Is there a formula to figure out how much an independent contractor makes?
November 2, 2005 6:47 PM Subscribe
Contractor filter: I need to figure how much I am actually getting paid. I have a feeling I'm getting the shaft on my pay.
I read thru the C and E handbook but I am having a hard time getting my head around it and it really doesn't seem to appy to my situation.
Ok so the situation is this: I drive around and write reports on specific projects being worked on. My boss pays me by the job @ $20 per site. If there are more sites in that area I get a reduced ammount of pay per site. My checks are around 1300 every 2 weeks.
These are some things to take into account as well.
I have to pay for gas on my car. So that could equal somewhere around 300 a month (bad gas mileage.) and around 1500 miles on my car easy. I just started so it doesn't look like I am going to make enough money this year to even deduct the car mileage from my taxes.
I have to pay my own taxes which I still haven't figured out yet.
I also have to put time in at the office doing scheduling paperwork for the other people that do this and schedule them. Plus other stupid office crap that adds to the time that I spend working. I get paid nothing for this. Pretty much all this ensures is that I have a full route of sites to look at, but it costs me time.
I haven't made a contract with him yet so I am not locked into any payment price for my services. My boss really tries to play up the whole independent contractor benefits, like being my own bosses and writing crap off on taxes. How much do I need to be making for writing stuff off to even really matter?
I read thru the C and E handbook but I am having a hard time getting my head around it and it really doesn't seem to appy to my situation.
Ok so the situation is this: I drive around and write reports on specific projects being worked on. My boss pays me by the job @ $20 per site. If there are more sites in that area I get a reduced ammount of pay per site. My checks are around 1300 every 2 weeks.
These are some things to take into account as well.
I have to pay for gas on my car. So that could equal somewhere around 300 a month (bad gas mileage.) and around 1500 miles on my car easy. I just started so it doesn't look like I am going to make enough money this year to even deduct the car mileage from my taxes.
I have to pay my own taxes which I still haven't figured out yet.
I also have to put time in at the office doing scheduling paperwork for the other people that do this and schedule them. Plus other stupid office crap that adds to the time that I spend working. I get paid nothing for this. Pretty much all this ensures is that I have a full route of sites to look at, but it costs me time.
I haven't made a contract with him yet so I am not locked into any payment price for my services. My boss really tries to play up the whole independent contractor benefits, like being my own bosses and writing crap off on taxes. How much do I need to be making for writing stuff off to even really matter?
A good rule of thumb: If you're a contractor, your take-home is 1/3 of what you actually take home. So at $871 per two weeks, minus gas, yes, you're getting the shaft.
posted by SpecialK at 7:04 PM on November 2, 2005
posted by SpecialK at 7:04 PM on November 2, 2005
I also think you're being taken advantage of, if only because of the unpaid office-based stuff.
As far as the taxes, you're safe if you make quarterly payments equal to 1/4 of your last year's taxes.( I assume you're being paid on a 1099 basis now.) Even if your taxes wind up being much more than your estimated payments (the ones that are 1/4 of last year's taxes), you won't face any penalties. It seems unlikely your taxes will be that much anyway, unless you were paid a lot less last year.
posted by Kirth Gerson at 7:20 PM on November 2, 2005
As far as the taxes, you're safe if you make quarterly payments equal to 1/4 of your last year's taxes.( I assume you're being paid on a 1099 basis now.) Even if your taxes wind up being much more than your estimated payments (the ones that are 1/4 of last year's taxes), you won't face any penalties. It seems unlikely your taxes will be that much anyway, unless you were paid a lot less last year.
posted by Kirth Gerson at 7:20 PM on November 2, 2005
Every time I've freelanced/contracted and the client went on and on about how much I can write off, I've been shafted. I think bosses like to say that to younger workers because they can't say things like, "We pay you a fair wage and provide insurance." I left a job that underpaid (but oh! those writeoffs! so ... not the same as making a living wage) when the boss came in at holiday time and regifted some mixed nuts from a gift basket we'd been sent by a client. I realized in that moment ... I was literally being paid peanuts.
posted by hamster at 7:23 PM on November 2, 2005
posted by hamster at 7:23 PM on November 2, 2005
If you can't write gas off on taxes, that's meaningless. In fact, taxes are more of a pain, and definitely a detraction from the job.
Also, how much "on call" are we talking? Is this a "can be called in on days off", or are we talking 24/7 on call? The latter gives you a much stronger bargaining position.
Just from your take-home check, you're earning $16.25 an hour, assuming full time. Sounds nice, until you realize taxes, gas prices, insurance, and other various benefits you miss out on.
You're getting shafted, but it depends on how much qualification you need for the job, how much you actually are working, what "on call" is, and noting the general lack of benefits.
posted by Saydur at 7:30 PM on November 2, 2005
Also, how much "on call" are we talking? Is this a "can be called in on days off", or are we talking 24/7 on call? The latter gives you a much stronger bargaining position.
