By Kevin M

I’ve been writing a good bit in the past few weeks about the virtues of self-employment, based heavily on my own experience in turning this blog into a primary income generating venture. I believe that being self-employed may now be the new preferred way to “creating a career”, as opposed to the more traditional route of jumping on the corporate ladder—mainly since the ladder no longer seems to exist.

Today I want to take a look at contracting, since it’s become an increasingly common path into self-employment. For the record, I’ve done a good bit of contract work over the past few years so I won’t be talking (OK, writing…) hypothetically. And I still do take on contract work under the right circumstances.

OK, so you enter a contract arrangement—they have you sign a thick contract filled with rich legalese, they aren’t going to withhold taxes, you’ll be issued a 1099 at the end of the year (instead of a W2) and you’ll be required to file a Schedule C—Income from Self-employment, on your income tax returns. Wow, you’re self-employed now, right?

Not necessarily. And maybe not at all.

Many contract arrangements have nothing to do with self-employment. They’re mostly watered down jobs that have close to zero chance of ever being converted into entrepreneurship of any kind. They can be a trap if you take them on, thinking it’ll make you self-employed. No only will you not be self-employed, but you’ll be only minimally employed at that. It’s important to know when a contract arrangement really is a form of self-employment and when it’s something else.

When contracting is NOT self-employment

I’m tackling this one first because I think this is the more common situation. Some of the typical characteristics of non-self-employed contracting include:

1. You’re required to work full-time
2. You’re specifically prohibited from working for the company’s competitors (translation: you’re exclusive), a restriction that can even extend beyond termination
3. The company controls where you work and the hours you keep
4. Strict adherence to company guidelines and procedures are required—you have little or no flexibility in performing your work
5. Your pay is entirely dependent on hours, not the results of the job performed
6. The employer withholds no taxes—you’re paid by 1099 and must file a Schedule C with your income tax return (giving the appearance of self-employment for tax purposes)
7. You’re responsible to a specified chain of command, including an immediate supervisor
8. Your work is closely supervised and directed by an employee of the company—there’s no element of freelance here
9. You can be fired without notice or cause, though the process may be called something different
10. Since you technically aren’t an employee, you have no company benefits
11. Since you aren’t an employee, you have no right to sue for typical employee grievances
12. Any and all contract provisions are for the protection of the employer

A recruiter friend of mine tells me that these provisions are becoming extremely common. But a contract situation with even a few of these provisions is not self-employment in any way. And though the stipulations are quite common in today’s contract job market, a situation with even a few of these elements would not qualify as a contract situation under IRS guidelines either. That’s really a job, but one in which we, as the employees, have most of the responsibility and liability.

Employers love this arrangement because it a) relieves them of most administrative functions, including collecting and filing income taxes, b) circumvents providing employee benefits, c) allows them to terminate the “contract” at will, and d) generally denies the employee the right to bring a lawsuit for unfair practices, inadequate working conditions or for wrongful discharge.

Now if you take an assignment like this because you need a paycheck—as I have myself—you certainly have my respect. Just understand that it’s usually mostly a compromised job situation and in NO way self-employment or anything that will lead in that direction.

Your “self-employment” is only in the eyes of your employer, who loves it because it gives them all the advantages while denying you the same. The 1099/Schedule C arrangement is completely cosmetic and in no way proves self-employment status. Neither does the written contract you sign because it establishes an unequal partnership favoring the employer, and is also completely cosmetic.

