Advice for first time contractor

[Muse]

I've been programming for around 10 years and working at it (W2) for 8 or so. I've had quite a few jobs. I am sometimes asked if I want to work as a contractor or as an employee and I have always said "employee" mainly because I've always done that. I figured I could probably easily take those jobs on a contract basis and figured that someday I'd have to (or even want to) but that day hasn't come until today.

A recruiter got my resume off an employment recruitment site and has been lining me up for a position at one of their client companies and yesterday I was told that the decision has been made that I get the job. I am to be paid on an hourly basis as a contractor. They emailed me papers to sign yesterday. Generally, when I sign preemployment papers I scan them and sign, have a general idea what it's about, the legalese notwithstanding. Since I was at home this time, at my "leisure," I took the time to read this stuff carefully. Most of it looks pretty OK, although I'm rather inexperienced at this, obviously. There's a nondisclosure agreement, a W9 form - pretty standard stuff. Then there's the 5 page contract with an "Exhibit A" tacked onto that, being a purchase order for my services. That's a bit weird from my perspective, but probably standard, I figure. It states my hourly rate, basically, with a sentence or two with yet another guarantee by me that I won't make any agreements with the 3rd party for a year after the completion of my assignment, things of that nature. In the contract they want me to guarantee that if I do start working directly with their client, I will fork over 20% of my salary. I guess I'm OK with signing on that. However when I got to paragraph 12 in the contract, I did a double take:

12. INSURANCE. Contractor will obtain for itself and its personnel before providing services, at its own expense, comprehensive General Liability insurance coverage for projects covered by this Agreement, for limits of liability not less than $500,000 and will name <insert name of recruiter here> as an Additional Insured, provide a copy of the binder and policy to <insert name of recruiter here>, and hold <insert name of recruiter here> harmless for any damages or expenses, including attorney's fees, incurred as a result of misconduct of Contractor or its personnel involving <insert name of recruiter here>, the TPU (third party unit), or any customer or client of the TPU.

Now, that's something I wasn't prepared for and I figure I'll be calling them first thing in the morning - their office won't be opening for at least 3 hours. You people with experience, can you tell me what this is about? Are they going to waive this for me? I can't believe that they recruited me with the assumption that I already have an insurance policy of this nature and didn't ask me up front. I'm a computer programmer, and they were careful to check out my references before making me the offer. In the past, the trust inherent in that type relationship has floated my boat.

Please, in addition to answering that specific question, can I get some tips and hints to give me a more solid footing in embarking on my first gig as a contractor? I've had quite a few contractor-like assignments, but never actually been on a contract basis. I always figured it was going to be principally a matter of filling out some different or extra IRS forms, but I guess there's more to it. For one thing, it looks like I'm going to have to manage my own withholding of federal and state taxes and SS. Do I do that at tax time or do I have to manage that during the work year? This job is 6 months+ (I'm told it's funded for a year, possibly with extensions) but I will be on a trial basis, especially at the start. The TPU is contractually entitled to send me home for any reason at any time. The contract seems to carefully stipulate that I'm entitled to zero benefits, just my hourly rate with no possibility of extra compensation for overtime, no possibility of being compensated for training of any kind, etc. I am in California. Thanks for any help.

 

[Wizkid]

I bet that won't apply since you are a programmer. If you were an electrician or something then its a big deal. Better call to find out though

 

[Muse]

Originally posted by: Wizkid
I bet that won't apply since you are a programmer. If you were an electrician or something then its a big deal. Better call to find out though

Yeah. Well, it's just the last page I'd fax to them, the one with my signature. I suppose that if that paragraph isn't meant for me they should (or have to) email me an ammended contract. Seems kind of weird to me. Thanks.

 

[woowoo]

Originally posted by: Muse

Originally posted by: Wizkid
I bet that won't apply since you are a programmer. If you were an electrician or something then its a big deal. Better call to find out though

Yeah. Well, it's just the last page I'd fax to them, the one with my signature. I suppose that if that paragraph isn't meant for me they should (or have to) email me an ammended contract. Seems kind of weird to me. Thanks.

That paragraph is meant for you, it does apply.

If your a contractor you must carry your own General liability ins. and workmans comp.
You will also pay higher taxes.
You may have to pay quarterly estimated taxes, they probably will not withold anything for you.

If you have never done this before, do some reading before you sign.

Make sure this job pays 1/3rd more than a comparable salary position, or it wont be worth it.

