Questions on Contract Work 1

[GalileoG]

Hello all,

I was laid off a week ago and now the company I was working for wants me to come back for contract work a couple of days a week, maybe more, maybe less, for who knows how long. I have never done this sort of thing before and was wondering a few things:

1. What should be included in the written contract? Should there be a minimum number of hours per week or should they be able to let me know when they need me, whenever they need me, for however long?

2. From what I understand, the hourly rate will be the same as my hourly rate when I was working full-time. Is this acceptable and the norm?

3. Are RRSP and Employment Insurance payments required when working under a contract?

4. Will I still receive Employment Insurance benefits when doing contract work for a very limited number of hours? I guess this varies from state to state (or province in my case.)

Heck, it’s better than sitting at home, but I just want to make sure I’m not being taken advantage of.


Clansman

"If a builder has built a house for a man and has not made his work sound, and the house which he has built has fallen down and so caused the death of the householder, that builder shall be put to death." Code of Hammurabi, c.2040 B.C.

 

[PeterStock]

Your rate on contract should exceed your rate when you were working for them. You should ask for more, how much is up to you. Remember they had other costs associated with you that do not exist now, insurance premiums (unemployment, medical) and others. What would go into the contract would be a matter of negotiation. Ask for what you thing you can get. I do not know what RRSP is, but you may be responsible for Employment Insurance payments even if you are your only employee, this should be factored into your rate. The way it worked the last time I was on unemployment was you reported how much you earned and your unemployment check was reduced accordingly. But most or all of that was added to extend the period of eligibility.

Peter Stockhausen
Senior Design Analyst (Checker)
Infotech Aerospace Services

 

[KENAT]

1. Everything important should be in the written contract. On the issue of hours per week, whatever works for the both of you. You may want 40, they may not want to spec a minimum, you have to come to an agreement.

2. NO this is not the norm and would not be acceptable to me. Depending on circumstances the hourly rate should be increased to allow for any non monetry benefits lost as a result of not being a direct employee. For instance, an increase to cover any lost retirement or health benefits. Also any required increase to cover any additional tax or liability insurance costs (you may not be coverd by your old employer). An increase to cover some vacation. Possibly an increase to cover periods without work.

When I was in a similar position (I left rather than was laid off but was still contracting for the old company) they offered me the equivalent hourly rate. I wasn't looking at it as a long term job so I just made them bump it up to cover the raise I would have got if I'd still been direct (I left just before raise time) and the contribution they made to my retirement. Being UK health benefits weren't a concern. I can't remember what I did about making up for vactation.

3. & 4. Don't know.

It seems to me, given what you say on 2, they may be taking advantage of you - but you know how they are better than anonymous people on the net.

Maybe take a look at "Trends and Strategies" there's a forum over there about starting a business which may have applicable information.


KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at posting policies:

http://eng-tips.com/market.cfm?

What is Engineering anyway: faq1088-1484

 

[GalileoG]

Thanks all for the responses.

I do not think I will make a fuss about them offering the same hourly rate. I am worried they'll axe me for good if I raise the issue. Beggars can't be choosers, I guess.

Clansman

"If a builder has built a house for a man and has not made his work sound, and the house which he has built has fallen down and so caused the death of the householder, that builder shall be put to death." Code of Hammurabi, c.2040 B.C.

 

[KENAT]

Clansman, you still need to look at any tax/insurance issues to make sure you aren't opening yourself up to any other liabilities.

Whether you get your employer to pay the difference or take it out of your check is up to you.

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at posting policies:

http://eng-tips.com/market.cfm?

What is Engineering anyway: faq1088-1484

 

[PeterStock]

They are taking advantage. And you are letting them. Are you a PE? If so, you are not covered by their insurance, you need your own. Ask for enough to cover that at least.

Peter Stockhausen
Senior Design Analyst (Checker)
Infotech Aerospace Services

 

[Bester2]

Also don't forget about the tax issue.

"If you work for an employer, 6.2% of your wages is withheld and your employer deposits the withholding, along with its 6.2% matching contribution, with the government for the social security programs. In 2008, the employee tax and matching contribution stop after the first $102,000 of wages. In addition if you work for an employer, 1.45% of your wages is withheld and the employer makes a matching 1.45% contribution to the Medicare program, making the total withholdings at 7.65% (6.2% OASDI and 1.45% Medicare). However, all wages are subject to the Medicare tax; there is no ceiling."


