Consulting - am I doing it wrong?

May 5, 2009 12:37 PM

I'm just starting out as an independent network and systems contractor and I think I've agreed to a bad deal. What are my options?

This all came about as I got what sounded like a cool job offer and the recruiter offered to help me setup a contracting gig rather than hire me as an employee. But the more I learn, the less it sounds like I'm in a good spot.

Backstory: Senior windows/cisco IT guy, damn good, (mcse+messaging/ccnp skills, but no certs) 14 years experience implementing all manner of microsoft and cisco products in a midsize environment, done management and budgeting, like the job but hated the non-technical parts. I was let go last year and after failing to find a good fit locally I wanted to switch over to consulting in a new larger market so I moved to Washington DC a month ago.

One company responded to my resume within an hour (!) and I was asked to come aboard after a short phone interview on a sunday (!!) to bring up an office for a federal agency as a subcontractor the following monday(!!!). Sounded quick and easy on the phone last week. Well, things have been "held up" and there are no servers or routers except a leased line to a single hosted box. So I'm doing helpdesk grunt work for ~50 users with no end in sight.

So on to the help setting myself up. I was asked and agreed to quote a flat monthly rate (which now seems low (works out to be ~$200 for an 8-hour day, less the more I work)), at net 30, for this on-site support. There is no set end date. I have to be on-site 8a-5p every day unless I make arrangements for another guy from the same agency to cover me. I cannot leave if there is no work, but if there is extra I'm expected to stay until it's completed. If it matters I have no contract or SOW only an NDA, so I think I'm free to walk away at any time.

Questions:
1) Is the money range low for my skill sets in the area?

2) Is this a normal contract structure for federal IT contractors or this area?
2a) How do I get a feel for the norm in this area without actually trying to hire people?

3) Can / Should I try to renegotiate the verbal deal?
3a)How do I best go about renegotiating without burning bridges? I'd like to do the actually implementation work if it ever happens, but I really want to get away from desktop support.

4) Where can I learn more about starting out as an independent so I can avoid these mistakes in the future? There were some links in other contractor posts, but they seemed aimed at designers so I'm not sure how much applies.

Any other resources or help with starting out as a newbie consultant would be greatly appreciated. A good contractor community site would be ideal.

Thanks in advance.

anon to avoid attaching my real name to the mess I've made. I'll happily followup in mefi-mail or with a mod if needed.

posted by anonymous to work & money (21 comments total)

That works out to around $72,000 per year before taxes and with no benefits. That sounds really low given your skillset.
posted by rachelpapers at 12:44 PM on May 5

Apologies if my math is faulty, but the OP stated they quoted a monthly rate that worked out to about $200 for an 8-hour day. Assuming they just assume a full 4 week month, with weeks of 5 days, that's 20 work days in a month, or $4000 per month. Times 12 months in a year, that's only $48K per year.

If you calculate it per week, that's 5 days x $200 = $1000 per week. With 52 weeks in a year, that's $52K.

And as Rachel says, it's before taxes, no benefits, sick days or holiday time.

It's might be OK for pure helpdesk, but for your skillset, I think it's robbery.
posted by rocketpup at 12:50 PM on May 5

It sounds like you are somebody's employee. Are you:
- Paying your half of FICA?
- Sending invoices to get paid?
- Paying taxes quarterly (or planning to do so)?

I ask because your description does not sound like the IRS definition for an independent contractor. This could easily get you out of the bad situation you are in (and yes, you're not in a great situation).

Why do you not have a contract??

Is the recruiter getting a cut of your pay? If yes, are you his employee (and so, not an independent contractor, but an employee of a placement agency of sorts)?
posted by Houstonian at 12:51 PM on May 5

Rocketpup, in addition, if he's paying his full FICA, that's 7.5% of his pay. He's getting robbed.

Anon, please follow up with more information, so we can sort out what kind of employ you are under now. I'll hunt down some of my links to independent contractor information, and post them to get you on the right track for the next (or first) client.
posted by Houstonian at 12:54 PM on May 5

Here are a few links just to help you define what you are (or to help you understand how it should be different):

- From the IRS: Who is considered self-employed?

- From the IRS: Independent contractor or employee?