(They are trying to go cheap)

 

[Muse]

Originally posted by: woowoo

Originally posted by: Muse

Originally posted by: Wizkid
I bet that won't apply since you are a programmer. If you were an electrician or something then its a big deal. Better call to find out though

Yeah. Well, it's just the last page I'd fax to them, the one with my signature. I suppose that if that paragraph isn't meant for me they should (or have to) email me an ammended contract. Seems kind of weird to me. Thanks.

That paragraph is meant for you, it does apply.

If your a contractor you must carry your own General liability ins. and workmans comp.
You will also pay higher taxes.
You may have to pay quarterly estimated taxes, they probably will not withold anything for you.

If you have never done this before, do some reading before you sign.

Make sure this job pays 1/3rd more than a comparable salary position, or it wont be worth it.

(They are trying to go cheap)

It does pay about 1/3 more than my last full time job, which was 4 years ago. They are going a bit cheap, I think. Well, I'll talk to them about that insurance thing. I sure don't have a clue how I'd line that up or how much it would cost. The workman's comp is a tax issue, right? Something I do through the state? There have to be some online resources to educate me on these issues. Know of any? Thanks.

PS Maybe they'll offer to put me on as an employee to make it easier. All the other recruiters I've worked with have done that. If not, I'll try to accommodate them if I can.

 

[dud]

Realize that in this instance you are in the position of being another company, unto yourself. You will not be their employee.

Many years ago I was in the same position but did not have to sign the same paperwork. There are a lot of "downside" issues to consider when being on your own. The biggest issue for me was that as my own "company" the client decided to pay me LIKE a company. In this case I was paid at least 30 days after my work ended! Be careful of terms like "Net-30" which allows them to pay you well into the future.

 

[woowoo]

I do both (I television)
I am a full time employee at one place and a contractor for other companies.

You will need to talk with an insurance broker.
You can get a policy for around $100 a month
You will need to track your mileage and anything else that is deductible.
You will need to file the Schedule "C" self employed forms along with your personal taxes.

In the end, It's a game.
Learn to play and you can make some good money.

 

[EagleKeeper]

Liability Insurance will run about $100-$200 per year.
The client is usualy insisting on this.
Boost up your salary demands slightly to cover this if worried.

I pay my State Farm policy on a month to month basis (when I need it) and turn it off when not required.


If you do not like terms in the contract, negotiate them before signing and/or make a copy of the original document and line out what you disagree with. Fax a copy back to the POC and explain why you are refusing such paragraphs.

The agency that is recruiting you is getting around 20% of your salary from the client; they do not want you to cut them out. Especially if they are not going to provide any benefits and/or tax payments. They are making out like a bandit.

Get the contract to state that the client will cover the termination costs, not you; if the client picks you up full time.

Medical insurance can run from $300-$600 per month depending on carrier, options, etc.

Best thing to do with respect to taxes is to take out 30-40% of the check and put it in a special bank account setup for tax purposes. Every quarter, figure out how much should go (percentage wise based on your previous years' taxes between state/Fed) to each government entity and send in that proportion.

Come next year; the tax load will be a lot easier.

You will be able to expenses a lot of items against the gross business income which will help a lot.

Dig up the tax thread from previous years for guidance.

 

[Muse]

Originally posted by: dud
Realize that in this instance you are in the position of being another company, unto yourself. You will not be their employee.

Many years ago I was in the same position but did not have to sign the same paperwork. There are a lot of "downside" issues to consider when being on your own. The biggest issue for me was that as my own "company" the client decided to pay me LIKE a company. In this case I was paid at least 30 days after my work ended! Be careful of terms like "Net-30" which allows them to pay you well into the future.

In fact, the contract (I read it in its entirety last night very carefully) said I would be paid 45 days after I'd submitted hours. It also said I could petition them for an earlier payment, and it's apparently up to them whether or not they want to bother with or chance complying with my request. Seems kind of stupid for them to include that stuff in a contract, but that is what it said, essentially. In truth, 45 days seems like a long time but I'm not hurting for the money. I just figure I could be earning interest on it at the very least if it were in my bank account all that time, not theirs.

 

[Muse]

Originally posted by: EagleKeeper
Liability Insurance will run about $100-$200 per year.
The client is usualy insisting on this.
Boost up your salary demands slightly to cover this if worried.

I pay my State Farm policy on a month to month basis (when I need it) and turn it off when not required.


