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Subcontractor (1099)

I'm applying for a postion with a web-development company advertising the position as "subcontractor (1099)."

Does anyone here have experience working as a subcontractor (1099), and if so, what does that mean?

Thanks for the information.

Marlin
Saturday, March 13, 2004

1099 means you are a business.  They pay you a dollar amount, and you are responsible for all personal expenses related to the job.  Think of 1099 like the plummer.  She does the work, and leaves with a check.  She is then resposible for health insurance, travel expenses, etc.  She is not an employee, nor does she have any rights within the company. 

Personally, I like 1099.  I understand all my costs, and decide where to spend money.  I also find I can do it much cheaper than companies do, while writing off much more.

The only thing you need to be careful with is development expenses.  The expectation, in your contract (have one) is that any such costs are the company's to cover, in addition to your rate.

MSHack
Saturday, March 13, 2004

I just started as a 1099 contractor a few months ago and am still learning the details.  MSHack pretty much described the situation.  You aren't an employee of the company, they won't do anything for you that they do for their employees.

For me I expect the first big difference will come up April 15 when I have to include self employment taxes and whatever else on my form 1040.  In addition to the annual tax form, April 15 is the date for the first quarterly estimated tax since there is no withholding for 1099 contractors.

I am still on health insurance from my former employer using the COBRA extention but will have to find my own RSN.  IAC I have to pay for it myself directly.  Due to taxes, health insurance, time off, etc., you should expect an hourly rate much greater than what the company would pay you as an employee.

mackinac
Saturday, March 13, 2004

Yeah, the biggest difference is doing your own taxes. You need to pay estimated taxes about every 3 months (not evenly distributed through the year though -- April 15, June 15, Sep 15, Jan 15).
The absolute most important thing to do is set aside some money (20%-40% depending on your state income taxes and how much money you plan to make throughout the year) from each check you receive from the client and put it away. THIS IS NOT YOUR MONEY, so don't use it, borrow it, etc. People get in to trouble by not having their tax money ready when it's time to bend over for the IRS.
Remember that when you were an employee for someone else, your were paying 7.5% FICA, but now as a contractor you will need to pay 15% FICA.
Good luck with your new gig!

  -Jordan

Jordan Lev
Saturday, March 13, 2004

Yeah, get in touch with a competent accountant with experience in these situations.  I know from bitter personal experience that it is very easy to "borrow" that set-aside money for your taxes, and at the end of the year it is very difficult to come up with it.

Pay your estimated taxes on time, be sure to budget for growth, and be sure to continue to market yourself.

Good luck.

Karl Perry
Saturday, March 13, 2004

But if you're sure you can come up with the money in time, borrowing against the money you're saving up for taxes turns out to be a fairly low cost personal loan (even including the IRS penalties for not making estimated payments). 

Ken Klose
Saturday, March 13, 2004

[the following is not legal advice]
If you're in a decent negotiating position, and you care to, then traditionally a 1099 should have a lot more freedom than a full-time employee. (most notably working hours and location)

Recognize the extremes - a traditional full-time employee (has a desk at a 9-5 job, on salary, has to follow company rules, etc, etc) vs. a 1099 contractor (wins a bid to build a project on a fixed-fee or cost+ basis, only goes to the office when necessary for research or meetings, etc). You are in unsteady middle ground.

During the '90's, many companies realized that their lives were easier and cheaper if they designated full-time employees as "contractors" (but doing the same job). This translated to people getting all the downsides of being a 1099 (employment taxes, paperwork, no benefits) but none of the benefits (establishing one's own working hours and location, not having to attend company meetings, etc)

Luckily, the IRS is *very* interested in situations like this. They have a checklist of "what makes a full time employee" and are likely to err on the side of employee.

So as I said, if you're in a position to negotiate, then set your own hours. If the boss says "I'd like to see you in here by 9am" then say "and I'd like to be a full-time employee - is that what we're talking about?"

Obviously they can terminate the contract any time they like, but be aware of your position, and be willing to help them understand their position.  ;-)

Philo

Philo
Saturday, March 13, 2004

Having recently been offered a position as a 1099 contractor, I can vouch for the fact that at least one recruiter has no understanding of what it means.

The woman I was talking to first tried to tell me that my rate as 1099 should be lower because "you can write everything off". When I brought this matter to the attention of one of her colleagues, she ultimately called me back and admitted she'd been wrong and wanted to know what my 1099 rate was.

I'm new to New York and perhaps I'm just don't understand how things work here; but is it normal to offer a 1099 position where you are expected to report to the office every day from 9-5? My understanding is that this is an "employee" position rather than 1099, and doesn't meet the IRS criteria for independent contractor.

Of course, this recruiter was just unethical; but what multiplier do you use when figuring your 1099 hourly rate?