When contracting IS self-employment

Recognizing that the situation described above is probably the more common contract arrangement, there are contract arrangements that very much are a form of self-employment. How do you know? Here are some clues…

1. You have a written contract with a company to provide specific services that can, but don’t necessarily, require a certain number of hours
2. The assignment is usually temporary, concluding when the specified services have been delivered
3. You are free to work with competing clients simultaneously or subsequent to the assignment
4. The client does not require you to work on site, or allows a certain amount of work to be done off site
5. Though you may have regular interaction with client management, you are not supervised by them
6. You can enter the contract and be compensated under your corporate name
7. You can bill the client for expenses, such as travel, incurred in connection with the assignment
8. Payment via 1099 (no withholding taxes) is legitimate because it’s understood by all parties that you will contract with multiple clients and may have legitimate business expenses to write off
9. The arrangement can be part-time, seasonal or as-needed
10. You have complete or substantial control of how the work gets done—the client specifies what they want done, but leaves it to you as a professional to make it happen
11. The contract itself is a fully negotiated document, prepared by and agreed to by both you and the client

Contracting with these provisions is a form of self-employment. The key element is flexibility—under this kind of arrangement you have considerable flexibility because the client is relying upon your specific skill set. Compare this with the tightly controlled job-posing-as-independent-contractor in the first example and you can easily see why that one isn’t really a form of self-employment.

Why does it even matter?

Employers are concocting all kinds of ways to cut payroll costs, and contracting has become an extremely common method. What’s important is that you don’t get caught up in the employer’s claims that you’re somehow self-employed just because they hire you as a “contractor” or some similar nomenclature.

If you want to be self-employed, then you need to make sure that the contract arrangement you’re agreeing to will be a step in that direction. A contract should allow you to be free to do the work the way you need to do it, and allow you to freely solicit and work for multiple clients. That’s being self-employed.

Contract arrangements that control your time and workflow, and prohibit outside activities are just jobs by another name. If your long-term plan is to become self-employed, either through contracting or by some other method, the first situation won’t help your cause.

If you want to be an entrepreneur, you need to learn the difference between the two contract arrangements. One will bring you to self-employment, the other is really a job—and a job with less security and fewer benefits than traditional employment.

Have you ever done contract work? Have you ever been in a contract arrangement that looked a lot like the first example? How did you feel about it?

Related Posts:

How Blogging Solved My Mid-Life Career Crisis
7 Reasons to be Self-Employed
Why Most New Businesses Fail – And How Not to Become One of Them
Income Security VS Job Security – Does it Matter?
The Self-Employed Health Insurance Dilemma
7 Reasons Why Self-Employment is More Secure than a Job

By Kevin M

There’s a popular line of reasoning that once you’ve lost your job and you’re collecting unemployment benefits that you’re new “fulltime job” is finding a new fulltime job. You have the motivation (being jobless) and at least some income to cover you until you find something else, so this makes sense.

But what if you were to approach the situation a bit differently, say by recognizing your time of unemployment as a valuable opportunity to experiment? You can do that through various forms of employment—temporary jobs, contract work, and part time—and even though you’ll lose some or all of your benefits for a time, it may be worth doing.

Here are some reasons why taking at least a part time job may be better than staying home and spending all of your time looking for a new full time job.

1. It gives you something to keep you busy.

Idle time is one of your worst enemies when you’re unemployed. Too much down time means time for worry and negative thinking, and that’s something you need to avoid. Circulating is crucial, and while you can do this by going on job interviews, networking, volunteering and working out, adding even a part time job to the mix can give that all important sense of forward motion.

2. It can break up job hunting monotony.

Job hunting takes a lot of time, energy, discipline and emotional fortitude, if only because most of us don’t do it most of the time. And while it may be possible to sustain a high level of effort in that direction short periods, doing it for months can burn you out. You may need to spend most of your time in the job hunt, but you’ll need to do other things as well, preferably those that
also have the potential to get you a job. Working is one of the best ways to do this.

3. It provides working contacts.

If you’re unemployed, developing a network of contacts is crucial, but the tendency in this direction is often to network with other unemployed people. It may help to informally network through some sort of job, which may give you access to decision makers either in the business you’re working for or outsiders (customers, vendors, affiliates, etc.) you deal with in the course of employment.

