Internet Info 1994 March/Internet Info CD-ROM (Walnut Creek) (March 1994).iso/answers/misc/contract-jobs/faq

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From: [e-mail] (Mark Linimon)
Subject: Misc.jobs.contract: Frequently Asked Questions (FAQs)
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Organization: Lonesome Dove Computing Services
Date: Thu, 14 Apr 1994 07:10:18 GMT
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Summary: frequently asked questions about contract jobs on Usenet
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Archive-name: contract-jobs/faq
Version: 1.09 (December 1993)
Last-Modified: Fri Dec 17 19:46:16 EST 1993

This periodic posting summarizes some of the past discussion in
misc.jobs.contract.  A companion posting, "Welcome to misc.jobs.contract"
<[e-mail]>, serves as an introduction
to the group for new readers.

Misc.jobs.contract is a Usenet newsgroup created to foster exchange of
information about employment on a contract basis, as opposed to employment
on a full-time basis.  Postings specifically addressing full-time employment
should instead be directed to misc.jobs.misc.

Although the group is not _specifically_ dedicated to computer-related
contract work, most of the discussion in the group has related to it.

Please see also the Frequently Asked Question (FAQ) periodic postings
in misc.jobs.misc, misc.jobs.offered, and misc.jobs.resumes, for further
information about the various misc.jobs groups.

------------------------------

Subject: Table of Contents

    Subject: What's the charter of misc.jobs.contract?
    Subject: Should I consider contract work?
    Subject: Don't contract workers make a lot of money?
    Subject: What is telecommuting?
    Subject: What is a job shop?
    Subject: What is Section 1706?
    Subject: What are the tax implications of contract work?
    Subject: Are there other guides for tax questions?
    Subject: Should I incorporate?
    Subject: How can I learn more about computer contract work?
    Subject: What organizations deal with computer contract work?
    Subject: What magazines deal with computer contract work?
    Subject: What books deal with computer contract work?
    Subject: Is there an archive site for misc.jobs.contract?
    Subject: Where can I find the current version of these FAQs?
    Subject: Contributions to this posting.

------------------------------

Subject: What's the charter of misc.jobs.contract?

When originally chartered, it was for postings of contract jobs available,
contract jobs offered, and discussion of contracting in all its forms.
At the time it was felt that one group would be sufficient, and if
traffic mandated, it could later be subdivided along the lines of
misc.jobs.contract.[offered,resumes,misc], to mirror the upper-level
groups.  [This latter was never official, and from my own anecdotal
recollection -- mcl.]  [Further note: as of 06/01/93, I had issued a
formal RFD (Request For Discussion) to ascertain interest in just
this split; I haven't done much to follow up on it, however -- mcl].

------------------------------

Subject: Should I consider contract work?

Contract work appeals to a certain type of individual.  Although it's
somewhat risky to generalize, the most important traits would include:
being a self-motivated individual; willingness to trade personal security
for risk; dealing well with people; and technical ability.  You may well
find that the first three issues are more important to success than the
latter.

You should seriously consider getting advice from a qualified CPA and a
qualified lawyer _before_ making the move.  The issues involved are
complex, the risks significant, and advice you get on the net (while
some of it is excellent) should be taken with a grain of salt.  This
explicitly includes this posting.

Akkana <[e-mail]> adds:
One other item which many people overlook is that a contractor needs to
be someone who likes change and adapts quickly -- I've seen people try
contracting and fail miserably because their learning curves weren't
steep enough or they took too long to get settled in at a new company,
even though they may be technically very good once they get settled.
(Conversely, I've seen long-time contractors accept a permanent job and
get restless after six months and go back to contracting.)  To me, this
is one of the biggest draws of contracting, but I'd hate to see someone
take the plunge and fail because they didn't think about the constant-
change aspect.

------------------------------

Subject: Don't contract workers make a lot of money?

Yes, but the expenses are much higher.  An oft-quoted rule of thumb is
that one should make about 2x the amount one would expect as a full-time
employee, just to break even.  Factors such as the self- employment tax,
paying for one's own medical expenses, equipment, sick time, vacations,
and time between jobs consume the difference.