Just from your take-home check, you're earning $16.25 an hour, assuming full time. Sounds nice, until you realize taxes, gas prices, insurance, and other various benefits you miss out on.
You're getting shafted, but it depends on how much qualification you need for the job, how much you actually are working, what "on call" is, and noting the general lack of benefits.
posted by Saydur at 7:30 PM on November 2, 2005
You are getting so thoroughly shafted, your middle name must be Otis.
posted by five fresh fish at 7:52 PM on November 2, 2005
posted by five fresh fish at 7:52 PM on November 2, 2005
Here's some good news / bad news.
Good news: you can not only take your gasoline expenses off of your taxes (and you don't need itemized deductions to do this), but the IRS allows you to claim a 37.5 cent a gallon mileage allowance for every unreimbursed mile you travel (but you have to maintain a mileage log keeping track of every trip). All business expenses can be directly written off of your taxes (via 1040 Schedule "C") before they are even considered income, so don't worry about having to accumulate more expenses than a standard deduction. However, the IRS may rule that you are actually an employee, in which case your tax status (and your employer's) are ambiguous.
Bad news: it sounds like an appalling deal that you're getting. Self-employment taxes mean that you have to pay both halves of your social security tax (normally, your employer will pay half), plus your regular income tax. In addition, you're getting zero benefits, and assuming significant risk yourself.
For most professional jobs, benefits comprise an additional 30% or more of "salary equivalence." Two weeks vacation, two weeks sick leave, and five holidays comprises 10% of the work year--if you don't get those, knock that 10% off of what you figure you earn. On top of that, add car expenses, insurance, health care, disability, unemployment insurance. This is not a great deal.
posted by curtm at 8:03 PM on November 2, 2005
Good news: you can not only take your gasoline expenses off of your taxes (and you don't need itemized deductions to do this), but the IRS allows you to claim a 37.5 cent a gallon mileage allowance for every unreimbursed mile you travel (but you have to maintain a mileage log keeping track of every trip). All business expenses can be directly written off of your taxes (via 1040 Schedule "C") before they are even considered income, so don't worry about having to accumulate more expenses than a standard deduction. However, the IRS may rule that you are actually an employee, in which case your tax status (and your employer's) are ambiguous.
Bad news: it sounds like an appalling deal that you're getting. Self-employment taxes mean that you have to pay both halves of your social security tax (normally, your employer will pay half), plus your regular income tax. In addition, you're getting zero benefits, and assuming significant risk yourself.
For most professional jobs, benefits comprise an additional 30% or more of "salary equivalence." Two weeks vacation, two weeks sick leave, and five holidays comprises 10% of the work year--if you don't get those, knock that 10% off of what you figure you earn. On top of that, add car expenses, insurance, health care, disability, unemployment insurance. This is not a great deal.
posted by curtm at 8:03 PM on November 2, 2005
So the numbers look something like this:
Two weeks pay equals $1,300 (gross).
Less: 7.5% employer's share of social security ($100)
Less: car: $140 (out-of-pocket) or $260 (full IRS); say $200 with wear-and-tear;
Less: health insurance (if worth $350 per month, equals $150 per pay period)
So net is $850. BUT you also don't get vacation, holiday, sick leave, which is essentially another 10% reduction in salary. (To get 25 days off each year, you're going to have to go through two and a half unpaid pay periods.)
So you're being paid the equivalent of a gross of $750 per pay period, if you were a regular employee with (reasonable) health insurance, which is equivalent to $9.33 per hour.
And, as noted above, if you have to pay for unemployment and/or workers compensation insurance, or would have had employer-paid life or disability insurance, then you're not even making the equivalent of $9.33.
And on-call employees usually get additional pay of some kind, so subtract something more for that.
posted by WestCoaster at 9:34 PM on November 2, 2005
Two weeks pay equals $1,300 (gross).
Less: 7.5% employer's share of social security ($100)
Less: car: $140 (out-of-pocket) or $260 (full IRS); say $200 with wear-and-tear;
Less: health insurance (if worth $350 per month, equals $150 per pay period)
So net is $850. BUT you also don't get vacation, holiday, sick leave, which is essentially another 10% reduction in salary. (To get 25 days off each year, you're going to have to go through two and a half unpaid pay periods.)
So you're being paid the equivalent of a gross of $750 per pay period, if you were a regular employee with (reasonable) health insurance, which is equivalent to $9.33 per hour.
And, as noted above, if you have to pay for unemployment and/or workers compensation insurance, or would have had employer-paid life or disability insurance, then you're not even making the equivalent of $9.33.