- There used to be a checklist from the IRS, but I can't find it. Here from a different source (opens a Word document): IRS 20-point contractor checklist
posted by Houstonian at 1:03 PM on May 5

Last link should go here.
posted by Houstonian at 1:04 PM on May 5

Senior windows/cisco IT guy, damn good, (mcse+messaging/ccnp skills, but no certs) 14 years experience implementing all manner of microsoft and cisco products in a midsize environment, done management and budgeting, like the job but hated the non-technical parts. I was let go last year and after failing to find a good fit locally I wanted to switch over to consulting in a new larger market so I moved to Washington DC a month ago.

The above contractor in a major metro should be on the order of 75-100/hour, more or less depending on specific responsibilities and skill sets and relevant experience.

1) Never negotiate a flat rate as a contractor, you're just asking for abuse, we call those things salaries and they come with benefits provide protection for you in exchange for a lower pay check.
2) Negotiate a set normal business hours rate.
3) Negotiate an after hours normal business hours rate.
4) Negotiate an above 10 hours a day rate.
5) Negotiate a minimum bucket or increment of hours.
6) There is a special place in hell for recruiters, avoid them at all possible costs, they are scum.
posted by iamabot at 1:22 PM on May 5 [2 favorites has favorites]

As an independent contractor, you are running a business. Here's some information to get you started.

Setting Your Rate
- How much should you charge for your services?
- Rate setting

Writing a Contract
- What to include in the contract
- Sample contract
- Second sample contract
- Third sample contract

Taxes
- Paying estimated taxes
- Estimated taxes, from the IRS
- The home office and business expenses tax deduction

You should also think about having multiple clients, marketing yourself, and bookkeeping.
posted by Houstonian at 1:54 PM on May 5 [9 favorites has favorites]

I'm a little confused. You say "net 30"- does this mean that you're breaking down your monthly pay as $200 * 30? Because that's really $300/day at 20 days/month, which is where I think rachelpapers is coming from with her $72k figure.

Depending on what the exact responsibilities laid out in your contract are, that may or may not be a huge undercut. Your prior work experience has no bearing. It does sound low to me, off-hand, though.
posted by mkultra at 2:01 PM on May 5

Net-30 means, the client should pay the invoice within 30 days. Depending on the contract, you can have net-30, net-60 (2 months to pay the invoice), etc.
posted by Houstonian at 2:04 PM on May 5

One way out of your current (awful) deal is to point out that you weren't hired as a long-term on-site helpdesk person, you were hired as a networking specialist for a short-term setup operation. Tell them they need to find someone whose skills are more appropriate for the role they actually need.

I'd also stop working with the agency that got you this gig, as they're clearly not looking after your interests.
posted by ook at 2:05 PM on May 5

If you are making $200 per day, and work only 8 hours each day, that's $25/hour. From that, deduct your taxes, including both halves of your FICA. Let's say that's 40% of your pay... that leaves you with a take-home pay of $15/hour.

Note that with that low pay, you cannot afford to give yourself health insurance, time off, business expenses, or really anything.

I don't see how you can make this work, honestly. At first, I was going to recommend that you get a contract. However, you don't want to be legally bound to this agreement! Without any contract, I'd give the recruiter a courtesy call, explaining that there's obviously been some confusion and you are out of there asap (like, sometime between right-then and no more than 2 weeks, but that's a professional courtesy and not a legal requirement).
posted by Houstonian at 2:21 PM on May 5

Houstonian: Net-30 means, the client should pay the invoice within 30 days. Depending on the contract, you can have net-30, net-60 (2 months to pay the invoice), etc.

Yeah, I was just kinda thrown by its inclusion in there, since the generally-accepted meaning really has no bearing in this situation. I was wondering if the poster misused the term to mean (s)he's paid for 30 days of work in a month.
posted by mkultra at 2:24 PM on May 5

Start looking for another gig, basically. You're getting screwed. The nice thing about being a merc is that you can walk any time you have a better offer.

In the future, though, bear in mind that agencies aren't really your friends. Agencies and recruiters get money from placements. Good recruiters will want to keep you happy, find you good placements, and get a good rep with their clients and contractors (contractors are not their clients, remember).

You should certainly explain to the outfit that placed you that things are a little off, to put it mildly. If they want to help you out, great. If not, look for something else.
posted by rodgerd at 2:39 PM on May 5

It's a verbal deal, and it's a poor match for your skills. It's also a bad deal financially. Contractors usually have to pay their own health insurance, vacation & sick time, and, most importantly, FICA.

They offered you a position doing one thing, and are now asking you to do something else. Explain that you have a specialty, the current position does not involve your specialty, and you'll help them out through the end of the week. Be super friendly. Even if they know they're kind of screwing you, there's nothing to be gained by being cranky, and you never know which contact you make will be useful.