"If you are self-employed, you pay 15.3% of your taxable income into the social security and Medicare programs, up to the first $102,000 of income. You continue to pay 2.9% of your taxable income into the Medicare program for your earnings above $102,000."

So if you take the exact same rate as you were making before, you will be taking at least a 7.65% pay cut with taxes alone. It seems to me that they let you go and now know that you are desperate. If you really need the work, take it by all means and look hard for something else. Then once you find something just leave, they are not being fair to you so PLEASE do not treat them with the respect that they do not deserve.


SW 2007 SP 5.0

 

[KENAT]

Just to back up what Bester says, a couple of my colleagues were originally hired here on what sounds like similar basis. It was a mess from a tax point of view both for them and the employer. Within a few weeks the employer changed them to be temporary direct, basically they paid them but no benefits of any kind.

One of them ended up getting audited a couple year later because of the mess this caused.

I would be very carefull about how you do this, at least talk to an accountant and possibly a lawyer.

There are ways to incorporate yourself or other methods to help handle this.

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at posting policies:

http://eng-tips.com/market.cfm?

What is Engineering anyway: faq1088-1484

 

[KENAT]

Another option I just thought of, go through a 'job shop' of some kind. They'll handle most of the admin/taxes etc (except maybe liability insurance).

Your former employer may not appreciate having to pay their cut though.

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at posting policies:

http://eng-tips.com/market.cfm?

What is Engineering anyway: faq1088-1484

 

[MikeHalloran]

In The Colonies, good job shops pay you decent benefits, take care of the paperwork, and charge the employer at least 150 pct of what you get, even if you don't have experience specific to the employer's needs.

Given that you do have specific experience, they should be able to squeeze at least double your direct rate out of the tightwads, and leave you better off too.

You are being >seriously< ripped off.





Mike Halloran
Pembroke Pines, FL, USA

 

[GregLocock]

In some other colonies the agency I used to use would take 9% from memory, so if my rate that I received was 45 ph then they charged my employer 49 or so.

You are being ripped off. I would say that you should be be billing them at least twice your current hourly rate. If you want to reduce that, fine, but you are doing them a favour and their other employees a disservice.





Cheers

Greg Locock

SIGlease see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[Ron]

Clansman...as Greg and others have noted, you are being ripped off!! When you are working for a salary, your pay rate is approximately 1/4 to 1/3 of what your company is getting for your time, whether they charge on an hourly basis or whether that is built into their unit rates or sales prices.

To work on a contract basis for the same as your regular rate, you are paying all of your overhead (which before they picked up) and you are getting little in return.

Assuming you are in the US, I offer the following example....Suppose you were being paid $50 per hour before. They paid the employers portion of the Social Security on that (a little over 7 percent). They paid some level of worker's compensation insurance, general liability insurance, professional liability insurance on your existence in the company. In all, if you made $50 per hour, the company cost was at least $110 per hour. Now you are charging the company $50 per hour for contract work. Their cost goes from $110 to $50. Your net goes from $50 to about $22.75 for all that you now have to pick up from them.....See how you're getting screwed!

Further, they should indemnify you for your work so that you don't pick up their liability in the event there's a problem.

I know you want to keep some income, but play hardball...they'll fold to get you a bit more money. Even if you charge them $75 per hour, they are getting a good deal.

 

[rheim]

Clansman...rule of thumb is that you have to make about 40% more than an employee to be even moneywise. This makes up for not getting benefits, paid vacation, sick leave, etc.
If the company allows you top use its infrastructure, i.e. they cover printing costs, code books, reference books, or are even providing a dedicated workplace where you can use their computer and software, you will do ok with this rate. If you have to cover a part or all of the above yourself, you need a higher rate.
Don't accept a contract that states that they can tell you when to work and where to work. It might be like that for a while, but don't write it the contract. This is asking for trouble, as the IRS might look at this as a "quasi employment". The company might have moe trouble than you, but still you don't want to give somebody a weak up call. Other triggers are a dedicated work place (but, as mentioned above, this saves you money), and only having one client for a long period of time. Don't loose sleep over this, a lot o freelancers and sole proprietorships start out this way, and nobody hangs you if you do this for a year or two. But after some time, you should be able to show that you are your own boss.