4. It’s an opportunity to develop new skills.

Is it possible that either you lost your job or are having difficulty finding a new one because you were missing a critical skill? There’s no better way to develop a skill than with hands on experience. Let’s say although you were in management, your career was stunted by a lack of sales experience; now that you’re unemployed, you may be able to get a job in sales that will give you the needed experience and skills. What ever skill you were lacking, or need to develop, is there some sort of job you could take specifically to learn it?

5. It’s a chance to try something completely new.

Now let’s get down to a grim reality of our times: many of the jobs lost in the past few years aren’t coming back. One of the best things you can do for your career, long term, may be to try something completely new. Sure, you could hang back, collect unemployment for as long as you’re allowed while searching for the perfect career, but sometimes that career has to be built from the ground up. What is it you’d really like to do? Now might be the time to take a chance.

6. It provides a sense of self-worth.

For many of us, the best source of self-worth is found in earning a paycheck. Although you may earn less money than you’ll make in unemployment benefits, there’s much to be said for earning at least a little bit of income through our work. Stay home too long drawing unemployment benefits, and you’re self-esteem may begin to weaken—that isn’t a situation anyone needs when unemployed.

7. The jobs you hold while unemployed can be the start of a multiple income stream program.

The employment landscape is changing. Depending on what kind of job you held (and in what industry), there may no longer be full time equivalent replacement jobs available. You may find that the solution to your problem will be solved not by a new job, but by multiple income streams. The contract, temporary or part time job you take now may enable you to develop one of those streams.

8. It can provide a revenue stream once the benefit checks stop coming.

Many of the unemployed today have watched months turn into years, and in the process benefit checks have stopped coming in. If you’re unable to secure a job by the time your claim (and your other resources) run out, you’ll have to be prepared to do something when it does. Better to have the wheels turning on this well before it happens.

As compelling as it may seem to use an unemployment check to aid in the full time search for a new job to replace the one you lost, working at something—or even several something’s—may provide better long term results.

Are you unemployed, or have you been in the recent past? Did you spend all of your time looking for a new job, or did you try different work situations to see where that might lead? How did it work for you?

Related Posts:

Check Your Salary: Five Free Salary Analysis Tools

Would You Leave Your Job In This Economy?

Surviving Unemployment – One Woman’s Story

All Jobs Are Temporary! (And What You Can Do About It)

Pursuing Your Passion Isn’t As Risky As It Used To Be

Multiple Income Sources to replace One Man-One Job?

STRATEGY #6 TO SURVIVE A DOWN ECONOMY

By Kevin M

If there’s ever been a time to adopt flexibility as a strategy, it’s now. The certainty we knew only a few short years ago is currently failing us, and our progress and even our survival may rest on our willingness to adapt to change and to new rules as much as anything else.

In 10 Ways To Survive a Down Economy (published on Christianpf.com June 1) we listed ten strategies to help you deal with the bad economy. Our topic for today, Strategy #6:

”Be flexible in your plans and ready to adapt to changing circumstances. If your job is eliminated, offer to contract or to work part time for the same company. If you develop multiple income streams, a shift to a part time arrangement may be to your advantage on a number of fronts. Be prepared to convert a negative development into an opportunity.”

Think “outside the box”

Often the first thought upon the loss of a job, or the prospect of it, is to replace it with a comparable one. But in many industries, a comparable position is either non-existent or too far into the future to be relied upon.

Instead of thinking “job”, think “opportunity”. In fact, think of it in the plural: ”I’m looking for opportunities.

You can miss a lot of income-paying situations by focusing too specifically on the search for a full time, benefited position paying something comparable to what you’ve made in the past, especially if your industry is in some stage of long term decline.

Job sharing, part time, contract work, a side business, a job without benefits and temporary positions, or a combination of two or more, all need to be on the list of possibilities. At a minimum, you can continue the search for the perfect replacement job while you’re working at something less.

This approach should be standard procedure if unemployment benefits have been exhausted, but also worth considering even if they haven’t. Working, even at below your past income level has a few things that an unemployment check can’t provide: a chance to make new contacts, learn new skills and—very important—to be out circulating in the business world. If you lose your job you will make mistakes finding your new way, but it’s important to be out there pursuing it, knowing it’ll take time to get it right.