You may encounter resentment from some full-time employees who under-
estimate the value of these things as well as other intangibles, such
as the (very real) risk of not being paid.

------------------------------

Subject: What is telecommuting?

This is an arrangment with a company where one maintains equipment at
one's own residence or office and works remotely, by modem.  Tele-
commuting is not widespead as of yet but may be on the increase.  Both
contract work and full-time work have been known to be done this way.
As above, intangibles such as one's personal relationship with the
company and communications skills with others take on a much more
important role than one might expect.

------------------------------

Subject: What is a job shop?

A job shop is a company that hires employees who are themselves on either
a contract basis or full-time basis, and contracts them out to other
companies.  Some operate merely as referral services, who get a cut of
the employees' hourly rate; some have such amenities as sick time,
vacations, and 401k plans; most fall somewhere in between.  Before you
go to work at a job shop as a contract employee (as compared to full-
time employee), be prepared to consult a CPA or attorney about the
implications of Section 1706.

------------------------------

Subject: What is Section 1706?

This is a section of the U.S. tax code that makes it difficult for anyone
receving employment through a job shop to be considered as a contract
worker.  Instead it presumes that such individuals are full-time employees
unless a set of criteria are met.  A companion posting to this one,
"Misc.jobs.contract: Text of IRS Section 1706; the Twenty Questions"
<[e-mail]>, contains the entire text.

------------------------------

Subject: What are the tax implications of contract work?

Some brief guidelines for taxes in the United States are presented in
the following paragraphs.  Again, it is mandatory that you get advice
from a qualified CPA or tax practitioner, of which your current humble
Poster is neither.

The general concepts of tax for small business are explained in Internal
Revenue Service Publication 334, "Tax Guide for Small Business".

As a self-employed person, you will need to file estimated taxes.
The concept of estimated tax is explained in IRS publication 505,
"Tax Withholding and Estimated Tax".  You will need to file estimated
taxes on form 1040-ES every quarter to avoid incurring hefty penalties.

If you are self-employed, each client will send you a Form 1099 at the
end of the year, not a Form W-2.

If you are self-employed, you pay double FICA (Social Security) tax,
currently 15.3%.  This is paid with your estimated taxes and on your
regular form 1040.

If you are self-employed, you will possibly also want an Employer ID
Number to give your clients, rather than your own Social Security Number;
the EIN is assigned by the IRS when you apply on form SS-4 (available
from the IRS, not the Social Security Administration).  Using an EIN
rather than your SS is apparently only a _necessity_ in certain cases.

Arthur L. Rubin <[e-mail]> clarifies:

    You only need an EIN (and state ID number) if you have employees,
    have a "qualified retirement plan", or want to qualify for certain
    other tax credits, which I would think most consultants wouldn't be
    able to qualify for anyway.

    If you incorporate or form a consulting partnership (I don't see any
    advantage to a partnership, but it is legal), you need an EIN.

IRS forms and publications are available free by calling 1-800-TAX-FORM.
Service is normally pretty prompt: one to two weeks.

Also, check with the Secretary of State of your home state.  You may
have to pay worker's compensation or unemployment taxes, and possibly
obtain other business licenses and permits.

------------------------------

Subject: Are there other guides for tax questions?

There is an annual tax guide for just about all engineering tax questions,
recommended by Pete Holzmann <[e-mail]>.  It is put out by
Academic Information Service, Engineeing Order Department, P.O. Box 400,
Greenbelt MD 20770 ([phone]), and is called "Tax Guide for
Engineers".   Here's a few key aspects:

    If it doesn't save you at least $200 in taxes, you're welcome to
        ask for your $$$ back ($32.80 list; minus $4 if a past customer).
    It is specifically oriented towards technical professionals who
        may or may not have a side business.
    They actually research tax court cases to find out what the courts
        think, rather than just what the IRS says.
    They provide a really good framework for filling out taxes that
        tends to minimize audits.

