Contract Employment...what do you think??

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ChrissLady Posts : 1,352 Registered: 4/5/06
Contract Employment...what do you think??
Posted: Apr 15, 2008 7:15 AM

Ok, so my former boss called me last night, and asked would I come back and do some contract work for them.  For those who don't know or don't remember, I switched jobs in February.  I am a cost analyst and was a cost analyst at my previous employer.  The previous job was extremely challenging but also extremely stressful.  My current job just doesn't have the same appeal.  So contract employment with my previous employer would give me a chance to feel like my work matters, and it will bring extra money into the house.  Here's the problem...my previous job is 80 miles one way.  I currently work 4 10 hour days and sometimes overtime on Friday.  My husband is worried I may overextend myself, even though we just got into an argument about money Friday.  If I decide to take this job, what should be parts of the contract?  Mileage reimbursement, pay (per hour or flat rate?equal to my previous salary or higher?, etc...  I can't claim the mileage on my taxes because I would not be leaving one job going straight to another.  Also, I would only be working 1 maybe 2 days a week, depending on my current job.  I just want to get some outside opinions before I call my former boss back.  Oh and just for the record both companies are manufacturing, only one makes paper and the other makes fork lift trucks.  Thanks for your help.

 

WWW.MYWEDDING.COM/CHRISTOPHERANDMONICA

 

 

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KateS Posts : 208 Registered: 7/14/06
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 8:01 AM Go to message in response to: ChrissLady

Interesting day to be asking this question!  Tax day! 

The big thing to remember with contract work is self-employment taxes.  You need to make significantly more than you were making before because you will have to be responsible for paying this yourself.  I have read advice that  25% of your contractor income be put away for taxes.  You can definately write-off mileage to & from the job when you are a contractor as well as any other expenses you incur to do this job (copies, cell bill, postage to name a few).  I would say you need to make at least 30-40% more than your previous salary for it to be worth the time monetarily (rough estimate).  Remember too, that your employer will not have to pay FICA (7.65% of your wages), unemployment taxes, or workman's comp insurance if you are a contractor, so he/she is saving money there.

Another question I would ask myself is if the extra money is worth the time spent away from your DH.  Is the argument you and he got into because you are still trying to figure out this new issue together or because there are some serious financial issues?  

Being and older bride (46) I count every second as precious.  As the old adage goes, I will not on my deathbed wish I had spent more time at work, but with my husband and family.  That being said, we do what we have to do which includes working 2 jobs sometimes. 

Good luck to you Monica and keep us posted! 

 

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ChrissLady Posts : 1,352 Registered: 4/5/06
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 8:21 AM Go to message in response to: KateS

The fight was about me wanting to take the boys to DC this summer, and him wanting to use the money to pay on some of our bills.  We currently have about $21K in consumer debt which is mostly credit cards ($15K) with a goal of it being paid off by 2012. The rest is auto loan. 

 

I don't know how long the project would last.  My hope is that it would be through Memorial Day at the longest.  There are some things that I was in charge of when I left, and the new girl is having trouble managing everything.  For what I understood, it's just one of the assignments that she has had time to complete. 

 

I don't know if I can say the money is worth it or not.  I feel like we don't spend a lot of time together as is. On the other hand, DH did pick up a job where he is only working evening/nights (5-10 or 7-12), so we are losing the time in the afternoon on days that he has to work.  He is currently a student, so most of the time he's at home when I'm at work and vice versa.

 

I didn't know that they don't take taxes out of contract pay.  That was a nice to know.  I was previously making $51K annually, which equates to roughly $26/hr.  So 35% is roughly $34/hr.  What about the gas mileage?  Some of the systems are not on my personal laptop, but I can access the shared database, once I am regranted access.  Driving there once a week is going to be an additional 640 miles/month.


 

WWW.MYWEDDING.COM/CHRISTOPHERANDMONICA

 

 


Message was edited by: ChrissLady

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KateS Posts : 208 Registered: 7/14/06
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 8:57 AM Go to message in response to: ChrissLady

Being a contract employee means you are self-employed.  Think like you own a business and what you would pay for out of the company bank account and that is what you should keep track of.  Mileage is a definate.   The mileage has been upped this year to about 51.5 cents per mile (better double check that).  You need to think of every expense you would incur to do this contract work and write it off so you don't get taxed to death. This includes any lunches you buy, etc.  An accountant or finacially saavy friend or family member would probably want to help you with this at the end of the year.  Just make sure you don't spend all you make - you will need to pay estimated taxes every quarter so you don't get in trouble at the end of the year.  The IRS Form 1040-ES can help you figure out how much this should be.  You can get it online.

