Moving from a Permanent Position to Contract Work?

duncan bayne asks: "I'm sure many developers in salaried, permanent positions have been tempted by the self-management, flexibility and higher pay that are the perks of being a contractor, while at the same time looking nervously at the uncertainty and irregular income. So, to all those in the Slashdot crowd who've made the change - what was it like, was it worth it, and what advice can you share?"

Clarification

[rackhamh]

Contracting isn't exactly self-management. Many companies prefer to do all project management themselves and simply treat contractors as implementers.

Re:Funny you should ask

[winkydink]

They can also tell you that today is your last day for no reason at all. Or worse, call you after you've left for the day and tell you not to come back.

Contracting is fine...

[HotNeedleOfInquiry]

But should be a stepping stone to having your own company that actually *makes* something. I was a consultant for about 1.5 years. Not great money because I was only doing part-time while designing my own product.

It's a mixed bag

[TrekCycling]

I've been contracting for a couple years ago. I've discovered that contractors often get brought on board often to organizations that either are experiencing unmanagable growth or are stuck in the mud because of problems with business process. So it can be frustrating. But the money is better and it's nice to know that you can take a couple weeks off here and there (assuming you save your money, etc.).

I think it's really a lifestyle thing. I like being permanently (although that word is a joke in this market) employed from the standpoint of working on the same project and getting some momentum for a while. But I don't have kids. Don't have a mortgage, so that's really the only advantage to me. That and if you like your co-workers a lot and want to stick with them. Those are reasons I'd rather be permanent.

Not much help, I know. Like I said, it's a mixed bag. Permanence is about more than just stability in work. It's about stability in what you do, stability in who you work with. And depending on if the job is boring and if you like your co-workers this can either be a plus or a minus. I'm just glad I have the financial flexibility to make that choice and not worry (as much) about the financial end of it.

Re:Clarification

[IDkrysez]

More likely self-management in terms of employment regulations -- IIRC, if you're a contractor then your employer is not allowed to define the hours of when you work or don't work; they can only define milestones for your progress and set times for meetings they need you to attend.

You should get paid more, and have more freedom in this sense... and you'd need to be self-managing in terms of making yourself get the work done :)

If you're lucky, you might've found a job where you can pretty much set your own hours anyway -- i.e., if your employer trusts you and believes that you're more efficient and happy when working when you *want* to, then whee! Benefits of regular employment are nice, I do contract work on the side... and thus I've lost all freedom! ;)

      -borg

Job security does not exist anymore

[teutonic_leech]

You actually might be better off - there are plenty of opportunities out there for talented contractors these days, especially senior people. The money is better, but you need to probably incorporate yourself to properly 'play the system' IYKWIM ;-) Bottomline is that you can probably make up to 30% more/year being a consultants, but bear in mind that you also need to buy your own health insurance, pay for your own 401k etc. So, don't be timid when negotiating your rate - if you have been making $100k/year in salary you probably should ask for at least $60/hr as a consultant, otherwise you're probably just break even or even wind up not making much more. BTW, that estimate consider approx. 3 months of no work per year. Good luck!

Re:Clarification

[rackhamh]

IIRC, if you're a contractor then your employer is not allowed to define the hours of when you work or don't work
That may be; I don't know the legal side of it. But in practical terms, on projects that require interaction with business groups, you will be working the same hours that they do. Furthermore, some companies will require that you work on-site, as a means of providing secure access to company resources -- which will also limit your working hours.

I'm sure it's possible to build up a consulting business that avoids this kind of situations, but you may have to turn down some lucrative jobs to maintain such standards.

Re:Funny you should ask

[nolife]

Almost any employer can do that, contract worker or not. I'd image there are variations from state to state though.

Re:Funny you should ask

[eln]

since I'm contract I can hit on the hot workers at my workplace without having to worry about any side effects.

How do you figure? You can get sued for sexual harassment whether you're an employee or not. You can also be released from your contract for violating the employer's rules of conduct while you're in their building.

