Mr Angry’s rules for contractors

This post is something I was actually asked to write. I’ve been asked for “career advice” a few times lately; I guess having been a contractor for ten years now does imply that I may actually know a thing or two about working successfully as a contractor. The following is what I see as some common sense guidelines both for permanent employees considering moving to contracting and contractors who want to continue contracting successfully.

The first thing to consider is what are the biggest differences between permanent and contract work? That’s easy. There are two big ones: no job security and you (usually) get to say a considerably bigger number when people ask you how much you earn. There’s much more to it than this but those are the big two that you’re likely to be balancing when considering the leap into contracting. How much money will convince you to give up job security? For me this is a no-brainer as I don’t believe there is any real job security any more, particularly in IT. Other people don’t share this view and value permanent employment more highly. To state the obvious: contracting is not for the risk averse.

The dollars alone are not enough of a motivator for me and although it sounds tempting, only the most soul-less individuals can be fulfilled in their work by money alone for more than a few years. I personally like the control aspect (you never would have guessed that about me, would you?) Properly managed, the contracting lifestyle gives you considerably more control over your career and finances.

If you’re going to pursue contracting for more than about a year I can’t recommend strongly enough that you look into setting up your own company and contracting through this entity. It can cost a few thousand dollars to set up a company properly, depending where you live (and make it a company, NOT a trust or anything else shifty!) Get a trustworthy accountant to set things up for you. A lot of people balk at paying out the money to set up and the ongoing money to organise taxes etc but it’s money well spent. This is an investment and you will get it returned multiple times over every year in tax savings if you do it properly.

Properly. Legally. It is simply not worth the risk of screwing the tax department. Bite the bullet and go legit. A good accountant will save you tens of thousands while keeping everything legal and above board.

Day to day, you’re going to have to deal with three sorts of people as a contractor: employment agencies, employers and co-workers. How you relate to each of these groups is vitally important to your viability as a contractor and your emotional well-being generally.

Dealing with agencies: If you’re working in a place where the IT job market isn’t controlled by employment agencies count your blessings. In Sydney and Melbourne about 80% of all jobs and 95% of contract jobs are placed through agencies. You don’t absolutely have to go through them but your choices are limited. Personally I think they’re a waste of time. The only thing I can think of that justifies their existence is HR departments who don’t want to do their jobs. If a company has an HR department they shouldn’t use agencies and if a company uses agencies they should have an HR department. It’s unnecessary double-handling. Or maybe I’m crazy.

So assume you have to deal with agencies. Be nice to them. Most of them are decent people (I object to the role, not the person) and you need them to get contracts. Always be professional in your dealings with agencies; this gives the good ones the confidence to represent you well and it avoids giving the bad ones an excuse to screw you. Having said that, don’t let agencies dictate terms to you. Agencies should provide guidance on rates and conditions (too many of them provide no guidance at all) but they shouldn’t control your life. Make sure you understand the job market so you understand what is realistic for your skill set and experience and never let yourself become dependent on a single agency.

Don’t enter into an “exclusive representation” agreement with an agency unless you’re on their payroll, i.e. they pay you whether or not you are working for an outside employer. Many agencies push this, they say things like it looks too unprofessional if you are going through multiple agencies looking for work. This is a complete lie. Over the years I have given my resume to dozens of agencies and never once had an employer even comment on this, let alone pass negative judgement. Any agency who pushes too heavily on this front is untrustworthy in my opinion and should be avoided. Employers go for the best applicant. Period. Agencies go for whoever will get them a commission. Period.

Dealing with employers: Rightly or wrongly, employers expect more from a contractor than from an equivalent permanent employee. It’s a simple equation for them: they pay you more so they want more from you. It’s important that you’re absolutely clear about an employer’s expectations ahead of time. You don’t want any nasty surprises down the track. At the interview stage get explicit answers regarding expectations on hours to be worked, output and responsibility. Asking these questions in a way that comes across as professional rather than seeming like you’re trying to get out of work is more art than science, but it’s an important skill to master. If you’re a contractor, you will be going to a lot of job interviews so you will get plenty of practice.

