If you think working as an independent contractor means you're free and self-reliant, don't kid yourself. Typically, this work arrangement makes you more of a slave than you'd be in a staff job. As a rule, you get no benefits, no paid time off for family or medical emergencies, and no protection against discrimination. Many of the workers accepting these gigs lately would be better off as full-time employees.
Companies like independent contractors -- sometimes called consultants, free-lancers, contingency workers, or temps-- because they cost less than employees. By "outsourcing" work, businesses escape paying Social Security tax and workers' compensation, unemployment and disability insurance. So huge
are the savings that more and more companies fire employees, only to turn around and use the same people as independent contractors.
Sure, some folks prefer the free-lance life. You can work flexible hours, set your own rules, have many different customers and potentially earn much more than you did in the world of salary freezes and lost bonuses. Plus, there are hefty tax benefits that employees have a harder time claiming -- such as deductions for home offices and business computers.
But until they lose that steady paycheck, most people don't fully understand the downside. Independent contractors need to earn least 30 percent more just to cover expenses that employees don't have to worry about, such as health and disability insurance. So, for instance, a person earning $40,000 in a staff job would need to make $52,000 as a full-time free-lancer.
When you become an independent contractor, you also forgo many protections against race, sex or age discrimination. That's because federal anti-discrimination laws cover only "employees," not consultants.
Another thing you have to worry about is the tax collector. The Internal Revenue Service is cracking down on companies that try to duck tax obligations by labeling workers as independent contractors. It will probably decide you're an employee (and could make you pay extra taxes) if you work for only one company or customer. You can also get into trouble if a client sets your hours; reimburses you for expenses; or gives you office space, tools, supplies or clerical help.
Whether you become a consultant by choice or circumstance, you can take some steps to improve your situation. One is to ask for more money-- perhaps as a bonus or commission -- than the company initially offers. Companies often pay more per hour for consultants than they do for staff wages, and don't mind doing it because they still avoid expensive benefits.
Creative types, such as architects, designers, inventors, writers and photographers, should negotiate to keep the rights to their work. Unlike staffers, free-lancers usually own those rights unless they sign what's called a "work-for-hire" agreement.
Such agreements, usually part of a broader contract that many companies ask consultants to sign, let the client alter or resell any part of your work. Otherwise, as a free-lancer, you're entitled to more money (how much more is up to you) if the company wants to reuse your work.
Having a written agreement can offer other protections. At a minimum, it should describe what you're doing, and say when and how you'll be paid (by the hour, by the job or on commission). If you're just starting out as a consultant, or embarking on a big project, it's best to involve a lawyer at the contract stage.
With a contract in hand, you might be better off than employees in at least one important respect. Most staffers can lose their jobs at the boss' whim (unless the company is violating the law). In contrast, your clients (and you) have promises to keep before any of you may call it quits.