OT: Contracting companies

[David P. Schwartz]

John Starta wrote:

> Does anybody have experience (good or bad) with any of the contracting
> companies in town? I'm looking for information from the perspective of the
> contractor (worker bee). I'm currently looking for a contract and have
> spoken to couple companies so far (Metro Information Services, Atlantis
> Partners, etc.) but haven't really gotten a warm fuzzy.
>
> Anyone have any thoughts on the subject?
>
> jas

Thoughs ... yes.  Not quite what you're looking for, but stuff to consider.

Contracting is a mixed blessing.  They typically pay "above average" relative to the hourly rate you'd get as an employee, but you
typically get paid only 40%-60% of what the job shop charges the client.  Some are better than others.  (I worked for RBBalch a few
times, and she's more fair than most I've work for.)

One thing I don't get about the contracting biz... at the employer's facility, contractors are usually treated with indifference if not
a noticeable negative bias.  They hire you for your sharpshooting skills, then give you an old broken down WWII target rifle to take
into the field and fight with -- they expect you to act like Rambo, but with a bunch of junky cast-off tools.

You get a smaller, noiser office (or open workspace) with little sense of your own space.  They sit you next to the college interns and
give you computers rotated out of the secratarial pool as they get upgraded.  They won't buy you helpful tools because it'll cost them
for a license that they might not need after you've left.  If they're short of licenses for key software packages, guess who has to
"borrow" somebody else's computer?  You've gotta use if "off hours", but don't expect them to pay you overtime.

Companies will often hire contractors at the tail end of a failing project so they can have somebody to blame when it finally gets
snuffed out.  They'll try to grill you for it; don't take it personally.

They'll commonly interview like mad to be sure you've got the EXACT expertise they want, then they don't want to hear anything you've
got to say about the project.  For example, I once was hired because of some network communications expertise I had, and was told to
"hold people's hands".  One week, all the managers were out for several days, and a persistent networking problem got some folks in the
department worked up into quite a lather.  They had been told that I was hired to "fix their networking problems", so several of them
finally descended on me and implored me get working on this.  What could I say?  I love a good challenge!

It took a few hours, but I fixed it.  When the managers got back a couple days later, I was walked out at 10 AM.  It seems they were
really trying to get the vendor to refund their money for the software package, and since the vendor couldn't fix the problem, it was
just a matter of time before a breach of contract action was emminent.  I created quite a mess for them by fixing things.

THE ROLE OF JOB SHOPS

It's important to realise that just about the ONLY thing job shops do is act as intermediaries to insulate the employing companies
against potential tax problems in case you don't pay your 1099 taxes.  (Thanks to a political coup scored by the DPMA and CBEMA, back in
the early 80's.)  For that, they often get the lion's share of the bootie.  They'll make a bunch of noise about how great they treat
"their employees", but nobody will keep you "on the bench" for more than a few weeks in case they can't find you work.  They try to
explain that the reason they get such a big chunk of the fee is because they'll keep you around awhile in between jobs.  Ha!  Your
"bench pay" is usually about 1/2 of your regular hourly rate, unless they've got something in-house to tap your talents in a legitimate
manner.

The truth is, as a 1099 contractor, if you fail to pay your taxes and are subsequently audited (3-4 years later) and the auditing
agent(s) find that you should have been treated as a W-2 "employee", then not only will you get nailed, but your erstwhile "employer"
gets hit up for your back taxes as well as some really STIFF penalties and interest for "failing to withhold payroll taxes" -- for
several years!  The conditions they use to determine this are quite vague (some say, deliberately), and any hundred IRS agents would
probably come up with 95 different opinions.

See, in the middle of the Regan Administrative years, CBEMA managed to convince some key Senators that contractors in the high-tech
industry were single-handedly and systematically failing to report 1099 income and pay taxes that amounted to a Really Big Amount,
prompting Congress to "fix" this terrible condition (rather than prosecute these alleged "tax cheats").  What you need to understand is
that CBEMA and DPMA represented all of the largest contracting firms in the country, and these guys were losing business to
"independents".  So they got congress to eliminate what's called the "safe harbor provisions" of the tax code, specifcally for high-tech
workers.  Ten years later, a GAO audit showed that net tax revenues from contractors had dropped some 70% since those laws were
enforced.  Rather than repeal the changes, they made them more vague.

Today it's pretty much a crap shoot whether a company will get hit with tax penalties years after hiring you for a month's work as an
independent contractor.  That's in spite of the almost offensive contract they make you sign that says you're independent, that you are
soley responsible for your tax liabilities, that you agree to indemnify them in case something should arise, etc, ad nauseum.  That's
the employer's viewpoint, which forces them into working with a "third party" to hire you -- IOW, they just pass along the liability!

Something to consider is to set up a corporation or an LLC, possibly in Nevada or Wyoming.  They cost about $600 to set up, and maybe
$100/mo if it's out-of-state (aka "foreign") [you'll need something approximating an executive suite, with a real office and what not in
case anybody gets nosy].  Many big companies won't contract with other companies that have been incorporated for fewer than three years
or so, but there are other benefits.  Eventually, you'll be able to get contracts through your own corporate entity and keep the full
bill.

A corporation or LLC is one of the best tax shelters you could possibly get for yourself, and if you end up in trouble, it's one of the
best ways to protect your ass[ets].  It's like inventing a brother or cousin that does whatever you ask and, amazingly, the Government
is willing to go along with the entire charade.  This fictitious paper entity has nearly every right granted to citizens and
individuals, and you (the Board of Directors) get to provide the "brains".  It's as if you are the legal guardian of someone in a coma,
but you cannot (generally speaking) be held liable for anything that might go wrong.  Such a deal!

-David Schwartz