Subject: Contractors
From: Richard Mateosian <srm -at- C2 -dot- ORG>
Date: Fri, 27 Oct 1995 15:25:54 -0700

>1. When negotiating compensation for a contract, are there any quick
>formulas for figuring out what I'll need in order to cover my own

Self-employment tax: 14% of gross. Retirement account: 13% of gross.
Vacation (3 weeks) and holidays (2 weeks): 10% of gross. Health, disability,
and life insurance: could easily be $5000.00 per year. If you gross $75,000,
then that's 7.5% of gross.

In addition to your benefits, you need to cover your costs: equipment,
supplies, automobile, communication expenses, and "marketing time."

As a rough estimate, if you want to do as well as an employee making $50,000
per year, you probably need to be charging at least $60/hour.

>2. How do you prepare for the end of your contract? When do you start
>looking for a new position? If you do a lot of contract work, do you
>regularly end up with idle periods?

Ideally, you should have several regular clients. If you don't, the IRS may
look at you as an employee in disguise, and you may have trouble deducting
your legitimate business expenses.

>If I fail to find new work, can I collect unemployment?

No. Unemployment insurance is funded by payroll taxes. If you're not on
anyone's payroll, you don't have unemployment insurance. If you apply for
unemployment and cite one of your clients as your last employer, the feds
will come down hard on them for non-payment of payroll taxes, and your name
will be mud.

Of course, if you're a temporary employee rather than a contractor, the
employer has paid those taxes, and you are entitled to unemployment
compensation. Some employers refer to their temporary employees as
contractors -- for reasons that escape me. ...RM

Richard Mateosian President, Berkeley STC
Freelance Technical Writer srm -at- c2 -dot- org Review Editor, IEEE Micro

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