Thoughts on employment as an independent contractor

[ellipses84]

Since I’ve been laid off, I’ve done a little bit of independent consulting. Now I have an opportunity to continue with a new client. The gig would be 20-30 hours/week for at least a few months, then possibly turn into a 2 year commitment. It would allow a lot of flexibility for me and my family during Covid. It could turn into a permanent position as an employee for a very small company, long term. My last job was a permanent full time employee for a huge company and I often worked 50-60 hours/week instead of 40.

I typically provide 2/3 of our income, I carry all the medical benefits for our family of 4, and have most of the retirement savings through my previous work accounts.

Here are my biggest concerns:
Medical benefits - currently being provided at a discount by ACA. If our income increases, this would increase but I have a good understanding of the costs involved. We could potentially switch to DH’s benefits in the future when he goes back to full time hours.

Not being eligible for unemployment in the future if the job only lasts a few months and the economy tanks. If that happens, nobody in my industry would be hiring and work would disappear.

Setting a rate that would not sell myself short. Would assuming 60% net income / 40% for taxes/medical sound about right to those of you who are self employed? What’s the difference in what you’d expect to be paid at a traditional employer vs. how much you charge per hour for your services? I’m thinking 2-3x is typical for my industry.

I could get paid a set amount per month vs. hourly timesheets and would make sure I was paid enough to cover 30 hours even if some weeks I only work 20. Any pros/cons to either option of payment?

Any other potential impacts I should be thinking about?

If you are self employed, what do you do for medical and retirement savings?

[scout8]

I was self employed as a real estate broker for 20 years. I recently moved and am now working as a real estate assistant for another broker as an employee. I miss working for myself. I really miss the freedom. One way or another, I'm pretty sure I'll eventually end up working for myself again.

My H and I were both self employed. My H got his insurance through the ACA. I was on a plan through our real estate brokerage that was 100% out of pocket. I went that direction because it was a little better of a plan. I have a pre-existing condition so before the ACA, health insurance was always my biggest concern. I really struggled to find insurance. Even after the ACA, I was always fearful that the GOP was going to take it away. As long as the ACA stays in place and/or you don't have a pre-existing condition, health insurance shouldn't be a big issue. It sounds like you've already done the research so you know it is expensive.

For retirement, we contributed to retirement accounts through Vanguard.

We always kept a significant amount of money in an emergency fund because our income could vary so much. I needed that for peace of mind. You mentioned not being eligible for unemployment if you lost your client. I didn't look into it much as I was no longer self employed when covid hit, but I think there were some options for those that were self employed.

You will want to look into whether you should incorporate your business or not. Also, you might want to budget for an accountant. My taxes were too complicated to try to do myself.

[jinkies]

I went to long term contract work, 15-20 hours/week, in December. I don't know how I would have handled school shutdowns and childcare if I were still in my old job. The flexibility has been a godsend for my family.

Having said that, health insurance was an issue. My H actually took a new job because insurance through his old company was astronomical. But again, it was actually a good thing because it was the push he needed to finally leave a job he hated.

If you can do a set monthly fee instead of hourly, I would do that. I bill monthly, and it's a pain, especially since all the bills end up being pretty close to each other. When my contract is up I plan to ask for a set monthly fee instead.

If you break down my old salary into an hourly rate, I am currently making about double that rate as a contractor. There will be some more taxes, but I will also be able to deduct a lot of home expenses for my home office. I won't really know how well it works out till I do my 2020 taxes.

I did a paid consultation with an accountant to ask questions before I started. Together we determined that I did not need to immediately incorporate. I wanted to see if I liked it and would stick with it before investing in creating a business. I have almost no overhead and no real liability, so it is fine. Depending on your line of work, you may want to form a business to protect yourself from liability. I may set something up for 2021.

Good luck!

[heliocentric]

DH has been consulting for the last year and has an ongoing arrangement with one client where he committed to 3x / week of work for them. He takes on additional work on the other days. It means he doesn't have to constantly be looking for clients, but also doesn't have all his eggs in one basket.

We opened an i401k at Vanguard for his retirement. This worked out well for us because we could wait until we calculated our taxes to see what we owed. We then made a contribution large enough to offset Federal taxes. (Not all Federal taxes--we had made quarterly estimated payments--but we were still short and offset the difference.) The i401k has different contribution limits and a few other differences from a regular 401k so read up on it if you decide to go that route.

I can't answer insurance because I carry the benefits through my employer. I know our state offers small businesses insurance options, but when I skimmed them they were still quite expensive. You might check if your state has something similar so you can compare to your ACA plan.

We also used an accountant (for the first time) and I'd definitely recommend that. Keep good records.

ETA: The previous poster just reminded me about liability. In DH's field he's required to have several kinds of professional liability insurance which cost a few thousand dollars that we hadn't planned for. Consider those kinds of things when setting your rate.

[smock]

It sounds like a good opportunity! And yes, monthly is a great idea. I typically bill by project bc hourly is a pain, and also you'll probably come out ahead financially with a monthly rate.

I've also heard the 2-3x salary for freelancer rates. And personally, I'd say your 60%/40% breakdown is a bit conservative from my experience; I'm taking home more like 70% even paying for an ACA plan.

Overall I really love the flexibility of freelancing and it's saved my ass during the pandemic.

[ellipses84]

Thanks for the tips. There’s so many potential financial impacts to consider, but I feel like I have it all covered. This could be great if it works out, but I have other options for a traditional role if it doesn’t. At this point I feel like everyone in my industry will be working remotely 90% of the time for the next couple years, so that may open up opportunities that are a further commute.