Friday, May 11, 2007

Advice from others on software contracting: setting rates, getting started

Following up on my earlier post, I asked around about how to get set up as a software contractor and what hourly rate to charge my non-profit customer. Here's a summary of what people have told me so far.

  • Non-profit tech salaries seem to range from 1/2-3/4 of corporate salaries; not sure if this also applies to contractor rates?
  • Check out local professional organizations in the field
  • Try calling other contractors or checking their websites for rate quotes
  • Get a contract that states work terms, including terms for invoicing and payment
  • Not all companies require contractors to be incorporated or hold general insurance; may depend on industry
  • If contracting for the long term, outline an informal business plan - target market, competition, how you fit in
  • Keep expense records for Schedule C, including mileage and home-office expenses
  • Need to pay quarterly estimated taxes
  • Your city may require a business license if you work in your home (rented/owned)
  • May be helpful to consult a lawyer/accountant about permits, licenses, insurance, planning/setting up books


Blue Yonder said...

T. emailed me this bit of advice:

"Talk with a tax professional about the home office deduction, as it may have other implications when you sell your home."

Blue Yonder said...

My friend V. emailed me this extremely useful info on independent contracting:

[A large Silicon Valley] balked at my rates, claiming I was earning much more than any other contractor. I think this was a bit of theater because they always accepted my rate, even when it went up. Also, they were very bad at paying on time and at one point I nearly stopped working for them because it was taking so long to get paid...Try to get net 15 terms or shorter (the number specifies how many days they have to pay you after receiving the invoice). And remember it is a business relationship, so they'll push the boundaries as much as possible to keep money in the company.

Rates also may vary depending on the length of the contract.

I set up a LLC and kept that structure for many years, but I don't think it's worthwhile. There is paperwork and significant ongoing expenses...You can get all the same deductions without the extra paperwork operating as a sole proprietor.

...companies may require [insurance] in contracts, but may have a "don't ask don't tell" policy...

...don't forget, also, when setting rates, that you'll pay a lot more in taxes than a W2 employee -- the full social security and medicare tax instead of the 50-50 arrangement of employees.