Tuesday, July 25, 2006

Mr Angry's rules for contractors

This post is something I was actually asked to write. I've been asked for "career advice" a few times lately; I guess having been a contractor for ten years now does imply that I may actually know a thing or two about working successfully as a contractor. The following is what I see as some common sense guidelines both for permanent employees considering moving to contracting and contractors who want to continue contracting successfully.

The first thing to consider is what are the biggest differences between permanent and contract work? That's easy. There are two big ones: no job security and you (usually) get to say a considerably bigger number when people ask you how much you earn. There's much more to it than this but those are the big two that you're likely to be balancing when considering the leap into contracting. How much money will convince you to give up job security? For me this is a no-brainer as I don't believe there is any real job security any more, particularly in IT. Other people don't share this view and value permanent employment more highly. To state the obvious: contracting is not for the risk averse.

The dollars alone are not enough of a motivator for me and although it sounds tempting, only the most soul-less individuals can be fulfilled in their work by money alone for more than a few years. I personally like the control aspect (you never would have guessed that about me, would you?) Properly managed, the contracting lifestyle gives you considerably more control over your career and finances.

If you're going to pursue contracting for more than about a year I can't recommend strongly enough that you look into setting up your own company and contracting through this entity. It can cost a few thousand dollars to set up a company properly, depending where you live (and make it a company, NOT a trust or anything else shifty!) Get a trustworthy accountant to set things up for you. A lot of people balk at paying out the money to set up and the ongoing money to organise taxes etc but it's money well spent. This is an investment and you will get it returned multiple times over every year in tax savings if you do it properly.

Properly. Legally. It is simply not worth the risk of screwing the tax department. Bite the bullet and go legit. A good accountant will save you tens of thousands while keeping everything legal and above board.

Day to day, you're going to have to deal with three sorts of people as a contractor: employment agencies, employers and co-workers. How you relate to each of these groups is vitally important to your viability as a contractor and your emotional well-being generally.

Dealing with agencies: If you're working in a place where the IT job market isn't controlled by employment agencies count your blessings. In Sydney and Melbourne about 80% of all jobs and 95% of contract jobs are placed through agencies. You don't absolutely have to go through them but your choices are limited. Personally I think they're a waste of time. The only thing I can think of that justifies their existence is HR departments who don't want to do their jobs. If a company has an HR department they shouldn't use agencies and if a company uses agencies they should have an HR department. It's unnecessary double-handling. Or maybe I'm crazy.

So assume you have to deal with agencies. Be nice to them. Most of them are decent people (I object to the role, not the person) and you need them to get contracts. Always be professional in your dealings with agencies; this gives the good ones the confidence to represent you well and it avoids giving the bad ones an excuse to screw you. Having said that, don't let agencies dictate terms to you. Agencies should provide guidance on rates and conditions (too many of them provide no guidance at all) but they shouldn't control your life. Make sure you understand the job market so you understand what is realistic for your skill set and experience and never let yourself become dependent on a single agency.

Don't enter into an "exclusive representation" agreement with an agency unless you're on their payroll, i.e. they pay you whether or not you are working for an outside employer. Many agencies push this, they say things like it looks too unprofessional if you are going through multiple agencies looking for work. This is a complete lie. Over the years I have given my resume to dozens of agencies and never once had an employer even comment on this, let alone pass negative judgement. Any agency who pushes too heavily on this front is untrustworthy in my opinion and should be avoided. Employers go for the best applicant. Period. Agencies go for whoever will get them a commission. Period.

Dealing with employers: Rightly or wrongly, employers expect more from a contractor than from an equivalent permanent employee. It's a simple equation for them: they pay you more so they want more from you. It's important that you're absolutely clear about an employer's expectations ahead of time. You don't want any nasty surprises down the track. At the interview stage get explicit answers regarding expectations on hours to be worked, output and responsibility. Asking these questions in a way that comes across as professional rather than seeming like you're trying to get out of work is more art than science, but it's an important skill to master. If you're a contractor, you will be going to a lot of job interviews so you will get plenty of practice.

The politics of your role in the workplace can be as important (or even more important) than your output. One of the joys of being a contractor is that the learning curve for all aspects of a role are sharply accelerated. If you are permanent, often your first 3 months is taken up with "learning the ropes". Many contracts only last that long from beginning to end so you have to squeeze in learning the environment, technology, methodolgies, politics and the actual work you are delivering in the time most people take to simply get used to their new job. Again, if you can't deal with stress, contracting is not for you. The key is communication. Communicate early and often. Feed back to your employer what you understand your role to be, give regular status updates and ask for corrections if you have misunderstood anything.

Dealing with co-workers: Guess what? Permanent staff know you get paid more than them. And it pisses them off. Co-workers will fall somewhere on a spectrum between not caring at all what you are paid and being obsessed with and unreasonable about your rates despite the fact it's none of their business. You can't control how people feel about contractors, you can only control your response to them. One thing you should never do is discuss your pay rate. Seriously, nothing good can come of this. Co-workers will ask you. Come up with your own diplomatic version of "I don't like to discuss that." Anyone who presses the matter is essentially a jerk and you shouldn't feel compelled to respond to them.

If you feel compelled to respond, I recommend keeping it abstract rather than mentioning the exact amount you earn. Point out that a direct dollar comparison isn't valid because of the different nature of permanent vs contract work. The following analysis I use is reasonably accurate. It's based on Australian conditions so it won't be directly applicable to all other countries, I know some places have more annual leave and some have less. Imagine the contract rate is double the permanent rate in dollar terms (this isn't always the case, but it is sometimes and this is often the figure permanents throw at me).

Permanents get four weeks annual leave, about 10 public holidays and 5-10 paid sick days each year. If a contractor isn't at work they aren't getting paid. So if a contractor is making $100K a year and a permanent is making $50K, the permanent co-worker only has to work for 10 months to get their salary so already they've picked up 20% on the contractor. On top of that, the contractor has to handle their own taxes, insurance and superannuation which all adds up. The margin most contractors have over their permanent counterparts is much closer to 20-25% in real terms and that's simply the premium for giving up the security of permanent employment.

At the end of the day, if you are dealing with a difficult co-worker who really wants to make an issue of your pay rate, put it to them this way: if they are so sure contracting is such a great deal, why aren't they out there contracting themselves? Put up or shut up. Not that I recommend saying something that negative to a co-worker. For most people, enjoying contract work means staying on the right side of co-workers is more important than impressing employers. So try to steer conversations away from your pay rate. Whatever you do, don't be like one contract programmer I worked with who coded a little income calculator that showed in real time how much he was earning each minute he was there. And then he had it on his desktop where everyone could see it. I think they found his body face down in a ditch somewhere.

So that's my overview of rules for contractors. In subsequent posts I will be cover the rules (in my humble opinion) each of the three groups above should follow when dealing with contractors. In the meantime, I welcome any comments or questions raised by these points.

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