Re: Rates

Subject: Re: Rates
From: "Michael L. Wyland" <michael -at- sumptionandwyland -dot- com>
To: techwr-l -at- lists -dot- techwr-l -dot- com
Date: Sun, 24 Oct 2010 10:02:01 -0500

Leaving a position as an employee and becoming an independent
contractor may give you far greater bargaining power with your former
employer. Their initial compensation offer could be interpreted as:
1) displaying an ignorance of the nature of independent contracting
vs. employment; or 2) displaying a contempt for your knowledge of
independent contracting as a business.

You say in your initial post that you left the job, which implies
that the departure was your choice. You know best what your former
employer's opinion of you and your skills are. Could you work for
them with integrity? Do you believe they could work with you with
integrity? [It's important to remember that they'll never treat you
any better than they do *before* you say "yes" to contracting with you.]

There is no amount of money that will compensate you for working with
people you don't respect or trust, or don't treat you with trust and respect.

Another important question is whether you wish to become an
independent contractor as an ongoing business enterprise. If so, you
should enter a business planning mode where you examine your
potential market(s), compensation potential, expenses and office
administration structures, and other needs. If this opportunity is a
moonlighting bridge to another full-time employment position, then be
sure that the time obligation does not interfere with your ability to
secure that next full-time job.

In addition to reasonable compensation, you also need to negotiate a
contract based on tasks and deliverables (outcomes), rather than
hours worked. Most importantly, it is important to *them* that they
do not attempt to specify your specific work hours or other working
conditions. Labor law assumes that workers are employees (being
eligible for employee benefits and being included when withholding,
workers' comp premiums, SUTA/FUTA, etc., are paid by the
employer). Employers that use independent contractor status to dodge
paying employee benefits and applicable taxes are subject to
sanctions by government.

As an independent contractor, you need maximum control over your
schedule and working conditions to build and sustain your business;
your clients benefit from your success not only in your providing
quality work but also by running your business in such a way as to
demonstrate your not being an employee.

There are three basic approaches to rate-setting: 1) competitive
market analysis, where you set your rates to compete in a given
market; 2) cost & profit recovery, where you set your rates to allow
you to meet your direct and indirect costs while providing you with
your desired income and other compensation; and 3) the value-based
approach, where you graduate from offering labor for hire to a
position where you are offering added value to a client's
organization. In other words, you move from contracting toward a
consulting model.

Others have provided feedback on how to compute a contractual rate
based on a full-time salary, using several different formulae. How
to set your fees, and at what rate, depends on answering a series of
business planning questions.

There are potential tax benefits to being an independent contractor,
but there are also added expenses and legal, tax, and insurance
complexities. For example, working from home is great, but claiming
your home office as a business expense can come back to bite
you. When you sell your home, you may find that you have to pay
taxes on more of the sale price than you thought because you already
received part of the tax benefit through the business
write-offs. This is just one minor reason to consult with an
attorney, a CPA, and an insurance agent if you're considering ongoing
independent contractor status.

I could write at length about becoming an independent contractor, but
I'll stop here. One final consideration: as others have observed,
it's not possible to bill 2,080 hours a year as an independent
contractor unless you're committing a lot more hours than that to
running your business. Business management and administration,
dealing with vendors & suppliers, assuring professional development,
marketing and securing clients, and many other tasks, will need to be
done and will not be billable hours.

Michael L. Wyland
Sumption & Wyland
818 South Hawthorne Avenue
Sioux Falls, SD 57104-4537
(605) 336-0244
(605) 336-0275 (FAX)
(888) 4-SUMPTION (toll-free)
michael -at- sumptionandwyland -dot- com

Since 1990
Strategic Planning * Executive Coaching * Training & Facilitation *

-- Web site:
-- Sumption & Wyland blog :
-- LinkedIn Profile --


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