantastic analogy by the way!
I appreciated the freedom doing contracting until I no longer had a steady flow of work. I did not have an option to become an employee, as the company had none to begin with. No income and quite a bit of taxes to pay (didn't quite make enough to save) was not fun.
I agree with wet dog. Personally I would continue contracting until it is no longer viable, prudent, or comfortable for me to do so.
As a 28 yo with no career established, you may want to reconsider or start to plan your future.
You want to play the contract business, you need to plan to dump money into IRA's as fast as possible. 25% of your income, or better. It takes a good 25-30 years to establish a retirement base. Retiring at 50-55 is not cheap. If your lucky your body will hold out,, if not plan to start driving the school bus at 40 yo..
You also need long term medical insurance to cover those little bumps & bruises that pop up in the contracting business. The reason we say hi-speed is for kids,, is because it beats the pi$$ out of your body and by 45 yo, you hurt LOTS..
This is not optional,, your already 28,, that's 27 yrs to retirement,, your already half way there,, does your bank account look 1/2 full??
Good Luck,,
DinDinA-2
12-29-2009, 12:10
What is the Medical Insurance available to you for "on the job" and "off the job" injuries or illness, as an IC?
What happens to your income if you cannot work/complete your contract if you are injured, or become ill on the job or off the job?
Intel_Airman
12-31-2009, 15:16
You guys made some really valid points. Thanks.
Of all the careers I've had, aside from being a soldier, the career of "tradesman" has been the most rewarding. I've learned, man with tools will always have work. Man who does exceptionally well with tools will make the most.
I think the career of the future will be, "men in space, building stuff".
It's tough looking over the horizon...
to see what's coming.
If I may attempt to add to the great advice already given...
Take a look at the cost of self-employment tax versus regular Medicare/Medicaid withholding. As an IC, you pay both the employer's portion and the employee's portion. A move to employee status implies about an 8% increase in pay as compared to IC status.
Health insurance is a very big deal. Keep in mind that you are both young and healthy. That will pass. If you get health problems, you may cease to be insurable. That means that you could face the problem of not being able to buy health insurance, no matter what you were willing to pay. Even if the health problems are only moderate, you might be "rated" - which means an increase in premiums. As an employee, you will (presumably) be part of a group, and hence can continue paying the same rate despite individual issues.
Retirement...you face quite a challenging problem. You're still (barely) young enough to benefit from compounding over time. But whatever status you choose, you need an IRA. I suggest a Roth, but either choice has its advantages. If you don't set up an IRA or other retirement account, you are likely to face old age with nothing but Social Security - in which case, I hope you enjoy the flavor of dog food. And no, I'm not kidding.
As an employee, you may have the chance to use a 401k. Those are great; however, an IRA is still desirable. In some instances, the 401k is invested in the stock of your employer. What happens if the company fails? The stock goes to zero. Not a pretty sight.
You mention the time off. It's true - time off is a beautiful thing. But I have found that one can generally go to an employer during slack times and ask for time off without pay.
Finally, take a hard look at the employment statistics. Presently, U6 (the most inclusive) is at 17.2%. ( LINK (http://www.bls.gov/news.release/empsit.t12.htm) ) Please reflect on that number. It suggests that there are lots of people who want your job.
Intel_Airman
01-01-2010, 03:34
Once again, great points.
Based on your profile, something I haven't seen listed yet is the fact that the "time off" in between gigs will be questioned during clearance renewals. Especially if you're in the TS vs S arena; with the current criteria for TS, time off between jobs is a red flag.
Buffalobob
01-01-2010, 12:09
I will give you a scenario looking down the back trail.
Worked for the gov't one way or the other for 30 years and retired at age 60. Now have Civil Service retirement which is nice and I just finished this year all of my social security quarters so that income is available as well in two more years. I do just enough independent contracting to keep my income level at the same as it was right before I retired. That involves two or three days a week of work. AND I go out west elk and antelope hunting each Fall for a couple of months. Life is good and as long as my knees and back hold out the elk are in big trouble. Just came in from my first three mile run since DC was snowed under. :lifter
Intel_Airman
01-01-2010, 13:19
Based on your profile, something I haven't seen listed yet is the fact that the "time off" in between gigs will be questioned during clearance renewals. Especially if you're in the TS vs S arena; with the current criteria for TS, time off between jobs is a red flag.
I just wrapped up my PR, wasn't an issue.
Intel_Airman
01-01-2010, 13:21
I moved up here right before the snow, I'm really missing AZ. It's fun walking through it to the gym, 6 mile round trip :lifter
I will give you a scenario looking down the back trail.
Worked for the gov't one way or the other for 30 years and retired at age 60. Now have Civil Service retirement which is nice and I just finished this year all of my social security quarters so that income is available as well in two more years. I do just enough independent contracting to keep my income level at the same as it was right before I retired. That involves two or three days a week of work. AND I go out west elk and antelope hunting each Fall for a couple of months. Life is good and as long as my knees and back hold out the elk are in big trouble. Just came in from my first three mile run since DC was snowed under. :lifter