If your employer was paying you $26 per hour, that means he/she was paying $2 per hour in FICA and probably another $1 per hour in the other taxes.  That is money they are saving by paying you as a contractor.

 The point is, you will have expenses (big one - self-employment taxes) that are going to bring down your hourly rate and you need to be covered so you are not earning LESS than $26 per hour. 

I am a self-employed personal trainer and have just incorporated my business.  I am what is known as an "S Corporation" which gives all the tax benefits (no self-employment tax) and extra liability protection.  If you thought of being a contractor for any length of time, this might be a good option for you.  It does cost money to do this (I paid $400 to Legalzoom), and is probably not worth it for a temporary gig.

Your credit card debt does sound like a problem.  Sometimes the montly payments barely cover the interest which means the debt will never go away, the credit card company will just get richer.  I would say I have to agree with your DH about the trip to DC (and I love DC!  We live in the area and plan to go down this weekend).  Your life will improve dramatically and you will have so much more control over your life and your decisions when this debt is gone.  Credit card debt is one of my soap box issues.  I am not saying anyone who has it is an idiot (I have had it at different times in my life - when an emergency arose and after our wedding).  If  I did have $15k in credit card debt, I probably would accept the contract position and use every cent to pay down this debt.  I would also put away the card and not use it until the balance was zero.  Then you can start to become financially comfortable.  Hope that doesn't sound too preachy, I have just been around long enough to feel the difference between having no debt (means my extra money is mine) and having debt (means my extra money belongs to someone else).  Having no debt also means having time to spend with your family because you are not spending hours working to pay it off. 

Hope some of that is helpful.  Good luck with your decision.Smile

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uno Posts : 619 Registered: 1/4/08
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 9:42 AM Go to message in response to: ChrissLady

You've been given great advice so far!  I agree about the self employment taxes and it causing you to pay more on your 2008 tax return.  So you will want to ask for more $$ to cover these costs. 

The thing about contract employment is that it is a self employment business and you are responsible for the taxes on all income earned doing so.  You will have to do a Schedule C on your 2008 taxes.  Here you can deduct:  car expenses (mileage, tires, oil changes, etc.) as a percentage of your business use of your car.  Say you drive 15000 miles on your car in 2008.  You drive 1,000 of those for business purposes (this contract employment).  So, you can deduct 1/15 of all your expenses on your car for the year... OR take 1,000 miles times the mileage rate for the year.  (sometimes, mileage rates change for part of the year so the 51.5 cents may not be applicable the whole year... but if you are only going to work through memorial day, you can be safe to assume these rates will be current). So there is not really a need to be "reimbursed" this mileage by your employer.  You can also deduct any other business related items: cell phone bill, business lunches, depreciation on your car (for the portion that was business use, etc.) your laptop... possibly internet access and various other costs. 

Since you are only going to do this for 4-6 weeks, it's honestly not going to be a huge difference in your taxes.  No they do not take taxes out but you won't be required to pay estimates unless you plan on doing this every year.  The government has a rule about taxes and how much you have to pay in (during the current year) to not get a penalty on your tax return next year.  As long as you pay in 100% of the taxes you PAID last year, you won't be charged a penalty.  Since you are currently working for a different employer that takes taxes out of your paycheck, you should be safe (assuming you are working about the same # of hours in the year).  So, as long as your CURRENT employer will withhold enough to cover line 63 on pg 2 of your 1040, you will not have any penalties for 2008.   

You need to decide if its worth it to do this for a little extra money.  I honestly don't think it'll hurt.  It's not like you are doing this for the entire year, it's a short term thing to help out and get some extra cash to pay off your credit cards.  Just be sure to keep some back to cover your taxes for your 2008 tax return.  I hope this made sense, I have a 1040 on my desk I need to finish so I just threw this all together.  Let me know if you have any questions!