Also, if you've got the stomach for it, there are numerous publications
from the Internal Revenue Service that go into great detail.  Depending
on where you are, you ask for them from the Western Area Distribution
Center (Racncho Cordova, CA 95743-0001), Central Area Distribution Center
Box 8903, Bloomington, IL 61702-8903), or Eastern Area Distribution Center
(Box 85074, Richmond, VA, 23261-5074).  Of particular interest are
Publication 334 "Tax Guide For Small Business", Publication 505 "Tax
Withholding and Estimated Tax", Publication 533 "Self-Employment Tax",
and Publication 937, "Employment Taxes and Information Returns"
(including the section "Who Are Employees").

The ICCA [see below] publishes its "Tax and Business Handbook for
Consultants and Clients" by Jonathan Wallace for $27 for non-ICCA
members.  Their address is ICCA, 933 Gardenview Office Parkway, St.
Louis, MO 63141.

------------------------------

Subject: Should I incorporate?

Again, as above, the best thing you can do is to get advice from a
qualified CPA and a qualified lawyer.

Opinions are divided on this issue: Some consultants believe incorporation
is a waste of time and money; others believe it is necessary.  Opinions
also vary as to whether incorporation protects you from Section 1706
(see below).

------------------------------

Subject: How can I learn more about computer contract work?

This newsgroup is only one source of information.  There is a moderated
SIG on Compuserve run by ICCA [see below].  There is also a CONSULT forum
on Fidonet [details please? -- mcl.]  [There are bound to be other such
resources -- please email me -- mcl].

Other sources of information include organizations, magazines, and books.

------------------------------

Subject: What organizations deal with computer contract work?

There is a group that works specifically with this clientele, the
Independent Computer Consultants Organization, 1-800-GET-ICCA.  In
addition to yearly meetings, they publish an informative newsletter.

Also, the IEEE Consultants' Networks are a "grass roots" effort of IEEE
consultants who organize to help each other to become better consultants
and to market their services.

As of November 1992, there were CNs established in Long Island (the
longest-established one), New York State, Boston, Connecticut, Washington
(D.C.), Philadelphia, New Jersey, Los Angeles, Florida, and San Diego.

Each CN has a referral service.  In addition, calls requesting consulting
services are coming into the IEEE Washington office, and an interim
procedure has been set up to respond to them.  A study is underway
to define a longer term solution for a national referral service.

The Washington office is making mailings to the CN's regarding tax
issues, particularly Section 1706 of the Tax Reform Act of 1986.  The
PPTF (IEEE Private Practitioners Task Force) has formed a committee
aimed at the repeal of the law.

There is also a Coalition to Repeal Section 1706.  They can be contacted
via snail-mail at 1250 Connecticut Avenue, N.W., Suite 700, Washington,
D.C. 20036.

An Anti-1706 mailserver, continaing many files, can be accessed by sending
a message containing only the body "get help" to [e-mail].
It is maintained by Jay C. Bowden <[e-mail]>, Co-Chairman of the
Alliance of IEEE Consultants' Networks (AICN) Committee to Repeal 1706.
Contact him for further information.

------------------------------

Subject: What magazines deal with computer contract work?

Three magazines that deal mainly (but not exclusively) with listings
of jobs available through job shops are:

      CE [Contract Employment] Weekly
      C.E. Publications Inc.
      P.O. Box 97000
      Kirkland, WA, USA 98083-9700
      phone [phone]
      fax   [phone]

      Technical Employment News (formerly PD News)
      Publications & Communications, Inc.
      P.O. Box 399
      Cedar Park, TX, USA 78613
      phone [phone] or [phone]
      fax   [phone]

      NTES Hot Flash
      published by National Technical Employment Services
      P.O. Box 217
      Scottsboro, Alabama, USA 35768
      phone [phone]
      fax   [phone]

[There are bound to be others.  As above, email me and I'll include them
in future editions of this message.]

------------------------------

Subject: What books deal with computer contract work?

Netters Dale Ollila <[e-mail]> and Robert G. Renes have
written a book that is called "Independent Contracting -- A Primer",
which seems to be a good self-help book.  Chapter titles are: Introduction;
Examine Your Situation; Preparation; Establishing Yourself as a Business;
Marketing Yourself and Your Services; Accounting Practices; If Things Go
Wrong; Tax Laws; Bibliography; Index.  It goes into much more detail than
this FAQ can.