And on-call employees usually get additional pay of some kind, so subtract something more for that.
posted by WestCoaster at 9:34 PM on November 2, 2005
Bosses use independent contracting for rational reasons. It saves them money across the board, and you end up having all the obligations of an employee without any of the benefits (on paper). You may not actually be an independent contractor though, there are some steps you can take to force your employer to make you an employee, and there are ways of resisting these issues. You should email me if you want to chat about this...
solidarity!
posted by aussicht at 10:09 PM on November 2, 2005
solidarity!
posted by aussicht at 10:09 PM on November 2, 2005
How much do I need to be making for writing stuff off to even really matter?
There are advantages to Schedule C, and one of them is that you don't have to be making anything at all to write stuff off -- you can actually have a loss. (You have to be careful, though, that most years you actually do make money, lest the IRS class your business as a hobby.) This goes for mileage as well. The ceilings and floors that you're used to with Schedule A don't apply to a business tax return.
Make sure that if there's any business-related expense -- lunch counts, if you're on the road like this -- you're keeping receipts. A computer purchase can be written off, so can a fax machine, and if necessary the full purchase price in the first year (but this isn't usually a good idea, you want to reduce your tax burden in future years too). Cell phone bills are another big write-off. Make sure you can "document" (usually you won't need to but sometimes you do) your business use (say, 80%). If you don't have an assigned office (it sounds like you do) then home-office deductions come into play.
In principle, freelancing isn't always a bad deal -- as long as you can make the numbers work (and you must pay those quarterly taxes -- put some of your money in a do-not-touch savings account for this). I do question some of the things you mention, like getting paid less (less than $20!) for sites that are too close, and having to do unpaid office work involving "supervising" other employees/contractors. That last almost automatically suggests you're not a contractor at all but an employee, so I would look very closely at those requirements.
So you're not in a great job, but you might be able to make it a living income by really getting to know Schedule C and business deductions. You can grab TurboTax or whatever and start playing with the numbers, now.
posted by dhartung at 10:24 PM on November 2, 2005
There are advantages to Schedule C, and one of them is that you don't have to be making anything at all to write stuff off -- you can actually have a loss. (You have to be careful, though, that most years you actually do make money, lest the IRS class your business as a hobby.) This goes for mileage as well. The ceilings and floors that you're used to with Schedule A don't apply to a business tax return.
Make sure that if there's any business-related expense -- lunch counts, if you're on the road like this -- you're keeping receipts. A computer purchase can be written off, so can a fax machine, and if necessary the full purchase price in the first year (but this isn't usually a good idea, you want to reduce your tax burden in future years too). Cell phone bills are another big write-off. Make sure you can "document" (usually you won't need to but sometimes you do) your business use (say, 80%). If you don't have an assigned office (it sounds like you do) then home-office deductions come into play.
In principle, freelancing isn't always a bad deal -- as long as you can make the numbers work (and you must pay those quarterly taxes -- put some of your money in a do-not-touch savings account for this). I do question some of the things you mention, like getting paid less (less than $20!) for sites that are too close, and having to do unpaid office work involving "supervising" other employees/contractors. That last almost automatically suggests you're not a contractor at all but an employee, so I would look very closely at those requirements.
So you're not in a great job, but you might be able to make it a living income by really getting to know Schedule C and business deductions. You can grab TurboTax or whatever and start playing with the numbers, now.
posted by dhartung at 10:24 PM on November 2, 2005
If you are being hired as an independent contractor, how about you bill them as one?
All of the work I do (photography/production) is on a freelance basis and I charge for things like my time, expenses (travel, parking etc ...) and in my case for reproduction rights. Because I'm not a full time employee I charge about 2.5 times more. It' still cheaper than the employer paying for your unemployment and health insurance, social security and state taxes, vacation and holiday pay and other administrative costs to maintain his employee.
So I guess what I'm suggesting is that, if you're not doing this already, invoice him for your expenses (ie gas and use of your car for his business), your time spent doing the paperwork and whatever reasonable expenses you incur because of doing your job for him.
Yes you are working for him and he's paying you but think of it this way, you don't want to be the one paying for your gas etc in order to make someone else money. It's not unreasonable to expect to make a profit by working so stand up for your rights because your employer sure as hell won't especially if you are an "independent contractor".
posted by eatcake at 3:39 AM on November 3, 2005
All of the work I do (photography/production) is on a freelance basis and I charge for things like my time, expenses (travel, parking etc ...) and in my case for reproduction rights. Because I'm not a full time employee I charge about 2.5 times more. It' still cheaper than the employer paying for your unemployment and health insurance, social security and state taxes, vacation and holiday pay and other administrative costs to maintain his employee.
So I guess what I'm suggesting is that, if you're not doing this already, invoice him for your expenses (ie gas and use of your car for his business), your time spent doing the paperwork and whatever reasonable expenses you incur because of doing your job for him.