If you think the recruiter is being a jerk, find another recruiter, but, again, no sense burning bridges.
posted by theora55 at 3:01 PM on May 5

When you say you can't leave if there's no work, does that mean you don't get paid for that time? Or are they paying you to be there regardless? Because by my math, no work + no pay + can't leave = prison.
posted by gjc at 3:10 PM on May 5

I cannot leave if there is no work

This will strongly suggest to the IRS that you're not supposed to be a 1099 contractor -- because you're not in control of the manner in which you do the work. If a company is buying your time, instead of your work product, and telling you when and where to do the work, they are generally employing you, and should be treating you as such.

And yes, $25/hour as an IT contractor with your experience is way too low. One rule of thumb is to take the yearly salary of an employee who would do the work you do, and divide it by $1000. So, if you'd make $75,000 a year (+ benefits) as an employee, you should be charging at least $75/hour.

Let this one be a lesson... and get out. Don't make flat-rate agreements, unless they are very clear about the scope of work. Don't work a minute without signing a contract. Don't work for people who are out to screw you. Even if you could renegotiate/formalize this arrangement at a fair rate, do you really want to be working for people who were so happy to take advantage of you?
posted by toxic at 6:31 PM on May 5

Flat-rate is only ever worthwhile if you are in complete control of the requirements, the delivery and the schedule and can set your price to assume some risk. It sounds like you can do none of these, so get out.
posted by jkaczor at 6:46 PM on May 5 [1 favorite has favorites]

All,

Anon sent me a Mefi mail, and asked me to post his responses and additional information. Here it is:

===========

Thank you all so much, especially Houstonian. Very good and helpful advice. To answer the questions:

Flat rate is $6500 a month. So for a 30 day month that works out to be ~$210/day for each day even for weekends when I don't have to show up. So it'd be more that $200 if it's feburary (6500/28 days), less if I have to work over to fix an issue.

The contract I'm supporting states someone must be onsite during normal business hours. So far that someone is just me. That's the 'can't leave even if no one needs me". I'm being paid to sit around a good chunk of the day.

I am to pay full FICA & any costs like meals and transport/training/vacation/do work off my own laptop/etc. I have to send invoices. I mentioned "net 30" as the terms I was told to list. I was planning on paying quarterly taxes.

Why do you not have a contract? I didn't know that I should have one before starting. It sounded like neat work, and started less than 24 hours after I sent in the resume. I just said "ok" before doing my homework.

Is the recruiter getting a cut of your pay? yes, in some fashion. He runs the a contracting company providing the support & service contract and I'm a sub for him.

I think that's everything that was requested. I'll follow up again if needs be. thanks again all.
posted by Houstonian at 9:13 AM on May 6

For anyone whipping out a calculator, it breaks down like this: If you work 40 hours/week, every week of the year (no time off), then you work 2080 hours/year. Assuming that, converting your flat rate to an hourly rate, your hourly rate is $37.50/hour.

In my opinion, you are really running that fine line between an independent contractor and an employee, as defined by the IRS. I keep incorrectly linking to the checklist (sorry!), but here it is, double-checked. If you want to keep the work, but more-specifically just for the type of work you do, I'd do this:

1. Draft a contract. Look at the samples, modifying as needed for your situation.

2. Have a meeting with the guy you are sub-contracting for. In that meeting, tell him you are concerned that you are not meeting the IRS definition. Go over the checklist with him, especially numbers 1, 7, 8, and 9.

2a. He may not "believe" the checklist, since it does not come directly from the IRS. So, before the meeting, print and have ready to share IRS Form SS-8. This is a form that he can complete and submit to the IRS, to have them determine your employment status for him. He can compare that form with the checklist.

3. Go over your contract with him, and then ask him to sign it.

Something for you to consider: Many independent contractors have only one client at a time. This is fine, but for work that fluctuates (on-and-off need), it is profitable to maintain work with multiple clients. It requires more work on your end, to maintain the relationships. And, it assumes a bit more risk or at least managing your money. But, importantly for you, it is near-impossible to do if your work requires clocking in at a clients' site from 8-5.
posted by Houstonian at 9:37 AM on May 6

Ok, seriously I have no idea why the link will not work. It was really correct. Here it is long form: www.sibcr.org/documents/IndependentContractorIRS.doc
posted by Houstonian at 9:39 AM on May 6