If you answered “I do” or even “Soft of,” consider becoming a self-employed IT contractor.
The benefits are huge and often there is not a huge outlay of cash, as most of the investment is your intellectual property. How you effectively leverage this to an organization’s bottom-line result is the key.
The days of the 25-year golden handshake equipped with a gold watch and lifetime golf membership are no longer a reality for many workers. With highly skilled people changing jobs and employers more frequently than a chameleon changes colour, high-techies are arguably the most flexible in terms of changing jobs, with an average of an 18-months tenure at any one company or contract.
There are many pros and cons to becoming a contractor, depending on your personal circumstance, openness to change and your investment in your personal education and training.
Control Your Destiny
We are all self-employed, whether you work full-time for a large multi-national organization or you work for a start-up company in the garage of your own home. The very notion of cradle-to-grave loyalty to the same employer is a thing of the past.
In the private sector there is no life-time job with one company anymore. IT workers for the most part are interested in emerging technologies that can make them more marketable. In addition, the savvy consultant often has recent interview experience and knows how to effectively sell himself/herself to a potential employer.
Being a contractor often means you get to choose your boss or client. Don’t like the company you are currently performing services for? Fine, then you don’t work for them or have the right not to renew your contract.
The benefits of choosing self-employment is you can control your hours, and it allows for more choices both for both holiday and recreation time.
Working for the Money
Many high-tech workers are more motivated by the “allure” of big bucks rather than the work or the opportunity itself. This is most often the wrong approach.
The ability to make money is a fundamental function of how well you perform your work, and the result is the rate you can charge. Many consultants can charge big dollars, often twice their previous salary, if they market and promote themselves correctly. The ability for sustained contract work is the key and your reputation and work history is absolutely critical.
For example, look at the highest marginal tax rate of 52.27 per cent at over $79,000 in income (that’s combined federal and provincial personal tax for British Columbia). It is no wonder traditional employees are bailing out of well-paying jobs for less secure contract and self-employment opportunities, but in which the tax breaks are significant.
By incorporating your company, your corporate taxation is subject to 20.12 per cent combined federal and provincial income tax for British Columbia for the first $200,000 for qualifying business income.
This means you may pay less tax on the money you earn in an incorporated company. Creative payment plans using personal dividends and paying family members for services rendered allows for additional tax planning and advantages. Check with your accountant and/or financial advisor for the best strategy for minimizing your taxation.
There are disadvantages to contracting as well, from paying for one’s own health benefits to spending extra time getting up to speed on each new company’s way of doing things, to having to market yourself to find work.
Employers also expect contractors to have an almost zero learning curve. They are expected to hit the ground running, and are left with very little room for error, and are often excluded from company social events, as people don’t want to make any emotional investment if you’re only going to be around for a few months.
For a high-priced hired gun, consultants have to be job-ready and invest in their own training. The bottom line is if you are looking at contracting yourself, be prepared for periods of unemployment and paying for retraining yourself.
Being a hired gun means you have to perform at the expectation level you have set for your client. That means you should be careful not to over-sell your abilities.
Technical people are not the only ones who may be susceptible to having to change hats and employers frequently. Many IT sales people are wooed away with large base salaries and commission structures in an attempt to attract and keep the best and brightest.
Often, if these superstars do not perform or bring in three times their base salaries they are cut from the team. There are no guarantees that if you work for a full time organization it will keep you on staff. In the past 10 years, corporate downsizing has become an active part of everyday language.
What Should You DO?
Obviously, what you do with your career is a very personal decision. For some people, full-time employment may be the best opportunity. If it is your first job, it may represent stability and health benefits and perhaps set a routine that is comfortable with your current lifestyle.
But for many experienced IT workers, the opportunity to work in an ever – changing environment coupled with being your own boss and learning new technology – and charging a premium for your services – is a step in the right direction in managing your long-term personal and financial well being.
Step one in figuring out what’s right for you is approaching a self-employed friend and asking about the lifestyle. Next, check with your accountant on the benefits of self-employment.
Tang (firstname.lastname@example.org) is a senior consultant with Zealots Consulting Inc., a software training and management consulting/recruitment firm in Vancouver. He also serves on the board of directors with the CIPS Vancouver chapter as the student & university/college liaison representative.