Also, basically all CEOs and upper level management are on contract. They may draw a salary, but you can bet they have contracts spelling out things like severance pay and bonus structure.

Re:I went the other way

[PCM2]

Paying Social Security at 1.5 (then) times the rate everybody else was, paying 2.5 times what everybody else was for medical insurance

Um, you realize that you're paying the exact same taxes you were paying before, right? It's just that before your employer would pay a portion of what the government wanted. Now you have to pay it all, because you are the employer. The plus side? You get to keep all the revenue -- minus, of course, the part that you set aside to re-invest into your business. But that's a whole 'nother story. If you can't even figure out your taxes, or hire an accountant to take care of them for you, and you don't know how to charge enough that you cover your costs, then maybe contracting really isn't for you.

Former Contractor turned Salary

[RingDev]

I pulled contracting gigs from 2k1 to 2k4. And it was okay. I was a single early 20s guy, fresh out of the military with vetrans health care and a strong liver. Jump up to 2k4 and I had a wife, kid, and a house to keep tabs on. My last contract was killing me because health insurance was not included and the bill for family coverage was $980/month. So a year ago I got hired on to a local very successful and stable company, and I've been loving it ever since. No more down time with unemployment and odd jobs to pay the rent. No more putting my resume into 600 applicant positions. No more worrying about what will happen when I finish a project. Nope, I took a slight pay cut, but I gain full health insurance, 401k with 8% matching, profit sharing, a yearly bonus (depending on sales), a cubicle with a window view, and a project list about a mile and a half long. Job security is a beautiful thing!

-Rick

Don't underestimate the benefits of being fulltime

[Anonymous Coward]

It is easy to underestimate the value of the benefits that most "permanent" employees have. I recently considered a contract position that was going to pay $70/hr. In my current position I make good, but not great, money as a Java architect. I did the math and figured up the monetary value of my benefits (stock, 3 weeks vacation, sick days, holidays, 401k) and the "break even" point for me was somewhere between $60 and $65/hr. Oh, and by the way I wouldn't see any money as a contractor for about 65 days. And the contract was only four months. The extra $5-$10/hr just wasn't enough. I would basically have to put all of that money in my "rainy day" fund, so my disposable income would have been about the same.

My point is that many people look at hourly rates in the range of $60-$70/hr and *assume* that it is a lot more money than they are currently making. Once you factor the value of benefits, that may not actually be the case. The worst thing you can do is jump into a consulting engagement assuming that you will make more money.

Re:the good, the bad and the ugly

[2Bits]

I did it for one year, almost ten years ago. It sucked, especially for #6 above. As a contractor, you are considered a code monkey, you are not involved in any part of the project except coding, fixing other people's bugs, and testing. Well, it makes sense, which company is stupid enough to let contractors do the core?

I was contracting at BNR (Bell Northern Research, in Ottawa) once, for 6 months. My main work was to fix bugs and maintain two 2-year-old modules of the Magellan ATM switch. The Magellan switch (at the time) had a nasty problem in the back plane design that it could not handle two-way connections, you had to use 2 one-way connections to simulate a two-way connection to make a call. To make a call, you have to go thru a grid of back planes, and you had to take care of state management in HW redundance, etc, which greatly complicated things. The employee who implemented the 2 modules for billing didn't understand it or didn't have experience, it was a classical example of spagheti code. There were at least 3 emergency calls from customers every week. I could've lived on that contract for at least 2 years, if I just fixed an urgent bug a week (which reduced the response time to 1/3 already), and the manager would be really happy.

But I was so efficient in fixing bugs that the group manager kept loaning me to other groups to fix bugs, and made quite a bunch of money on me (each group had internal budget). At the end, with the manager's approval, I just rewrote the 2 modules.

The work was no fun, and you are considered outsider all the time. The group manager was nice enough to invite me for group activities (which was an exception), but you are not allowed to participate in core works. You know full well that you could do a better job, but you have to implement some really lousy design.

And there's no chance for you to get promotion, regardless of your work.

