How to Become an Independent Contractor

Frustrated with the longer time it can take them to find new jobs, many older workers are thinking about setting themselves up as independent consultants. However, they don’t all realize that involves more than technical smarts: A lack of business and marketing acumen will doom even the most experienced technology experts.

Contract NegotiationConsulting can be lucrative and many companies are quicker to hire for shorter, specific projects. However, it may not be a panacea, observes Carl Angotti, board member of Santa Clara-based Professional and Technical Consultants Association. “I usually talk to people and try to ascertain if they’re of the inclination of a business person,” he says. “If they’re not, they should contract through an agency.”

PATCA holds monthly networking events in Santa Clara, has a free referral service and provides other programs to help consultants in all industries advance their businesses. Earlier this month, Angotti began co-leading a separate monthly roundtable for new consultants. Despite being over 70, he says he has never lacked for technical consulting work. Indeed, he’s recently curtailed his marketing so that he can work less.

Different Skills

Being a consultant requires a set of skills that are totally separate from technology, Angotti says. “A true consultant is someone who is doing their own business, and doing their own marketing and their own sales, completing the cycle,” he explains. That means consultants need to be willing and able to spend time on chores like bookkeeping, attending meetings and networking for the next job.

And older consultants can face additional challenges. “The ones who got laid off, and they don’t realize that it’s hard to find work, ask ‘is there such a thing as job discrimination?’ You bet your sweet bippy there is,” says Angotti. “There is discrimination, but it’s not age. It’s how do you feel when people talk to you. If you come across as being old, you’re going to be treated as old.”

In addition, laid off workers often lack perspective on the overall technology industry, which Angotti says can hold them back. They’re so used to working at one or two companies, they may not understand the unique value proposition that they can offer clients, assuming they’re ready for the marketplace. Those workers need to revive or rejuvenate their skills, he says.

Angotti suggests that consultants spend 40 percent of their time working for clients, an equal amount of time networking and marketing themselves, and the rest updating their skills and staying abreast of new trends. “You’re going to be working a lot more — especially at the beginning — than 40 hours per week,” he warns. “It’s work like doing your books and setting up your website.”

Different Approaches

Angotti identifies three kinds of non-employee workers: consultants, independent contractors and “pure” contractors. In his mind:

  • Consultants solve specific problems for a few weeks up to two or three months. Their work usually involves analyzing a business problem rather than implementing the solution.
  • Independent contractors work for themselves, frequently on standardized contracts. Like consultants, they negotiate their own rates, but work on projects than can span six months or longer.
  • Pure contractors work through an agency, which promotes them to clients, negotiates their rates and handles taxes. Essentially, they’re employed by the agency rather than the client.

For tech workers who want to become consultants, Angotti suggests starting by contracting. Slowly scale back the commitment to the client and use the freed-up time to set up and market your own business.

The most frequent questions PATCA members ask deal with setting rates. In particular, new consultants wonder whether they should offer lower rates as they’re building their business. Here’s where Angotti says it’s important to adopt a business mentality rather than the mindset of a salaried employee.

“Most people aren’t suited for the sporadic income part, so they price their services dumbly,” he believes. “They start thinking of some multiple of their current salary. They need to determine whether they’re selling at the market, above the market or below the market.” Charging much below market can create a “perceived value problem” in which the customer views the consultant’s skills as being worth less than others’. In addition, Angotti notes, it can be difficult to raise rates down the road.

3 Responses to “How to Become an Independent Contractor”

  1. As someone who has done all of the above, be aware of the following:

    This isn’t the happy environment it once was. Major companies will not work with independent consultants. General rule is something like need to incorporated, have 40 employees and been in business for 3-5 years.

    To get around this you end up signing with an agency even if you and the client find each other directly. The agency takes anywhere from 15% (almost unheard of) to 50% with something around 25% being common. They also make you sign an agreement that you won’t work for the hiring company for 6 months to 2 years after finishing your assignment.

    If you really want to get into consulting, you need to get hired by a company like Perficient that is a real consulting company. It is easier to get a position with one of the contract houses, but the rate will be $25-$55/hr with no benefits in most cases. There are contracts with higher rates, but they are uncommon. Oh, most of these outfits expect you to work whatever it takes to get the job done, but not bill more than 40hrs/week. They will make you sign an agreement that says you are not to work unbilled hours and working the hours is illegal, but if you want the job you will go along.

    If you go in with your eyes open, it can work well especially for those having trouble getting a regular job.

  2. Then, once you get hired, there are another set of problems that weren’t problems 8 years ago.
    1. People will “try you out” for a month, and if they think they have found somebody better, will let you go, saying your work was unsufficient. Or, a shop (such as an infamous one operating out of Gibraltar will shut down one day, the same owners will reopen the next in another place, say London, stiffing 40 or so consultants out of six week;s billings. You might win a judgment against them, but just try to collect. It is best to stick with contract firms that are definately incorporated here in the U.S.
    2. Many will expect you at 8 AM on Monday and be very resentful if you leave before 4 PM Friday. For many, the days of 4-10’s onsite are gone.
    3. Too many firms in the food chain can make getting paid difficult.

  3. I’ve been contracting since 1992, usually through agencies with occasional independent gigs. I’m pants at marketing/selling, so I stick with agencies and let them do that for me. My recommendation is to look in your local area and find the agencies that have been around for a while. In the tech industry, the ones that survived the early 2000’s dot-com bust are often a good bet, rather than the fly-by-night outfits that pop up when there’s a lot of demand.

    In contrast to Steve’s experience, I’ve never had a company expect me to work unpaid hours. Most will only want 40 hours a week and expect you to discuss working any more before you charge them for it. Independent contracting is harder, since most companies want you to be incorporated. It has a lot to do with the IRS and their list of rules as to what constitutes an employee vs. a contractor. Most companies avoid the hassle and potential liabilities by hiring through agencies.

    Agencies can be horrible, but they can also be great, too. When I started working on contract, you rarely saw agencies offering any sort of benefits, but now, most have some form of health insurance and 401K. You have to pay all of the insurance premiums yourself, but you can get their group rates. I actually get my own small group plan through my sole proprietor business. You can be a small group of only 1 person and the rates are better than individual plans (at least for now – Obamacare may change that). For retirement plans, you can occasionally get matching contributions from the agency, usually after some long duration of working through them.

    One mistake people often make with contracting is thinking you have to use the same agency and wait for assignments. This is often how it works with temps, but not so much with contract professionals. Temps are more of a short-term thing – think days or weeks vs. months – and are usually for things like office work, whereas contractors will normally work in 3-6 month chunks.

    As a contractor, you’re generally a lot like an employee, but are usually only there to fill a temporary project need or backfill when an employee leaves. Often, a company will use a contractor as a way to test them out before hiring them on permanently. I get permanent job offers about half the time. I don’t take them because I prefer contracting. I get better control of my hours, career path, and benefits by working as a contractor vs. an employee. This mode of work isn’t for everyone, but it can be quite rewarding. You just have to be sure to check out the agencies you work with and take charge of your own career. And if you go the independent route, be sure to learn about running your own business and understand what’s required for records and taxes and such.

    Remember, the agencies don’t work for you, they work for the client companies and will do what they can to make as much money from you as possible. It’s not personal, it’s just business. You need to think of yourself as a commodity and make sure to keep yourself valuable to client companies. They’re paying for expertise when they hire contractors or consultants, and don’t want to invest in training someone who is only there for a set period of time. You just need to look at it from their perspective and ask yourself why they should want your services.