contract or captive: which is right for you?

STC Phoenix, November 2014

CONTRACT OR CAPTIVE: WHICH IS RIGHT FOR YOU?

Brenda Huettner

It’s about where and how you want to live (and work)

Contract or Captive: Which is Right for YOU? @bphuettner

Sometimes, it’s about compromise

@bphuettnerContract or Captive: Which is Right for YOU?

Three Steps

@bphuettner

1. Know your options

2. Know yourself

3. Living large as a contractor

Contract or Captive: Which is Right for YOU?

Three Steps

@bphuettner

1. Know your options2. Know yourself



Work status


@bphuettner

Employee

Temp

Agency

Contractor

Freelance

Consultant


Employees Independents

A little of both

Payment Options


Compare and Contrast:Money and Benefits• Contract

• Higher Hourly Rate• Must pay expenses (but

they’re deductible)• Pay for own professional

development (training, conferences, etc.)

• No pay for time off• Must arrange and pay for

insurance• Don’t forget retirement!

• Captive• Steadier rate of pay• Employer pays expenses • Employer (often) pays ofr

professional development• Paid vacation, holidays, sick

time• Employer provides insurance

options• Employer helps with

retirement funds


Compare and Contrast: Taxes and Admin• Contract

• Must always be looking for next client or opportunity

• Responsible for paying estimated taxes (1099)

• Responsible for 100% of Social Security

• Must submit invoices, sometimes several times

• Captive• You usually know what you’ll be

doing next year• Employer withholds taxes (W-2)• Employer pays 50% of Social

Security tax• Some companies require time

cards, status reports


Compare and Contrast: Legalities

• Contract• It isn’t called “contract” for

nothing! You need one for EVERY job

• You can negotiate which rights belong to you and to the client

• Be careful of your status! IRS “20 questions”

• Not generally covered by labor laws

• Captive• Employee Handbook (if any)

spells out what you need to know

• Employer usually owns all rights to everything you do

• As an employee, you have certain rights (IRS vs. Microsoft)

• Laws exist for things like overtime, breaks, protection from unfair termination


Compare and Contrast: Time Off

• Contract• Take as much vacation as

you want, when YOU want it• Vacation, sick time, and

holidays are unpaid• Unpaid time between

assignments

• Captive• Predefined number of

vacation days, and sometimes sick days

• Employer pays for vacation, holidays, sick days

• No unpaid “down time”


@bphuettner


2. Know yourself



Pop Quiz! Count your “YES” answers:

• Are you self-disciplined?• Do you get along with different types of people?• Do you like working by yourself?• Are you good at planning your time?• Are you good at paperwork like doing taxes?• Are you good at networking?• Are you comfortable telling people how good you are at your job?

• Do you have a wide range of experience and tools knowledge?



• Do you have a cash reserve so you can you pay your bills while you’re getting started?

• Are you disciplined about saving for a rainy day or during down time?

• Do you have a home office and all the equipment you’ll need?

• Do you have or are you willing to buy the required software packages?

• Can you accurately estimate how long it takes you to perform specific tasks?

• Are you covered under an insurance plan?



• Are you flexible about when you work?• Are you flexible about how much you work?• Are you flexible about the kind of work you do?• Can you handle many tasks at once?• Do you have a strong personal support system?• Are you good at what you do?• Do you enjoy what you do?


How did you score?

Bottom line: Decide for yourself!


1 5 10 15 20

Happier as an employee

Happier as a contractor

@bphuettner

1. Know the options

2. Know yourself



What kind of business do you want?• Sole Proprietor (sometimes called Schedule C)

• Limited Liability Corporation (LLC) • Subchapter-S Corporation• Corporation


Tax Issues


W-2

1099

Do Your Homework


STC Contracting and Independent Consulting Special Interest Grouphttp://www.stcsig.org/cic/index.html

Internal Revenue Servicehttp://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/

Small Business Associationhttp://www.sbaonline.sba.gov/

NOLO “Law for All”http://www.nolo.com/legal-encyclopedia/small-business.

Math Homework: What do you make per hour now?• Salary• Value of Benefits

• insurance premiums• 401K matching• bonus or profit sharing• Social Security

• Hours worked per year• 40 hours/week x 52 weeks/year• - Holidays• - Vacation days• - Sick days • - Travel time, if any

• Current Hourly = Salary + Benefits/#hours worked


60,000

14,400 1,200 (2%)

3,600

2080-80-120-40

=1840

$43/hour

What Will Your Market Pay?


• Phoenix Metro averages:• $63,320 annual• $30.44 hourly• BUT close to $50/hour in the utility industry

What will your expenses be?


Bottom Line

INCOME – EXPENSES = NET INCOME

NET INCOME – TAXES = PROFIT


Questions?

@bphuettner


2. Know yourself



Thank You!

Brenda Huettner

@bphuettner

[email protected]

contract or captive: which is right for you?

Career