If you do not like terms in the contract, negotiate them before signing and/or make a copy of the original document and line out what you disagree with. Fax a copy back to the POC and explain why you are refusing such paragraphs.

The agency that is recruiting you is getting around 20% of your salary from the client; they do not want you to cut them out. Especially if they are not going to provide any benefits and/or tax payments. They are making out like a bandit.

Get the contract to state that the client will cover the termination costs, not you; if the client picks you up full time.

Medical insurance can run from $300-$600 per month depending on carrier, options, etc.

Best thing to do with respect to taxes is to take out 30-40% of the check and put it in a special bank account setup for tax purposes. Every quarter, figure out how much should go (percentage wise based on your previous years' taxes between state/Fed) to each government entity and send in that proportion.

Come next year; the tax load will be a lot easier.

You will be able to expenses a lot of items against the gross business income which will help a lot.

Dig up the tax thread from previous years for guidance.

I guess I may have to try to set up liability insurance in a hurry. As a programmer, can someone recommend a manner in which to do this?

I will certainly firstly ask them if they will waive that paragraph or if they have any recommendations.

A $100-200 per year premium policy that I can put on hold when not needed sounds like something I can live with. I don't think I would press them to compensate me for that expense.

Yes, the recruiter would appear to have set things up for their own guaranteed substantial profit with minimal if no liability/expense. I'm sure that they have already contracted with their client to eliminate the possibility of my being hired directly at this point.

"Get the contract to state that the client will cover the termination costs, not you; if the client picks you up full time."
Whether or not I can swing it so that the client picks up the expense if I'm hired directly I do not know. I can ask, but that would involve the client company. The papers I have at this point all involve a contract with the recuiter. I suppose I could just assume that any arrangement I might make with the client company would have to include a premium to cover my own costs of paying off the recruiter for short-circuiting them out of the arangement "prematurely," i.e. my 20% cut to the recruiter for the term of the arrangement (plus one year, I believe). Or should I press for something in writing to that effect from the getgo?

I have my own private medical insurance through Kaiser that's costing me $300/mo. plus copayments, etc., so I guess I'm covered there.

Is it legally necessary for me to pay the state and feds prospective taxes during the year or is this just a way of making sure I'm not going to get in trouble at taxtime?

Thanks!!

 

[EagleKeeper]

I guess I may have to try to set up liability insurance in a hurry. As a programmer, can someone recommend a manner in which to do this?

Contact your local insurance agent. Most can help you. My StateFarm lady had me covered inside 30 minutes.

I will certainly firstly ask them if they will waive that paragraph or if they have any recommendations.

At a minimum make it such that the time frame is that when you go to work for the client (within 1 year of starting the project), instead of the end of the contracted time.

"Get the contract to state that the client will cover the termination costs, not you; if the client picks you up full time."
Whether or not I can swing it so that the client picks up the expense if I'm hired directly I do not know. I can ask, but that would involve the client company. The papers I have at this point all involve a contract with the recuiter. I suppose I could just assume that any arrangement I might make with the client company would have to include a premium to cover my own costs of paying off the recruiter for short-circuiting them out of the arangement "prematurely," i.e. my 20% cut to the recruiter for the term of the arrangement (plus one year, I believe). Or should I press for something in writing to that effect from the getgo?

Unless you get something in writing covering the expenses in advance, the agency could come back at you no matter what agreement the client has with you.
Have it changed to the 20% when within the 1 year time frame ONLY. The agency wants to be in the driver seat; if they realize that they can lose the sale because of their own greed, they may back down. You can push the agencies a little with in reason and common sense. They will float you a number, but may have different agreements with the client.

A lot will depend on your percieved value to the client, all relationships with the agency and how stable you are at the present. (Do you need the job or can you let it go if you feel that you are being shafted?)

Is it legally necessary for me to pay the state and feds prospective taxes during the year or is this just a way of making sure I'm not going to get in trouble at taxtime?

All business are supposed to send it in quarterly, and once you start running on a 1099/W9, you are becoming that. However, I do not know about the state. You could contact the state Department of Revenue for confirmation about paying it all at once instead of quarterly.



Re-reading the initial post, I do not see where you have even talked with the client.
Until you actual do so and get a read, do not sign anything with the agency that committs $$ of expenses to you.