So, if you don't mind the ugly codes, the no-fun work, being considered an outsider, no way to feel being part of a team, no chance for promotion, and if you are disciplined enoguh, etc, then go ahead.

Being part of a team is the fun part, regardless of office politics. You won't have that feeling as a contractor.

The problem...

[artemis67]

with bidding on projects on the job boards you mentioned is that you have guys from the US and guys from countries like India bidding on the same jobs. The US contractors want $80/hr, the Indian guys want $10/hr. It's very tough to land a freelance contract that doesn't require you to be onsite.

It's all about connections

[recharged95]

Was it worth it? Yes, from an experience point of view you can see how much technical value relates to business. Like shockingly only 33% of a total gig. Successful contractors get the big picture of a problem/customer and can apply their expertise to develop a solution. That's why you're paid the big bucks in contracting. Unsuccessful contractors just get paid big bucks (and screw up the implmentation, hence contractor/consultants get a bad wrap in general--like lawyers). Then again that can sound just as good if you can get a steady stream of cash year over year (think federal contracting!). Definitely, there are way more bad contractors than good contractors.

Otherwise, 8 out of 10 contracting jobs are usually doing the crap work no one else wants to do. And working with other contractors IS A ROYAL PAIN. Most of my contracting gigs paid great, but the work was pretty undesirable (read: CODE MAINTAINANCE ;) ). That's why connections are so critical in contracting, I doubt anyone off the street with a Ph.D. in CompSci is going to get a cool gig with a Google or a CIA shop. You either need world-known credentials or a good network and you'll be fine contracting, and then ultimately, you will enjoy that work. Otherwise, most contractors drop in-and-out of the corporate/startup environment because of the funding problems and that they fall into a niche they didn't choose, cause gigs come and go in buckets due to the environment.

I've no choice but to consult!

[TheTiminator]

Being in my late 40's, it's almost impossible for me to find a technology or programming position with an established company. I'm either too old, too set in my ways, will want too much money, over experienced, too primadona, or too close to retirement age to be of any consideration compared to the 20-somethings out there. And since I don't want the headaches or want to play the politics of a management position, I'm basically forced into becoming a freelance consultant. With that in mind - I love it! I make my own hours. True, I usually work 60+ hours a week. But, I get to choose to take a morning off now and then without having to ask anyone for permission. Yes, the financials are a bit of a nightmare, but once you get the hang of it and keep track of every cent made, and every receipt, then it's not so bad. Also, if you have a lot of experience in a specific area of technology, and you have a knack at writing then you could also look at writing articles and books. Between writing and programming, I'm managing to keep pretty busy.

Re:Clarification

[unixbugs]

"...if you're a contractor then your employer is not allowed to define the hours of when you work or don't work..."

Depends on the what the contract says, dude. I signed one for data cabling saying I'd be at work at 8 AM until the last light on the switch was lit - or until the boss gave in. Thats just the deal, and the money was almost worth getting home at 3 AM only to wake up at 7 to do it all over again. In the environment I work in now, which is VoIP Administration (Go Gentoo!), a contract would fit me very well but the people doing the hiring are smart enough to give me salary and expect me to get to work on time and leave when it is appropriate, which is usually up to me. I can almost schedule the time that I leave by adjusting the pace at which I operate and plan things throughout the day; something you might expect from a contractor ;)

Its just been my experience that it depends on what kind of person you are and what kind of deal you are willing to sign. If the money is good and you can rock and roll with a keyboard and some crimpers, stay awake late and get up early, then a contract is the way to go if you can get it. In my case, personally, I grew a little tired of 80 hour weeks and kind of enjoy my desk job. It's about half the pay but it is far less than half the work.

Ask yourself this: What do you want and how bad do you want it?

Speaking as someone who has done both...

[PsiPsiStar]

Working for myself was nice because I could select the projects that I wanted to work on and then 'become' that type of business. I didn't make a lot of money that way since it took longer to do things, with every project being a new adventure. But it was an excellent education and I got by. Obviously, I was lacking economy of scale that larger and more assembly line ventures enjoy.

