Consulting "Musts" 2

[MadMango]

I am preparing to move out of State and my employer has inquired if I would be willing to be a consultant after the move. This consulting angle arose after I inquired about telecommuting. I haven't given my resignation yet, but will in a matter of weeks, and my move is common knowledge in the office already. I have never been a consultant, and am curious as to what stipulations are usually covered in a consulting contract. Some topics that come to mind:

Travel
Insurance (dental. health, etc)
Rate
Min/Max hours
Computer/software
My Availability (3 time zone away)

If anyone can offer any insights into these and other topics I have overlooked, please share your thoughts.

"Art without engineering is dreaming; Engineering without art is calculating."

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[ivymike]

well, back when I was a cad contractor I got a certain wage, in $/hr worked, and no ancilliary benefits.

 

[Ron]

MadMango...obviously, anything is negotiable. You will likely be asked to sign a contract under their terms and conditions, one of which will be your designation as an independent "contractor" (for IRS definition rules, not professional designation). That's fine, because that's what you'll be unless you stay on as an employee with reduced benefits.

If you go the consultant route, you'll be able to set your own rates, hours, conditions of engagement, etc.; but you won't be able to tag onto their benefits package, most likely. You'll have to create your own, but in the location you're moving to, you'll have some pretty decent, affordable choices for that.

You'll have to get professional liability insurance, general liability insurance, worker's comp insurance (or in your new state you can exempt yourself from worker's comp coverage as a sole proprietor or corporate officer).

As for rates to charge, that's pretty much what the market will bear and what you think is fair. As a starting place, figure at least 2.5 times your hourly rate while at the company. Preferably higher, but that's a starting point for you to consider based on your costs of insurance, downtime, office overhead, general expenses and the like. Keep in mind you'll be paying for all the things that they now pay for (Social security, insurance, etc.)

If you hang out your shingle in your area of expertise, be sure to get licensed in the new state. They frown on doing engineering services without a license. If you go with anything other than practicing under your own name, you'll have to also get a "Certificate of Authorization" for your business entity. That goes for corporations, Professional Associations, LLC's, etc.

Good luck and I hope the transition is smooth. Let me know if there's anything I can do to help.

Ron

 

[vc66]

MM,

As Ron said, anything is negotiable. I'm currently doing contract work for a previous employer, but I only negotiated a contract with regards to payment for hours worked (i.e. no benefits, travel, etc). They're very flexible with when they can reach me.

My set up is pretty basic. I bought the CAD software that they use (my own expense). They give me milestone dates, and any questions I have, I can call my contact there or send an E-mail. I think that 2.5 times is a little high (for mechanical, at least.) I'm charging 1.5 times the salary I was making while I was there. I also disagree with needing a license. Depending on the circumstances and industry, a license may not be necessary to do CAD work.

I'm pretty new to it, but if you can get away with it (balancing it in your life), the extra money is nice (especially in this economy).

Also keep in mind that I'm referring to product design, which makes it easier (in my opinion) to be a contractor, as you can be given a basic idea, and take it through to release.

V

 

[Ron]

vc66...if you are only doing CAD, no license is necessary. If you are doing engineering and offering such to others as a consultant, a license is necessary.

 

[MadMango]

I appreciate the insights so far, thanks all. I learned a bit more after work today. It seems they are trying to provide me some partial benefits in the way of insurance, but things needs to be passed-by HR before anything is final. So that might put me in the "employee with reduced benefits" category. This is something that I would prefer.

I would be doing product design rather than engineering, but sometimes I have to wonder where that fine line is drawn.

"Art without engineering is dreaming; Engineering without art is calculating."

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[moltenmetal]

Liability and limits thereof- a key issue. I'm no lawyer, but here are a few things to consider. They're worth exactly what you're paying me to give them to you, so check with a lawyer if you want to know the real story.

You should, if you're working for a former employer, contract with them to have your liability limited strictly to the value of the services you've provided under all circumstances. They don't like your work? You give them their money back. In return, give them a reduced rate for not carrying (expensive and under those circumstances, unnecessary) liability insurance.

To make sure such a mutually beneficial arrangement sticks, consider incorporating. That will separate your assets from those of your business in case of a dispute.

They don't want to agree to that? Charge a higher rate that covers the (substantial) cost of carrying insurance- not just now, but years afterward until the statute of limitations runs out on the work you did and they can no longer sue you. Now do you see why just agreeing to limits of liability is better for you?

Remember that in cases of fundamental breach of contract (ie. gross negligence), liability limits can be set aside- making incorporation even more important.

Make sure your rate covers the costs of all those things that you're going to have to pay out of your pocket now, at a utilization of no more than about 80%. You can bet there'll be some work you'll need to do that they won't let you bill them for.

 

[tygerdawg]

this has been discussed in a number of ways in many different posts...dig a little for previous info

get incorporated with an LLC...simple, cheap, provides you legal method of protecting your assets. Might spur you to go further.