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FALLbrideINLOVE Posts : 1,056 Registered: 3/30/07
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 10:09 AM Go to message in response to: ChrissLady

my DH does contractual work in addition to his full time job and the money is FANTASTIC

 

it is something to consider!!  you can plan ahead for taxes

 

we have been blessed to be able to do so much more with that extra income!!

 

 

i would seriously consider it especially if you are in debt and also you know that it won't be forever, you may want to take advantage while you can or you might regret it later!

 

15K in credit debt is A LOT, if you can get that down so that your money in the future can go to savings it would be ideal!

 

good luck in making the decision that's best for you! 



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TakeBackYourWed... Posts : 139 Registered: 4/5/08
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 11:07 AM Go to message in response to: ChrissLady

To add a few more things (I learned a lot here too and am going to email a few of you since I have a new consulting biz... ) as an HR person:

1 - you are worth WAY MORE THAN YOUR PRIOR SALARY not just because they won't pay taxes on it but because you are distinctively the only person they have to help them.  If they could even find a temporary agency worker they would easily be paying $50-$75/hour, easily.  Probably more. 

2 - I've done this - worked for my last employer who was also stressful.  It was even MORE STRESSFUL because the dysfunction that made it stressful was even worse because it was working with a client of theirs and the same mess was just still there and now I was being paid to "help out".  BLECH. 

3 - you should NOT BE GOING TO DC if you have that kind of debt.  No question about it I would be super pissed if my DH chose to waste more cash we didn't have especially if you are going to bust your tail to reduce the debt but instead blow it on a totally unnecessary trip that you can't afford.  Think about how much that trip will cost - say, I dunno $600.  Then add your credit card interest rate, say 22%... and that trip is going to cost you well over $1000 or more.  So then figure out - is it worth driving 3 hours to get to your employer and home, in your off day, JUST to go on that trip and make no dent in your debt?  The extra cost of that trip becomes: your stress, the wear and tear on your car, a VERY upset fiance who disapproves of the trip, your time, and your increased debt.

So summary: if you really want to do it, go for it.  YOU TELL THEM what you will work - not the other way around.  You have the cards here unless they have someone like you they can hire.  You tell them you will work for $855 for an 8 hour day.  How did I get that #?  160 miles of driving at the .515 federal reimbursement, plus $75/hour for 8 hours... $75 hour minus about 30% of taxes (they don't have to know what your tax liability would be and whether you would have ot pay that amount) still puts you at just $52/hour - a bargain for being THE SOLE PERSON who knows the stuff.  And let's not forget they aren't paying health insurance on you - easily 20-30% of your salary they are saving.

hth!  ASK FOR TONS OF MONEY!


Modern Bride Magazine Trendsetter 2007!

http://www.thefirstdance.com

~~Managing the Family Dynamics of Wedding Planning through a book, dvd, wedding stress coaching, articles and more~~

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ChrissLady Posts : 1,352 Registered: 4/5/06
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 11:07 AM Go to message in response to: FALLbrideINLOVE

Ok, so talking to my previous boss a little more, it sounds more like a part-time job through Manpower.  I'm going to call her on my lunch break to get more details.

 

WWW.MYWEDDING.COM/CHRISTOPHERANDMONICA

 

 

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TakeBackYourWed... Posts : 139 Registered: 4/5/08
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 11:10 AM Go to message in response to: ChrissLady

That is BS - don't work through a temporary agency.  Tell your boss YOU want the cash and will not be giving a temp agency the agency fee they could be paying you.

Seriously you have the cards since it probably isn't worth the stress to do this in the first place.  So push push push and then let them decide if it's worth the cash! :)


Modern Bride Magazine Trendsetter 2007!

http://www.thefirstdance.com

~~Managing the Family Dynamics of Wedding Planning through a book, dvd, wedding stress coaching, articles and more~~

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auntofthebride Posts : 9,354 Registered: 4/2/06
Re: Contract Employment...what do you think??
Posted: Apr 15, 2008 11:32 AM Go to message in response to: ChrissLady

Dear Monica,

No, you do not want to work with a temp agency. The former employer is contacting you directly. There is no need for a "middle man".

Another thing might be to find out if you can work from a computer at home. Do you physically need to be in the office? If you can use a remote data connection and get the job done, that will save you the commute time.

I cannot add anything more to what has been said above, especially the need to consider taxes and other expenses and the screaming need to pay off that credit card debt.

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