From their introductory material:

After the introductory material in the first chapter, Chapter 2 presents
a comprehensive examination designed to allow the reader to determine
his/her likelihood of success as an independent contractor.  While no one
can guarantee that one person will be successful while another will fail,
the test and evaluation process in Chapter 2 gives an objective reader a
way of determining their own chances. As long-time contractors ourselves,
we feel it is very important that anyone thinking about this career know
and evaluate all factors that bear on this career field.

Contact Eagle Press at the following address:

        Independent Contracting
        c/o Eagle Press, Ltd.
        P.O. Box 303
        Noti, Oregon  97461

Chip Rosenthal [e-mail] contributes:

I found that |Consulting Handbook for the High-Tech Professional|, by
Stevn K. Shapiro published by Wordware Publishing, provided a reasonable
orientation when I was starting out.

The TOC is:

    Introduction
    Consulting - Who Can Do It, Who Needs It, and Why?
    Beginning Your Practice
    Using Professionals
    Finding Clients and Obtaining Contracts
    Fees and Fee Structures
    Marketing and Promotion
    Revenue: What To Charge For
    Contracts
    Performance
    Software Development Methodologies
    Proprietary Software Development
    Using the Computer in Your Business
    Your Future in the Industry
    Additional Reading

I found its discussion of several of the mechanicals to be illuminating.
It includes a sample contract that I drew upon when developing my
contract.  It directly addresses issues of interest to software
developers (copyright, licensing, etc.), albeit not in rigorous detail.

Discussion of business issues such as accounting and taxes is extremely
weak: essentially one paragraph that says `hire somebody to do it.' This
book is NOT for somebody who will NOT be marketing services directly to
an end client, e.g. a job-shop contractor.

I can recommend it as a first book for the aspiring _solo_practicioner_.
And it's cheap ($15.95).  [Well, it _was_.  I'm told it's now out of
print -- mcl.]

[Does anyone else have good recommendations for the bookshelf? -- mcl.]

------------------------------

Subject: Is there an archive site for misc.jobs.contract?

Not that I'm aware of.

------------------------------

Subject: Where can I find the current version of these FAQs?

They are posted to misc.jobs.contract, misc.answers, and news.answers every
4 weeks.  They are also archived on rtfm.mit.edu for anonymous FTP under
pub/usenet/misc.jobs.contract/ as:

    Misc.jobs.contract:_Welcome_to_misc.jobs.contract
    Misc.jobs.contract:_Frequently_Asked_Questions_(FAQs)
    Misc.jobs.contract:_Text_of_IRS_Section_1706;_the_Twenty_Questions

Additionally, for those without direct FTP access, they are available via
email from [e-mail].  For instructions, send email with a
blank subject line, and use the following as the whole body of your message:

send help

------------------------------

Subject: Contributions to this posting.

I would like to thank the following people, who have contributed to, or
helped revise, this posting:

        Akkana <[e-mail]>
        Robert Blythe <[e-mail]>
        Jay C. Bowden <[e-mail]>
        Stan Brown <abvax!iccgcc.DNET![e-mail]>
        George Hartzell <[e-mail]>
        Pete Holzmann <[e-mail]>
        Dale Ollila <[e-mail]>
        Chip Rosenthal <[e-mail]>
        Arthur Rubin <[e-mail]>
        Mark Schoonover <[e-mail]>
        David B. Wollner <[e-mail]>

[Obligatory disclaimers: I have no connection, other than subscriptions,
with the above magazines; however, I am a former ICCA member.  I've made
my best effort to ensure all information is correct, but errors have been
known to occur.  I have received a review copy of the Renes and Ollila book.]

This posting, like much of Usenet, is maintained on a purely volunteer
basis.  It is subject to comment and improvement by sending email to
[e-mail].
--
    Mark Linimon / Lonesome Dove Computing Services / Roanoke, Virginia
   {chinacat,uunet}!nominil!linimon   ||    [e-mail]
         "It's a small town, son, may I ask what you're doing here?"
I am coming to believe that Netnews is the digital equivalent of junk food...