Make sure that you have it clearly identified that if the client requires training and/or travel, that the agency or client will cover these costs (if needed, up front).
When I have to incur costs; they are informed that there is a 15% surchage on expenses for anything that is not picked upfront beyond misc & food. Also, travel time charges are door-to-door.

 

[Muse]

Originally posted by: woowoo


You will need to talk with an insurance broker.
You can get a policy for around $100 a month

I just talked to my insurance agent and he told me a policy would cost me $3500 - $4000 per year! That's a minimum of $291.67/month. He told me to talk the recruiter out of that provision, which he thinks is apt to be boilerplate.

 

[Muse]

One guy told me I should absolutely insist on knowing what cut the recruiter is getting. Is that sensible? He told me that he himself would absolutely to take the position if the recruiter doesn't come forth with that information.

 

[Muse]

Originally posted by: EagleKeeper

I guess I may have to try to set up liability insurance in a hurry. As a programmer, can someone recommend a manner in which to do this?

Contact your local insurance agent. Most can help you. My StateFarm lady had me covered inside 30 minutes.

My own agent, the only one I deal with (car insurance) told me $3500 to $4000 per year and I should talk them out of that provision. He thinks that it's probably eminently waivable.

I will certainly firstly ask them if they will waive that paragraph or if they have any recommendations.

At a minimum make it such that the time frame is that when you go to work for the client (within 1 year of starting the project), instead of the end of the contracted time.

The way it's currently written it's actuall worse than that. It's one year after the end of the contracted time or any extensions.

"Get the contract to state that the client will cover the termination costs, not you; if the client picks you up full time."
Whether or not I can swing it so that the client picks up the expense if I'm hired directly I do not know. I can ask, but that would involve the client company. The papers I have at this point all involve a contract with the recuiter. I suppose I could just assume that any arrangement I might make with the client company would have to include a premium to cover my own costs of paying off the recruiter for short-circuiting them out of the arangement "prematurely," i.e. my 20% cut to the recruiter for the term of the arrangement (plus one year, I believe). Or should I press for something in writing to that effect from the getgo?

Unless you get something in writing covering the expenses in advance, the agency could come back at you no matter what agreement the client has with you.
Have it changed to the 20% when within the 1 year time frame ONLY. The agency wants to be in the driver seat; if they realize that they can lose the sale because of their own greed, they may back down. You can push the agencies a little with in reason and common sense. They will float you a number, but may have different agreements with the client.

A lot will depend on your percieved value to the client, all relationships with the agency and how stable you are at the present. (Do you need the job or can you let it go if you feel that you are being shafted?)

I don't know about my perceived value or the relationships with the agency. I need the job in terms of not having any work, but I have money and a minimum of unemployment for a while. IOW, I'm not desperate. I haven't had a full time job in almost 4 years, though, so I'm antsy to get one and would hate to miss out on it because I got too picayune.

-snip-


Re-reading the initial post, I do not see where you have even talked with the client.
Until you actual do so and get a read, do not sign anything with the agency that committs $$ of expenses to you.

I had an interview with the client last week. I wasn't made aware of any of the potential or actual provisions of the contract, however. I was told I'll be considered as on a sort of probation for the first month, an evaluation period. However, the contract states that the client can cancel me at any time without giving any reason.

Make sure that you have it clearly identified that if the client requires training and/or travel, that the agency or client will cover these costs (if needed, up front).
When I have to incur costs; they are informed that there is a 15% surchage on expenses for anything that is not picked upfront beyond misc & food. Also, travel time charges are door-to-door.

I guess I should want it stated in the contract that if they should say they want me to get training or do any travel that I will be reimbursed for my expenses and time in an appropriate manner. The contract is written from the recruiter's and client's point of view almost entirely.

 

[Stuxnet]

edit - my whole response was worthless now that I've moved beyond the title and read the OP

 

[Muse]

Originally posted by: jbourne77
edit - my whole response was worthless now that I've moved beyond the title and read the OP

I read your post - it came in my email notification. I can't argue with what you say. One of the jobs I got was through an agency and it was my job to change the programs that were written by a previous consultant. I was hired on W2 basis by the agency and totally at their expense to fix the work of just one such creative programmer. His work looked excellent, but it was not in the style specified by the client company, so I was hired to make things acceptable. I did what they wanted and was happy enough. I got my head into some interesting code and learned a lot. I almost got hired by the company directly, but it didn't happen. I'm pretty gunshy in hiring situations - some have worked out grand, but plenty have left me completely disappointed.