Re: QUESTION: Hourly Rates

Subject: Re: QUESTION: Hourly Rates
From: Elna Tymes <etymes -at- LTS -dot- COM>
Date: Sat, 18 Jul 1998 11:32:34 -0700

Fabien Vais wrote:
> Can anyone out there explain to "us Canadians" (and anybody else who needs)
> what different types of contracts you have in the U.S.?

In the U.S., most of us who work contract are run by what the local
economy feels about the IRS' rules re: contracting. Technically, if you
sign up to do a specific job for a specific price, on terms that you and
the hiring company agree to, you can qualify as a contractor. However,
there are a lot of caveats.

1. The dimensions of most jobs aren't predictable, with any degree of
certitude, at the beginning. The only sensible way around that is to
give a gross estimate, based on stated assumptions, and then charge by
the hour. Some people will take fixed-price contracts, because they
feel they can build in enough 'fudge' room to cover any errors in
estimating, and any other gotchas that creep in. To them, I say "You're
braver than I am," and I've been in this business over 30 years. We
will give a good-faith estimate, based on stated assumptions, and then
make it clear that we're doing the job on an hourly basis. Because we
are what to most people looks like a corporation (LLC's are confusing to
lots of folks), it's easy to understand that the hiring company pays our
company and we in turn pay our employees. There's no 1099 needed,
although some companies like to use that.

2. Many jobs are found through agencies, and agencies make their money
by charging a markup on an hourly rate. Many agencies simply don't
trust people who say they're actually a legitimate company, and insist
on treating everyone who gets placed at another company as an employee
of the agency. This is something that's been discussed to death on this
board before. The person who works for the agency on this type of
arrangement is colloquially referred to as "a W-2," referring to the
type of income tax paperwork filed for him/her. Under this type, taxes
(and sometimes other things like medical insurance) are deducted from
the gross hourly rate at paycheck time, and the balance is paid to the

3. If a person manages to land a contract directly with a company,
because he/she can demonstrate the necessary 'contractor'
qualifications, that person is referred to as "a 1099," meaning the type
of income tax form he/she receives from the company at tax time. This
form reflects the gross amount paid directly to the contractor, who is
then responsible for paying his/her own taxes, medical insurance,
business expenses, etc. Historically, enough people abused the 1099
status that the IRS got tough with companies, instituting certain
qualifying rules, and the companies reacted by ruling out most 1099
relationships. Although the rules have relaxed a bit, many companies,
in particular agencies, are still hiding behind the fear of the IRS, and
insisting on W-2 status for anyone who wants to work on contract.

Hope that helps explain things.

Elna Tymes
Los Trancos Systems

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