The politics of your role in the workplace can be as important (or even more important) than your output. One of the joys of being a contractor is that the learning curve for all aspects of a role are sharply accelerated. If you are permanent, often your first 3 months is taken up with “learning the ropes”. Many contracts only last that long from beginning to end so you have to squeeze in learning the environment, technology, methodolgies, politics and the actual work you are delivering in the time most people take to simply get used to their new job. Again, if you can’t deal with stress, contracting is not for you. The key is communication. Communicate early and often. Feed back to your employer what you understand your role to be, give regular status updates and ask for corrections if you have misunderstood anything.

Dealing with co-workers: Guess what? Permanent staff know you get paid more than them. And it pisses them off. Co-workers will fall somewhere on a spectrum between not caring at all what you are paid and being obsessed with and unreasonable about your rates despite the fact it’s none of their business. You can’t control how people feel about contractors, you can only control your response to them. One thing you should never do is discuss your pay rate. Seriously, nothing good can come of this. Co-workers will ask you. Come up with your own diplomatic version of “I don’t like to discuss that.” Anyone who presses the matter is essentially a jerk and you shouldn’t feel compelled to respond to them.

If you feel compelled to respond, I recommend keeping it abstract rather than mentioning the exact amount you earn. Point out that a direct dollar comparison isn’t valid because of the different nature of permanent vs contract work. The following analysis I use is reasonably accurate. It’s based on Australian conditions so it won’t be directly applicable to all other countries, I know some places have more annual leave and some have less. Imagine the contract rate is double the permanent rate in dollar terms (this isn’t always the case, but it is sometimes and this is often the figure permanents throw at me).

Permanents get four weeks annual leave, about 10 public holidays and 5-10 paid sick days each year. If a contractor isn’t at work they aren’t getting paid. So if a contractor is making $100K a year and a permanent is making $50K, the permanent co-worker only has to work for 10 months to get their salary so already they’ve picked up 20% on the contractor. On top of that, the contractor has to handle their own taxes, insurance and superannuation which all adds up. The margin most contractors have over their permanent counterparts is much closer to 20-25% in real terms and that’s simply the premium for giving up the security of permanent employment.

At the end of the day, if you are dealing with a difficult co-worker who really wants to make an issue of your pay rate, put it to them this way: if they are so sure contracting is such a great deal, why aren’t they out there contracting themselves? Put up or shut up. Not that I recommend saying something that negative to a co-worker. For most people, enjoying contract work means staying on the right side of co-workers is more important than impressing employers. So try to steer conversations away from your pay rate. Whatever you do, don’t be like one contract programmer I worked with who coded a little income calculator that showed in real time how much he was earning each minute he was there. And then he had it on his desktop where everyone could see it. I think they found his body face down in a ditch somewhere.

So that’s my overview of rules for contractors. In subsequent posts I will be cover the rules (in my humble opinion) each of the three groups above should follow when dealing with contractors. In the meantime, I welcome any comments or questions raised by these points.

READ PART TWO

READ PART THREE

READ PART FOUR 

13 Comments

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13 responses to “Mr Angry’s rules for contractors

  1. Always get a signed contract with explicit terms that limit how much work you can be asked to do. Doesn’t matter what the job is, how well you know the client, or anything – make no excuses, and demand a paper trail before starting work.

    One of the big reasons I got out of contracting was that I (stupidly) never developed that all-important habit. I did a lot of informal “verbal” contracts, which was in retrospect extremely dangerous and more than slightly unwise.

    If you don’t have a very firm limit set on the work you will do for a given job, it’s basically inviting the client to keep asking for new stuff. “Oh, just one more feature” tends to turn into “just one more entire product” and soon enough you’re effectively a permanent employee, except without any of the benefits or job security.