To run your own business, you have to be someone with the capacity to make sure people pay, be able to negotiate, deal with folks who don't compensate you, etc. You have to be able to have the courage to ask for fair wages. You have to deal with clients who change their specifications constantly and don't want to pay you more for it. I've taken to getting signoffs on the specs with the understanding that changing the specs later will result in extra cost.

This does provide flexibility and more free time, though personally I've had trouble keeping a steady flow of work which has hurt my overall profitability.

I tend to do a lot of long term contracts, and then pick up short term work in between jobs. It's a nice thing to be able to fall back on.

A few tips

[dubl-u]

I've been independent since 1997. Here are my standard tips:

• Have six months of expenses saved at all times, more if you can.
• Network, network, network. Even if you hate it. Especially if you hate it.
• Underpromise, overdeliver, and be as reliable as the day/night cycle. Repeat business and recommendations should be the bulk of your business.
• Try not to quit your day job until you have so much after-hours work that you just can't do it all.
• Get a good accountant, a good lawyer, and a good shell company (I use MyBizOffice).
• Understand when you're consulting and when you're contracting. One delivers opinions; the other delivers labor.
• Never do a fixed-bid job unless you know both the client and the work cold.
• Some clients just aren't worth the hassle. Fire them before they make you crazy.
• Enjoy the ride. Take vacations, enjoy your unexpected time off, and seek out jobs that you are exicited about.

Re:If you work by the hour, you are a temp.

[Oligonicella]

That only works if you have the same equipment, configured the same, as the employer. Most people don't have access to mainframes off site.

Contracting

[chriswaco]

I've been contracting for 18 years now. Boy am I getting old. :-)

My 2 cents:

1. The general rule of thumb is to charge 50-100% more than your salary was.

2. Buying health insurance is going to be a major pain if you are in the US and can't be covered with your spouse's work plan. Plan on spending $600-700/month. Prescription coverage is especially hard to get. (When I started consulting, insurance was $600 PER YEAR!)

3. Think about incorporating, probably as a LLC corporation. Buy Nolo's books on corporate structures and definitely talk to both a lawyer and accountant. Incorporating will help protect your assets if you ever get sued and can also give you more tax deductions.

4. Tax deductions are your friend. Deduct everything your accountant says you can - car (if you travel to a client), health insurance, computers, your cable modem, books, education expenses, etc.

5. You will have to pay both sides of social security taxes in the US. That means 15% of your first $80k in income is immediately gone. You may have to pay medicare, unemployment insurance, local taxes, etc.

6. Unlike what someone else said, I prefer hourly to fixed price contracts. This allows for the client to make changes (they always do) and you get paid for debugging, installers, research, testing, localization, etc. NEVER SIGN A FIXED PRICE CONTRACT WITHOUT A DETAILED, COMPLETED SPECIFICATION. Always try and make a client responsible for testing the software when possible, for liability reasons, acceptability, and because it's very hard for an individual to test software on many different operating systems, hardware configurations, etc.

7. Look for other clients. One client isn't enough. When money gets tight, contractors will be the first to go.

8. Look for other contractors and possibly join forces. Networking is vital.

9. Open a retirement account - definitely a Roth IRA and probably some other kind too (SEP IRA, SARSEP, etc). Your accountant can give you the details.

10. Never sign a contract with someone you don't trust unless they have deep pockets and even then it's probably a bad idea.

11. You are charging a lot of money. Make sure your skills stay ahead of everyone else's. When I started consulting C++ didn't even exist. I've been through new languages, new operating systems, new tools, embedded systems, server software, client software, etc. It's getting impossible to keep up with everything, so you need to predict the future and learn it ahead of time. You *will* make mistakes (I spent a year working on OpenDoc!), but hopefully you will also grab onto something new that will take off (I also spent time with early versions of QuickTime because I knew it was going to be big).

Contracting can be great, but it's definitely not as easy as sitting back and collecting a paycheck.