Yes you are working for him and he's paying you but think of it this way, you don't want to be the one paying for your gas etc in order to make someone else money. It's not unreasonable to expect to make a profit by working so stand up for your rights because your employer sure as hell won't especially if you are an "independent contractor".
posted by eatcake at 3:39 AM on November 3, 2005
The IRS just upped the reimbursable mileage rate to 49.5 cents per mile, which includes gas, depreciation, etc. So if you're driving 1500 miles/month, you should figure on $743 in car expenses. When I worked for a building contractor, instead of reimbursing mileage we were given a gas card and paid a vehicle allowance. You might want to look into something like that, if you're not going to get full reimbursement for your driving expenses.
posted by electroboy at 6:55 AM on November 3, 2005
posted by electroboy at 6:55 AM on November 3, 2005
my advice is twofold:
1. Eliminate the work that is unpaid "scheduling" work. He should email or phone you or contact you via carrier pigeon with a schedule for the week on Monday morning (or whatever day your rotation begins). That's his job, you're just the site progress monitor. Either he pays you more for each job (i.e., $22 each or something), pays you to schedule yourself (at an hourly or other rate), or pays another employee to do it.
Just tell him / her (if your relationship is good) that scheduling the trips takes X hours per week, causes Y frustration... (or that the time has been increasing since Mr. Q did R to S). Then figure out how you can be compensated for that.
2. Getting benefits and stuff is a HUGE part of the compensation paid to workers. So if you are shouldering that yourself (medical, dental, your own roth / 401 k, etc., not to mention that you have spend time paying your own taxes), you need to get paid for it. That is why contractors generally make more (hourly at least) than full employees. So you need to build this in to your bill rate for each gig you take on. Now that you're seeing how much time / energy / gas the project is costing you, go back and re-negotiate (or negotiate since you don't have one) your contract.
So....
Be strong. You're in a good place to negotiate. You're already doing the work, and it's gotta get done so your company can't easily fire you. You know the people, the procedures, the places where you're doing the reporting. So don't take a $1 bump in salary as I mention above. I'd try to structure it so that you're being paid a base rate of X for all the office work and being on call (and your bennies), plus a Y per report you submit. Know what number you need going in. I think that gettting about $2000 every 2 weeks would be a good first proposal (figure out your details with the breakdowns). Then the boss will get pissed and say that he can't meet that. And he will counter offer. This might take a day or 2. But he'll counter and you'll be able to counter his counter, but only once. So go back and work the numbers and come back with your counter.
posted by zpousman at 7:28 AM on November 3, 2005
1. Eliminate the work that is unpaid "scheduling" work. He should email or phone you or contact you via carrier pigeon with a schedule for the week on Monday morning (or whatever day your rotation begins). That's his job, you're just the site progress monitor. Either he pays you more for each job (i.e., $22 each or something), pays you to schedule yourself (at an hourly or other rate), or pays another employee to do it.
Just tell him / her (if your relationship is good) that scheduling the trips takes X hours per week, causes Y frustration... (or that the time has been increasing since Mr. Q did R to S). Then figure out how you can be compensated for that.
2. Getting benefits and stuff is a HUGE part of the compensation paid to workers. So if you are shouldering that yourself (medical, dental, your own roth / 401 k, etc., not to mention that you have spend time paying your own taxes), you need to get paid for it. That is why contractors generally make more (hourly at least) than full employees. So you need to build this in to your bill rate for each gig you take on. Now that you're seeing how much time / energy / gas the project is costing you, go back and re-negotiate (or negotiate since you don't have one) your contract.
So....
Be strong. You're in a good place to negotiate. You're already doing the work, and it's gotta get done so your company can't easily fire you. You know the people, the procedures, the places where you're doing the reporting. So don't take a $1 bump in salary as I mention above. I'd try to structure it so that you're being paid a base rate of X for all the office work and being on call (and your bennies), plus a Y per report you submit. Know what number you need going in. I think that gettting about $2000 every 2 weeks would be a good first proposal (figure out your details with the breakdowns). Then the boss will get pissed and say that he can't meet that. And he will counter offer. This might take a day or 2. But he'll counter and you'll be able to counter his counter, but only once. So go back and work the numbers and come back with your counter.
posted by zpousman at 7:28 AM on November 3, 2005
Another thing I should have mentioned... anything you do as an individual will be limited as such and could potentially endanger your financial well-being there. The most effective course of action would be to work on these issues with your coworkers, but that has its own dangers, hence me offering my email and all if you want it. Good luck!
posted by aussicht at 7:34 PM on November 4, 2005
posted by aussicht at 7:34 PM on November 4, 2005
This thread is closed to new comments.
posted by bigmusic at 6:49 PM on November 2, 2005