Going from full time permanent to long-term contracting?

[jeromedawg]

Have any of you intentionally left a full time permanent work position in favor of doing long-term (but not permanent) contracting?
I have a recruiter reaching out to me about an opportunity that sounds somewhat interesting (it would be going to the next level of the career path assuming I actually want to keep going haha)... the market rate is obviously going to be higher but no benefits and such. Also, the contract starts at 6 months and I'm assuming is renewed every 6 months or per year for what it sounds like is a project that is 3-5 years long.

I've never contracted before and have never thought it was a great first choice compared to going full-time for whatever reasons (probably the top ones being A) it's not permanent and B) no benefits).

Just wanted to get some thoughts and perspectives though.

[mspym]

I went from permanent to contractor in 2015 and it has been excellent. Working in projects, unless you are terrible or you are a very highly paid gun brought in to solve Problem X they will generally roll over your contract as long as there is funding. I am coming up to 2 years on my current project on a rate I would not get close to as a permanent employee. The big difference would be benefits but I like contracting because I can take more than 4 weeks leave a year, sick pay is built into the day rate, and in Australia if you are a PAYG contractor, you still get 9.5% put into Super. There is also not the same problem with health insurance being tied to your employer.

[use2betrix]

I’ve gone back and forth between permanent and contract. In my 11-12 year career around 4 full time and the rest contract.

Aside from a short 1099 job, all my contract positions have had health insurance, some with 401k’s too.

It really just comes down the the math between the two offers and your comfort of the lessened job security.

I’d expect at least 50% more as a contractor in most scenarios. The last 3-4 years I’ve made nearly double than what’d I’d expect in a full time position.

[LightStache]

I had to force my prior employer to transition me to a subcontract and, including retirement plan contributions, I'm keeping at least 50% more money than as an employee.

My strongest recommendation is to run a full corporate budget -- operating expenses, fringe benefits, tax, etc. That will allow you to objectively see how much more cash you're able to bring in on contract and determine if your hourly rate is appropriate for the additional risk (and work) you're assuming.

[jeromedawg]

I had to force my prior employer to transition me to a subcontract and, including retirement plan contributions, I'm keeping at least 50% more money than as an employee.

My strongest recommendation is to run a full corporate budget -- operating expenses, fringe benefits, tax, etc. That will allow you to objectively see how much more cash you're able to bring in on contract and determine if your hourly rate is appropriate for the additional risk (and work) you're assuming.

When you say "run a full corporate budget" outside of factoring in benefits like medical/dental/vision/etc what kinds of operating expense and taxes are you looking at? Like the cost of having to pay for a cubical, electricity, etc for example? In my case, I'm 100% remote so none of that factors in.

[dreadmoose]

I made this switch in 2017 and it accelerated my FIRE plans to a level I couldn't have foreseen.

You do really need to make sure your rate covers all the extras and benefits you're giving up on, including if you need accountants for tax prep, etc. A quite rough spreadsheet I did at the start is below.

What I didn't know at the time was that my contracting positions were more open to discussing rate increases in line with value-added. This meant any arbitrary limits on what I could make were removed if I could demonstrate that I could save the project more than it would cost them. I now make more than double what I will if I take a salaried position after this project, and got to hire people I like to work with me for the duration as well.

Obviously, your experience may vary, and the chart below accounts for some Canadian pieces you may not have (or the names will be different). But put me in the column saying I'll never go back if I don't have to.

[bacchi]

I had to force my prior employer to transition me to a subcontract and, including retirement plan contributions, I'm keeping at least 50% more money than as an employee.

My strongest recommendation is to run a full corporate budget -- operating expenses, fringe benefits, tax, etc. That will allow you to objectively see how much more cash you're able to bring in on contract and determine if your hourly rate is appropriate for the additional risk (and work) you're assuming.

When you say "run a full corporate budget" outside of factoring in benefits like medical/dental/vision/etc what kinds of operating expense and taxes are you looking at? Like the cost of having to pay for a cubical, electricity, etc for example? In my case, I'm 100% remote so none of that factors in.

"employer" portion of SE tax
health insurance
tax preparation (I do my own)
computer
monitor
software licenses
phone minutes/data
a few office supplies: notebooks, flash drive, cables

Except for the first two, I found it was pretty minimal.

[jeromedawg]

I made this switch in 2017 and it accelerated my FIRE plans to a level I couldn't have foreseen.

You do really need to make sure your rate covers all the extras and benefits you're giving up on, including if you need accountants for tax prep, etc. A quite rough spreadsheet I did at the start is below.

What I didn't know at the time was that my contracting positions were more open to discussing rate increases in line with value-added. This meant any arbitrary limits on what I could make were removed if I could demonstrate that I could save the project more than it would cost them. I now make more than double what I will if I take a salaried position after this project, and got to hire people I like to work with me for the duration as well.

Obviously, your experience may vary, and the chart below accounts for some Canadian pieces you may not have (or the names will be different). But put me in the column saying I'll never go back if I don't have to.

Thanks for the screenshot! PTO/Holidays is definitely one I would have probably overlooked!

[FLBiker]

PTF, mostly.  I'm thinking about doing this -- not to accelerate my FIRE, but to enable me to continue to work for my employer part time.  They're going through the hassle of engaging a PEO so they can give me benefits in Canada (we just moved here from the US) so I'm planning to stay full-time for 18 months or so, but after that I'd like to approach them about going 50% or 75%.  And I'd happily give up benefits and become a contractor, if that would make it doable.

[LightStache]

I had to force my prior employer to transition me to a subcontract and, including retirement plan contributions, I'm keeping at least 50% more money than as an employee.

My strongest recommendation is to run a full corporate budget -- operating expenses, fringe benefits, tax, etc. That will allow you to objectively see how much more cash you're able to bring in on contract and determine if your hourly rate is appropriate for the additional risk (and work) you're assuming.

When you say "run a full corporate budget" outside of factoring in benefits like medical/dental/vision/etc what kinds of operating expense and taxes are you looking at? Like the cost of having to pay for a cubical, electricity, etc for example? In my case, I'm 100% remote so none of that factors in.

It obviously depends what type of business, but I'm required to have certain cybersecurity measures (IT cost) and liability insurance levels that drive cost. My corporate insurance is about $500/mo and IT is about $100/mo, not including costs for any hardware. Taxes are by far the biggest though. You're in California so if you incorporate then you have the pleasure of paying franchise tax.

[Fuzz]

Look at the Solo 401K option. Amazing. Only available to self-employed people. You can max contribute something like 58K/year to a 401K on a ~145K compensation. Run the numbers. Huge tax savings.