Urgent! getting a contract position, what to consider?

[Walter Chen]

I am talking to a company that is willing to offer me a contract position. I've never been a contractor before as I have always had permanent, full-time positions. What should I be looking for?
For example, what is a fair rate? Let's say I make X dollars a year as a permanent, full-time employee, which is equivalent to Y dollars/hour, is 1.5*Y, 2.0*Y, or what amount in terms of hourly rate would be a fair value? Also, if I sign a 6-month contract, am I obligated to finish the 6 month no matter what? Is the company under obligation to pay me for the full length of the 6 months even if the project gets cancelled? When I sign the contract, what are the things that I should pay close attention?
Thanks a lot in advance.
Walter

[Mark Herschberg]

I've seen it range from 1.5 to 2.0. Others know better then I.
As for finishing the contract, read it carefully. I suspect most have a clause whereby they can fire you or you can leave. If it gets canceled, you're probably out of luck--unless ahead of time (meaning prior to signing) you added a clause where you get some compensation if it gets canceled. I suspect you can probably talk some firms into getting a few thousand in case of project cancelation--it depends on whether the company has a standard contract used for many employees (designed by lawyers and not easy to change) or this is a specific contract designed for you and your work.
In general, contract workers have a lot more flexibily. You can *potentially* put most any clause into your contract.
Other things to look out for:
Your Overhead:
Ahead of time, calculate your expenses for things like: health, dental, vision, SS, liability insurance, travel, etc.
Payment Schedule:
I don't know what the law is on how quickly they have to pay you. I've been working for HBS since November and still haven't been paid (fortunately, I know they're in no danger of going bankrupt). Along those lines, if the company is at risk of going bankrupt (e.g. startup) you are facing some risk, especially with the payment delay.
No Holidays:
Remember that most contractors don't get holidays off. You work 40 hours a week, generally.
Tools:
Do you need to supply your own computer and software, or do they? What about other tools?
I'm sure there are plenty more idea from better with more experience contracting, then I.

--Mark

[Rufus BugleWeed]

Generally they don't like to show you a contract. Part of the reason they want to hire you is that they can fire you at a moment's notice.
You diminish your ability to sue the end employer. The shell corporation you work for has no assets. The direct employees have more civil rights than you do.
You always face a double standard. Generally contractors must be better politicians, higher skilled technically, taller and better looking.
You become a target for subversive politics. Somebody often likes to advance their cause by stabbing you in the back. They will fire you and blame you for things that were not your fault. Direct employees often resent you for the freedom you have and your skillset. Direct employees will not tell you critical information because they see you as a competitive threat.
A new manager will fire you and hire somebody else because another contracting company pays off better than yours. A new manager will fire you because knocking the contractors out makes for a quit cut in budget and better chance for a bonus.
A new manager will fire you because he wants to form his own team ( he does not like you because you know more about the business than he does ). A new manager may fire you to build fear in the workforce.
The earnings you sweat for can easily be given back to the employer in kick backs.
They will give you the dullest or most impossible assignments, the worst seat, and the worst computer. Businesses generally have a set of business rules I'll call domain knowledge. Transferring domain knowledge from one business to the next is not always clear.
After awhile you may build up your status and get better treatment.
Expect to change jobs frequently. A new job is one of the most stressful events in a persons life. Often these changes are across the country, like moving to Chicago in January.
Moving is another one of those stressful events.
The people at the contracting shop tend to have a smooth sales pitch remotely connected to the truth.
Some people love and do well contracting.

[Jim Baiter]

Remember it's still terminable at will though and in this market I'd take what I can get. You can always look for other jobs while you're working the contract if you don't like it.

[M.C. Horn]

You don't say what your background and years of experience are, but I do know contract rates are down a bit, ranging from 32-40 per hour here in Florida. Rufus was on target with some of his comments, it pays to be flexible, non-offending, and quick to quietly take the initiative. I usually try to identify the alpha dog first (so I know who I have to please), then try to stick with a good customer service approach in dealing with everyone period. Share your knowledge willingly and often with those you support. You could easily find yourself in a mentor role.