Price your time accordingly. The "how to be a consultant" books I have read describe the scenario of prospecting 3 weeks to get 1 week of work. Minus vacations, admin time, etc. The remaining weeks must pay your expenses, including health bennies, retirement funding, insurances, taxes, vacation, kid's college savings, etc. Working for a previous employer in a sweetheart deal is a lot different. The hourly rates will be different. Priced right, this could be lucrative over the long term.

TygerDawg
Blue Technik LLC
Virtuoso Robotics Engineering

http://www.bluetechnik.com

 

[geezee66]

I don't think consultants normally get heath or dental insurance provided by their client. My understanding is that is provided to employees only.

 

[Hoagie]

Don't confuse Independent Contractor with Consultant. What you will be is more like the roll of an Independent Contractor. I've been an IC for a few years now. I wouldn't go back to being an employee unless an offer was an exceptional one.

As an IC, you won't be the engineer-of-record for any products you provide, so don't worry about acquiring any professional insurances--You don't need it. Declare yourself as a DBA (doing business as) and you will be afforded all the (tax) advantages that an business entity (LLC, Inc, etc) is is entitled. The only risks are keeping your client/s happy (quality/fee/schedule)and staying busy. Staying busy is the hard part, so I always keep my eyes-ears open for new clients. Be sure to work out a schedule for invoicing and payment.

Good luck,

H.


"Officer, just charge me with the usual."
~Bob Probert

 

[Ron]

Hoagie...calling yourself an independent contractor doesn't necessarily absolve you of liability. That's a contractual and statutory issue for most engineers. Since you are tagged as civil/environmental I will assume you are a licensed engineer. As such, you might carry joint and several liability with your client.

You stated that as an IC you would not be the Engineer of Record for anything you provide. Not true. Your independent contractor status does not have anything to do with whether the building official or the state licensing board considers you the Engineer of Record or the engineer in responsible charge.

In the US, the independent contractor designation is generally done to satisfy an IRS definition, so that the company can pay you on a 1099 basis rather than considering you an employee.

 

[PilotPM]

Can I assume you would stay with your current employer if you wern't moving out of state, perhaps for some unrelated reason, like following a spouses move? Sounds like your employer wants to work something out. If thats your intent also, great. A few points in addition to what is posted. Professional registration is required when engineering is the product, NOT when it is part of a larger service. This is why an engineer who designs cars does not have to be licensed! (Product liability laws apply) This is very confusing to some, but true. Now, liability is something quite different. Regardless of licensing, liability (for your work) is there. First, you CANNOT BE the engineer of record. That should be a requirement for you, regardless, as, how can you possibly know all the details as a remote contributor? Negotiate a hold harmless agreeement, both sides, except in the case of gross negligence (makes the clause enforcable). And, as suggested, agreement should say "maximum liability shall be limited to fees paid" (Not billed). Now, will this be extra cash, with eventual full employment somewhere else, or, do you intend to make this a business? If a business, the 2.5 multiplier is very reasonable. You will find it very difficult to bill more than 50% of your time (1000 hours per year) after subtracting sales time, proposal time, non-billable office time etc. This is often why small firms stay small. It is very hard to jump from 1 to 2, then 5, then 10, then 20 etc. Asking for 2.5 is fair, and will not sound overpriced in the market. It will sound high to your ex employer. They will want to make a profit on you. Assuming no benefits, calculate 2.5 (or, as best as you can determine what they sell you at)then discount it by 10% or 15%, and point out they take no risk for non-billable hours, and make 10% (or 15%) on every hour you bill, and you will probably have a deal. Recognise there is a very good chance this will not continue long term. I say this because I'm assuming your leaving was a suprise, and right now they really need you for continuity. You'll know soon enough if they are thinking temporary, or long term. If you don't get assigned to new projects, expect the work to wind down and stop. Lastly, if this is moonlight work, make sure any new employer knows about it as a condition of employement, how long it will last, etc. Many employeers have rules agains moonlighting, again, often because of professional liability issues. A good lawyer can show you used office supplies while moonlighting, and tie your new (or old) company into a lawsuit. The do that because, the bigger company has deeper pockets than you do. (More assets to collect from) Gee... see how that might be career limiting? Professional liability insurance solves this problem, but it is expensive. After you see what the premiums will cost, you'll see you really need to be in business full time to pay those premiums and clear a profit (salary) from your efforts.

 

[MadMango]

Independent Contractor vs Consultant, good point to raise, along with the extents of liability. Currently I report to a "project engineer", who also has a "structural analyst" reporting to him. The project engineer reports to a "program manager". I don't see this structure changing once/if I start working remotely.

PilotPM, thanks for the further insights. I would be staying with this employer, yes, if there wasn't something pulling me away.

"Art without engineering is dreaming; Engineering without art is calculating."

Have you read faq731-376 to make the best use of these Forums?