Back when I was managing a team of engineers and had to keep to a strict budget, the number I used was 1.6 times the engineer's W2 salary. But I don't know how to adapt this number to a 1099 situation.

Jeff Watkins
Saturday, March 13, 2004

For a contracting job that is considered W-2, and you charges $50 -- demand $75 - $85 for 1099 rates.

Yes, you can write off a lot of things, but you are also assuming a lot more risks, taxes, and personal stress dealing with everything on your own.

-T.J.

T.J.
Saturday, March 13, 2004

Oh yeah, and in NYC, rates are naturally MUCH higher than what I stated in my previous post.

Cost of Living is a wee bit up there compared to the rest of the US.

T.J.
Saturday, March 13, 2004

Be aware that recruiters try to have workers work as 1099 or independent contractors to help them and the end employer escape their responsibilities. They still treat you like an employee when it suits them, such as demanding when you attend, and that they pay by the hour.

A lot of countries are examining legislation to stop this sort of shit, but the recruiter lobby groups are very effective at countering it.

For example, they set up dummy organisations that purport to represent workers, but actually represent the recruiters. This sucks in journalists and even a lot of contractors.

The reality is that, if you're a genuine 1099 or independent contractor, you would not be working through a recruiter, and you would not be restricted to billing for hours worked on the client's site.

Get documentation and see an employment lawyer if problems arise.

Inside Job
Saturday, March 13, 2004

Another thing not yet mentioned in this thread:

Your relationship as a 1099 contractor is between you and whomever you bill for your services, not between you and who _they_ bill for your services.  In light of this, make sure that there is nothing in your contract that says you won't get paid until the ultimate recipient pays whomever you bill.  It is really easy to get stuck this way.

Karl Perry
Sunday, March 14, 2004

One of the tricks recruiters use is to show you the contract at the last minute and pretend it's just routine for you to sign it.

Instead of doing that, demand that you get a copy of the contract in advance and take it away to check it.

You should also tell the employer you're doing this, even though the recruiter will tell you not to deal with them directly. The reason is that the recruiter may decide you're a potential troublemaker, and try to replace you with someone else. So just let the employer know you're checking the recruiter's contract.

Inside Job
Sunday, March 14, 2004

Being a 1099 contractor puts you in a different position regarding intellectual property.

As I understand it, if you are an employee, in general your work is considered the intellectual property of your employer (there is apparently some difference here between copyrights and patents that I don't understand.) If you are an independent business, an agreement is needed to transfer copyright and/or patent rights from you to the company that is paying for the work. If they have a standard contract, see what it indicates about this. It may be convenient to tie transfer of the intellectual property rights to payment.

Regarding legislation or regulations to eliminate this kind of arrangement, I think many countries are considering it, primarily because of tax collections. Lots of taxes are tied to payroll, for example, unemployment taxes. In good times, governments raid those taxes to pay for other things, creating a significant gap between what a company pays for you, and the benefits you receive (even taking government benefits into account.) If people leave the employment system, this causes problems. They can't draw the benefits (for example, unemployment insurance), but they were paying in more than they were taking out in benefits, so there is a loss of revenue.

However, there are significant problems eliminating subcontracting. I don't think the lobbies mentioned are really that significant. There are other problems:

You probably subcontract a lot, for example, if you hire a plumber, a lawyer, or an electrician. I know that in my state in the US, people are surprised to find out that they are ultimately responsible for state taxes when they hire someone to work on their house. If you hire a contractor, and the workers don't have their workers compensation insurance paid, the state can hold you responsible. Some transactions that you probably think of as purchasing something can be considered by the state as contracting for a service, and you may be liable if the taxes aren't paid. Forcing companies to employ people instead of subcontracting means working out how to deal with an enormous array of services that are typically contracted.

The German government changed the regulations regarding subcontracting a few years ago, and my impression is that in the process, they eliminated most small-scale software startups in Germany. These frequently started as companies doing a combination of consulting and speculative development. We build a lot of software for German companies that can't get the software done locally. They don't want to have a full-time software development team, and the rules make it hard to outsource within the country.

If you are going 1099, look at medical insurance carefully. I don't know about other states, but in the State of Washington, the Legislature passed laws a few years ago to 'improve' health insurance, and in the process essentially eliminated most individual policies.

Dan Brown
Sunday, March 14, 2004

Recruiters always have clauses assigning copyright to the employer, even though they want you to be a so-called "independent contractor."

It's one of the first clauses you cross out, or at least modify. For example, typically the clause will require you to give the employer copyright in any previous work that you might use in that job, even though that work might be very valuable.

In other words, they want you to have no rights, but none of the benefits either.

Dan Brown, where governments try to clamp down on recruiters, it doesn't have any effect on genuine contractors or on small software companies. Recruiters like to pretend workers are "companies" because it spares them paying insurance and compensation and other normal costs, while they still pay low worker wages.

Inside Job
Sunday, March 14, 2004

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