[Kayla Richard]

Walter:
I am in the same situation as you. I find that a contract is the way to go these days. You get paid by the hour and your overtime is paid. As a permanent, sure you are paid your vacation, sure you are paid your sick days and some holidays and some insurance but you are making a much lower salary, AND a lot of people have the stress of a being a contractor yet paid very low and then laid off within 6 months to a year when they don't need you anymore, so why not go for a higher price and great experience, unless I got your definition of a contractor wrong?

[Mark Herschberg]

Originally posted by Rufus BugleWeed:
Generally they don't like to show you a contract. Part of the reason they want to hire you is that they can fire you at a moment's notice.
You diminish your ability to sue the end employer. The shell corporation you work for has no assets. The direct employees have more civil rights than you do.
...
A new manager will fire you and hire somebody else because another contracting company pays off better than yours. A new manager will fire you because knocking the contractors out makes for a quit cut in budget and better chance for a bonus.
A new manager will fire you because he wants to form his own team ( he does not like you because you know more about the business than he does ). A new manager may fire you to build fear in the workforce.
The earnings you sweat for can easily be given back to the employer in kick backs.
They will give you the dullest or most impossible assignments, the worst seat, and the worst computer. Businesses generally have a set of business rules I'll call domain knowledge. Transferring domain knowledge from one business to the next is not always clear.

Note that Rufus' comments are about working for a contracting company, as opposed to be a truly independent contract (i.e. on your own).
--Mark

[Walter Chen]

Thanks for all your timely responses.
Let me clarify a little bit: I have about 6 years of C++/Java experience and have 3 certifications (SCJP, SCJD, SCEA). I currenly have a "permanent" full-time position (I always thought "permanent" is a funny misnomer). I am now offered a contract job for a large corp thru a third-party consulting firm. There are two things that interest me about this new job: first, it is a J2EE developer position (my current job only has limited Java work, no J2EE at all). Secondly, of course, I would potentially get paid a little more. However, as I've never done contracting jobs before, leaving my current "permanent" position, especially in this kind of job market, does make me think twice (or several more times :-)).
I know I am taking some risks, but the hard thing is to figure out whether the benefits outweigh these risks.
Any input would be greatly appreciated.
Walter

[Walter Chen]

Somebody mentioned the idea of "incorporating yourself" to me. What are the pros and cons of doing that?
Thanks,
Walter

[Mark Herschberg]

Disclaimer, I'm not a tax lawyer or accountant. I don't even play one on TV. Follow my advice at your own risk.

Originally posted by Walter Chen:
Somebody mentioned the idea of "incorporating yourself" to me. What are the pros and cons of doing that?

If you incorporate yourself you can play all sorts of tax games, in terms of how you pay yourself, what you can deduct, etc. You can greatly lower your taxable income and can save thousand of dollars a year. The "cost" is more complex taxes, since you file not just for yourself, but also for your corporation. If you hire an accountant it will cost maybe $1000 and take off some of the paperwork, but you'll still have to keep detailed records of how you're earning and spending money (e.g. saving all receipts).
--Mark

[Walter Chen]

Thanks, Mark, for the info. I also did some research on my own, and it seems that the type of corporation that suits my situation would be a "S Corporation".
One more question (this is very important):
If I incorporate, when I sign the contract, should they pay the corporation or myself?
Thanks,
Walter

[Peter Tran]

Walter,
My wife in an "independent contractor" with an s-corp. You definitely want the company to pay the corporation and not directly to you. The s-corp then turns around and pays you while holding out all the required taxes. The corporation has to fill out quarterly Form 941 and pays the tax withholding for you. You then have to pay your half of social security and medicare. Since the corporation belongs to you, you are essentially paying the full social security and medicare taxes. It's a real shock to see how much more in taxes you have to pay. *ugh*
BTW, do find a good and trustful CPA. A good CPA is worth his/her weight in gold, because the tax code is a real headache. I would advise getting a good business accounting software to keep track of everything for you.
Best of luck!
-Peter