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Free like a freelancer or secure like an employee? There's a third option: The contractor

Johannes Kettmann on June 09, 2020

Many developers dream of becoming a freelancer. The promise of freedom to work whenever, wherever, and on what you want as well as lucrative rates ...
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samwightt profile image
Sam Wight

Things to add to this (this is very US specific, your mileage may very):

  1. Taxes are higher and harder to manage when you're a contractor. It's significantly more work, even with an accountant, to track all of your income and do quarterly taxes. If you're working at an hourly rate, which a lot of contractors do, then it's very, very annoying to figure out what you think you're going to make this year and pay quarterlies on that. Having a W2 where all of your tax money is taken out for you as the year goes on is incredibly underrated and gets rid of a lot of all that stress.
  2. Contractors are usually paid slightly more (not usually the 2 to 3 times amount in my experience) because they have to pay for an accountant, health insurance, and all of the other benefits that a normal employee would have.
  3. Contractors usually don't end up working side-by-side with employees as if they're a regular employee (at least in the US). If you're working with employees like that regularly, it's probably because you're not a contractor and your employer is committing employment fraud.
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aza profile image
Aza

Totally agree with no.1 and 2, but not with 3. I have been a contractor in my career and work with different contractors in my current company. Sometimes contractors are hired as a check of competency and they become FTEs later on.
But I hate how they system of hiring the contractor works here. Usually they have to go through 3rd parties who get hefty part of the paycheck. This way a contractor legally works for the third party company as FTE while he/she is a contractor for the main company where work is done.

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Johannes Kettmann

Thanks for sharing your thoughts, Eve. Afaik for a company, it's much easier to let go of employees in the US compared to e.g. most European countries. And for employees, there's not much of a notice period when you want to quit, right? If you're not even paid much more than an FTE what's the advantage of being a contractor in the US?

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aza profile image
Aza

Exactly. I have always looked for FTE roles, unless a person wants to work in different environments, then i would suggest to join some consulting company.
As for me, i don't see any benefits of being a contractor.

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jkettmann profile image
Johannes Kettmann

That's very interesting. Thanks! I'll add a note that my experience doesn't reflect the life of a contractor in the US

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Johannes Kettmann

Thanks for sharing your experiences, Sam. Interesting to read. It sounds like many of the things I mention are not valid in the US. That makes me wonder: What are the advantages of being a contractor in the US?

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Sam Wight

Hey so sorry, didn't get notifications on this!

I think the main advantages of being a contractor for me were:

  1. If I need a job for a variable period of time (e.g. one semester in between one of my co-op rotations), then contractor positions are usually more flexible and generous.
  2. Slightly higher pay than most other jobs. If you're in a lower income bracket (which I am, as a college student), you don't pay as much in income taxes, so the slightly higher pay is much-appreciated.

Honestly those are about all for me, I much prefer working as a W2 employee, just because it takes all the stress out of taxes and it's usually impossible for me to remember to pay my quarterlies. Highly recommend taking W2 options over contractor positions.

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Jeroen Jacobs

As someone who has been contracting for 5 years, I agree with all the points made in this article. My remarks:

  • Financial freedom is a double-edged sword. You can earn a lot of money if you have the right skill, but you need self-discipline so you won't spend it all at once. During a crisis (like COVID-19), contractors are the first ones to go. Make sure you have that financial buffer to survive a few months without income, and still be able to cover all your costs and taxes.
  • Your skill-set needs to be really good, and you need to integrate with the team and project in a very short time frame. I've seen consultants come and go in just a few weeks, because they bluffed their way through the interview and it become obvious their skills were not as good as they claimed to be. Companies don't have much patience with consultants, when it's obvious you are not what they expect, you are out.
  • I'm not sure how it is in other countries, but after a while you'll notice the same names and people circling around in your area of consulting expertise. It's a small world, and it goes the other way around too: your name will go around as well. Make sure you always end on good terms with your customer, even when things don't work out. Don't burn any bridges, you might need those people as a reference.
  • Get a good accountant, they know how you can save money.
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Johannes Kettmann

Thanks for sharing your experience. I totally agree, it's a double-edged sword. After all, you're acting as a business. And that always means there are risks.

I talked to some recruiters though and was surprised to hear that there is currently a higher demand for contractors. This is a bit counterintuitive.

One reason is probably that it's riskier to hire employees in countries where they are protected. You can easily fire a contractor of you run out of money. But you're mostly stuck with an employee.

Another reason that I experienced myself is that larger companies have hiring stops in crisis situations. So they can't hire new employees. But contractors have a different status. Departments that are still doing fine and are in need for extra workforce can get around the hiring freeze by calling contractors in.

The advice about leaving a good impression is gold! Not only that companies and other contractors will remember you. But also the recruiters internally flag candidates as trusted or not afaik. Once you get a green flag you won't have problems finding the next gig. A red flag will cause problems though

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Adam Crockett 🌀

I have come to realize a hard truth, security in a job does not exist.

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Johannes Kettmann

Totally true. Job security is a myth.

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Jose E Saura

This way to work reminds me 100% of SAP.
I used to work with consultants but I was the company employee which they help.

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John Peters

For me, the focus is to gain the hottest skills so they come looking for me. It works but takes about 2 years of dedicated self study.

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Kelvin Liang

Nice article, I will consider being a contractor when I get more experiences on web dev career.
I do wonder can a contractor be remote or have to onsite?

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Johannes Kettmann

Thanks Kelvin! A contractor can work remotely. That's up to the client and your negotiation skills. My experience is that clients in Germany demand contractors to be on-site at least partly. Sometimes only a day per month, more often at least a day per week though. But companies here are often not so remote-friendly. Might be different in other countries ;)

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Kelvin Liang

Thanks for the insight, I get it, that might be a norm for the contractor business now, need to onsite and meet with the team once a while. But I do see some job posts online nowadays that hiring contractors online or remotely, I guess the location of the job shouldn't be the differentiator of "freelancer" and "contractor" by definition, agree?

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Johannes Kettmann

I'd say it's more a norm in Germany, at least from my experience. But we're far behind other countries with respect to digitization. So yes, you're right. The location is not the differentiating factor.

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kayis profile image
K

For me freelancing and contracting are synonyms, but I often read the exact opposite of what you wrote. "Contracting" being the low-end freelance work and "consulting" being the high-end work.

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jkettmann profile image
Johannes Kettmann • Edited

Yeah, true. I also read stories on Reddit of 20-year-olds finding themselves in bad contracting jobs for minimum wage. I guess there's a dark side to contracting. If a company can hire a (mostly inexperienced) dev as a contractor for a low hourly rate they save a lot of money on benefits like health insurance and so on. That's very common in the construction industry afaik. In Germany, there are a lot of people from other countries working on construction sites as contractors without having any benefits or security. I described the sunny side: If you're an expert you make a good living.

Btw I didn't want to say that freelance or consulting are paid worse. I guess they can even earn more since they take higher risks. But that depends a lot on your negotiation skills and your skills

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Sebastien Lorber

In France we only use the term freelance for both cases

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Johannes Kettmann

In Germany also for the most part. In my LinkedIn it even says I'm a freelancer. With this post I wanted to point out that there are differences though