Guard your time

In a down economy where jobs are at risk, there’s often a temptation or even a requirement to work harder and longer. But in many instances, working harder and longer isn’t earning you more money, or even keeping your income level.

It becomes crucial to earn an income commensurate the time an effort you’re putting into the job. Working a job that requires significant uncompensated time could be depriving you of time that could be spent working in capacities that might improve your cash flow or generate stronger future prospects.

Many times people who are looking for work find it in commission-only sales positions. Let me suggest however, that if income is the primary driver in the choice of careers, a commission situation is probably not what you’re looking for. You’ll have to make sales before receiving any income, and that’s an especially difficult feat to pull off in a weak economy. If sales veterans with experience, product knowledge and contacts aren’t having much luck, how successful do you think you can be as an upstart?

Be careful of common sales fields like real estate, insurance and car sales; people get into them because they’re easy entry fields, but relatively few have the talent or killer instinct to really make them work. The problem is that you can spend months of uncompensated time in commission only positions before realizing it isn’t going to work out, and by then your situation will probably be even worse.

Because there are fewer real job prospects in a recession, it becomes even more important to work in capacities where income is more certain and new skills, contacts or lines of business can be developed.

Guard your money

This means staying out of business deals that will tie up your money. In economic downturns, especially severe ones such the one we’re in now, people often take gambles they normally wouldn’t in an attempt to improve their circumstances. This might involve putting large amounts of money into investments or business deals that have less than certain outcomes.

While now might be an excellent time to start a new business, you probably want to avoid those that are capital intensive, requiring the purchase of an existing business, a large inventory or major equipment at significant cost.

It’s one thing to be optimistic and want to bet on your future, but betting real money is another matter. Businesses of all kinds are failing in this economy; if you’re unable to make a success of a venture you’ve poured most or all of your life savings into, insult will be added to injury if you can’t sell the business and recoup your investment.

In another direction (but same principle) there’s been a considerable amount of hype surrounding the purchase of real estate for investment purposes. Much of this thinking is based on the fact that property values have come down considerably from their recent peaks. But jumping into investment real estate when you have no prior experience is an exercise fraught with financial danger if the main motivaton is a play on lower prices.

Prices may be less than they were a couple of years ago, but unless you can buy a property for substantially less than it’s CURRENT depressed market value, it may not be a deal at all. Leave that business to the professionals who do full time. Making one bad deal early will put you out of that business before you even get out of the starting blocks.

Here’s a cosmic law that can save your life savings: when you absolutely, positively need a deal to pay off big, it won’t! Unfortunately, business deals don’t cooperate with our circumstances.

In this economy, capital is hard to replace and therefore it’s something that is best conserved. Bet on your skills and abilities, not your expertise at managing assets. Leave your retirement assets, your home equity and other savings for their original purposes, and if necessary, as a cushion for survival. Leave speculation to the professionals who know it well, and how to profit from it.

Mobility as a virtue

So far we’ve talked about being flexible in attitude and strategy, investing your time in income producing activities and preserving your capital, but all three pave the way to one overriding objective: mobility.

It’s important to realize recessions mean change more than anything else. Some businesses come up, some go down, old industries disappear, new ones arise, assets change hands, and so on. Some geographic regions will grow, others will decline.

The key is positioning yourself to take maximum advantage of that change. You can’t do that if you’re slavishly devoted to a declining industry, hoping to squeeze a couple more years of paychecks out of it, or if most or all of your money is tied up in a static investment or business venture.

This is a time of transition, and as much as we may want so much to dig our heals in and hold on to what we’ve known in the past, it’s often a losing strategy. Opportunity tends to come to those who are most open and prepared for its arrival, even if they aren’t entirely certain exactly how it will play out.

The future is waiting, so be flexible, travel light and be prepared to move as opportunity arises!