    I can trace back my happiest contract jobs to the ones where I had specific clauses stating I would only do a specified amount of work. To keep the client happy, be sure to drop in some language in the contract that indicates you are willing to negotiate an additional contract should more work come up. If you play your cards right, that can earn you a decent bit of repeat business.

  2. Tom Smith

    This week is my 21st anniversary contracting…long time without a “real” job. I’ve noticed that contractors roughly fall into three groups: Contractors of the First Kind really don’t want to be contractors, and will turn permanent at the first opportunity. Contractors of the Second Kind that really like the increased pay, but are adverse to change; they try to burrow into the organization and stay as long as possible. Contractors of the Third Kind that embrace change and whose main goal is working themselves out of a job so they can get another one. I strive for #3.

  3. Best benefit of being a contractual worker or self-employed is tax breaks.

    I have been self employed for the last 8 years and have rarely paid a lot of taxes. Marginal tax rate in Canada is 43%. If managed correctly, a self employed worker could easily widdle that down to 5%.

    Setting up a company is also a bonus as well as a holding company if you start raking in considerable money, that way when you sell your operating company you get tax breaks as well.

    Setting up a company can cost as little as 50$ to as much as 1000$ or more, depending on how you go about this. For most contractual workers, the simpler the better.

    Make sure you keep all your expenses on file and be aware of what you can deduct as expenses. I can deduct my car, a part of my mortgage (office at home), part of utilities, cell phone etc.

  4. Apoch: absolutely, I should have specified that, never enter into a contract that isn’t a WRITTEN contract

    Tom: I’m with you, I see myself as number 3 as well

    Range: Yep, you’re my man for financial advice!

  5. cgot

    Yep. Contracts can’t be verbal.

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  6. I’m a permanent type of guy, but I’m somewhat familiar w/ the contracting environment. I really like what you have here with Apoch’s addition. Surprisingly, there’s a lot of permanent positions that work very similar to contracting and require many of the same “rules of thumb” you mention here. I think a lot of what’s here applies appropriately outside of contracting as well.

  7. Retro: very true. A lot of the times when I say specific things they’re applicable to a much broader range of circumstances. I’m just trying to maintain some focus🙂 I probably ramble on too much as it is.

  8. PC Geeg Blog

    I just want to break into contracting. I own and operate a PC Repair business here in Texas but, want to do more…

  9. PCGB: see what your job market is like, check the classifieds and talk to agencies. If work you want is out there, go for it!

  10. Jx

    hi Mr.Angry,

    May I ask some contracting questions privately ? could you please mail me if you don’t mind, thanks a lot.

    J.

  11. Mark

    Hi there,

    I stumbled across you blog whilst looking for tips on how to deal with recruitment agencies, and have enjoyed what I have read thus far. I’ve contracted within the IT industry in London for the last few years, and would be interested to hear your view on my question. When a recruitment agent asks which companies you have had your CV sent down by other agencies so they don’t “double up” your CV, I always try to avoid telling the agent where my CV has been sent, often at the request of the agency that has sent my CV to their client. Is this necessary?

    I’ve found some agencies claim to approach their clients proactively on your behalf so they need to know if you have had your CV sent anywhere, and they can often refuse to work with you if you don’t divulge where your CV has been put forward. I generally say that I can appreciate their position, but I’d prefer not to tell you which companies/roles I have been put forward for. I’d be interested to hear your thoughts on this and how to deal with agents when they get pushy on this issue.

    Thanks
    Mark

    • Mark: They’re lying to you. What they want to know is who’s hiring so they can run off and call them and try to get their foot in the door. NEVER answer this question. Say you signed a confidentiality agreement. NEVER allow an agency to put you forward for a job without consulting you first. Tell them is you’ve already been put forward for somewhere they are suggesting. Anyone who tries to force you to break these rules is a fucking cowboy – have nothing to do with them!

  12. Mark

    Thanks for the advice Mr Angry, that’s what I expected – I’ll be sure to never divulge what they’re after!

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