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Currently I have a good full time position for a software company in the United States (I am also from the US, to avoid confusion). Recently I was contacted by a recruiter in regards to contracting for another fortune 500 company at a higher hourly rate. However, I am very new to this and skeptical at the same time. So here I am seeking some outside advice from anyone who may have any opinions or past experiences with this type of work. So to get started here is some background info:

ABOUT CURRENT POSITION / SITUATION

  • Current Job is a Full Time Software Engineer position at a leading software company.
  • Previous Employment consisted of 1 year as a full time web developer, and two years prior self employed as a 1099 contractor.
  • I am not single and have a child and wife to support. My wife works part-time minimum wage.
  • I have a lot of college debt. (one of the reasons I considered looking into this)
  • I like my current job and it seems pretty secure for the most part.
  • I can support my family with my current income and make my monthly payments on student loans.

WHAT I KNOW ABOUT THE CONTRACT

  • It would be considered an "Umbrella" contract.
  • The contract is 18 months
  • The contract provides health, vacation, 401k, dental/vision
  • Pay is $16 more per hour from what I currently make
  • Roughly 50,000 (before taxes) more than what I would earn over that time frame with current employer. Enough to pay off most of student loans assuming I find work right after the contract is finished.

So with that in mind, I know ultimately I have to make this decision. But some advice / perspective would be very much appreciated. As any advise I get from the recruiter is likely to be bias. So what I would like to know is... Would it be a good idea to pursue this considering my current state of affairs? Or would it be a better idea to stick with the job I currently have. And if I was to pursue this, what things should I look out for in regards to this? Thanks in advance.

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On the surface, this sounds like an excellent deal, but I encourage you to ask some questions (and get the answers in writing).

First, you mention that the pay is $16/hour more than you are currently making. Is this your take home pay, or is it the amount of money the umbrella company will bill you out at? With umbrella contracts, you need to be careful when you estimate your real take home pay. Umbrella companies can (and do) pay expenses related to your 'employment' from the billing rate. And they take a margin. Make sure that you clarify exactly what your take home pay will be and make sure that the recruiter who answers these questions is qualified to answer them.

Second, you mention that the contract is 18 months long. Is that a fixed term contract or is there an at-will clause. This would not be the first time that a recruiter offers an 18 month contract, then terminates the consultant three months in because there is no more work available.

Third (this is related to the second point), how does termination work? If the Fortune 500 company is not happy with your work, can they fire you immediately? They most likely can do this, and if they do, how much help would your recruiter be able to offer you?

Fourth, what happens when you leave this company? Does the Fortune 500 company have an expectation of privacy? Keep in mind that one year of experience in a 'leading software company' > one year of experience in XYZ umbrella company.

Fifth, what kind of rules are there about paying you. Do you actually submit the number of hours that you work, or do they pay a fixed rate based on a 40 hour week no matter how many hours you actually work? Keep in mind that a 50% per hour raise is not worth very much if you need to work double the hours!!

Again, this sounds great on the surface and if it is as good as it sounds, you should congratulate yourself. But, be careful because recruiters are not always the most honest people on the planet. You have a good thing already, so be vigilant.

Best of luck in your decision and definitely be proud of yourself!

  • This is some good information. To be honest I am not super clear if the pay is take home or before fees. So that is good to know. And as for early termination, I am also still gathering the details on that. As far as hours go all I know is that the recruiter said I shouldn't have a problem getting 40. But I could never get him to guarantee. And he said anything overtime was paid time and a half. – guy Jun 17 '14 at 1:16
  • Also I am not sure if the contract is fixed. But the recruiter gives me the same familiar line. No job is secure, even permanent. Even though I am inclined to partially agree. I still feel like this phrase is misleading and that full-time positions are more secure. Because if they aren't then why don't more people work as contractors? – guy Jun 17 '14 at 1:26
  • Keep in mind you'll be paying self employment taxes in the US as well, that's another ~8.5%. – Andrew Bartel Jun 17 '14 at 2:10
  • Thanks for your reply, Guy. You're doing a great job and I congratulate you on your vigilance. Based on what you have told me, I would be extra careful. I have not encountered many employers (or even recruiters) who cannot say, "they have budgeted for 40 hours per week for 18 months." And, you are correct - full-time positions are more secure than contract work. If your recruiter will not admit that, I would have serious concerns about him/her. Be careful, you're a good guy and I would hate for you to run into any difficulty. – Greg H. Jun 17 '14 at 3:05
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Forget about it. To leave a full-time job to take a contract you should get a minimum of 50% more than your current hourly rate, considering the number of hours you are actually working. Hint: it's probably considerably less than 2000 hours per year. The recruiters will tell you that a $60/hour contract is equal to $120,000/year. It's not even close, unless you are working huge amounts of overtime. If you leave the full-time position, you will likely be giving up:

  1. your subsidized health insurance
  2. paid vacation
  3. any 401(k) matching or other retirement funding if you are so lucky
  4. Job security. As a contractor they may let you go with zero notice. Then you will have to live on unemployment until you find your next contract.

I wouldn't leave an $80K full-time job for less than $60/hour on a long-term contract, and probably not even then unless I had enough liquid savings to go several months without a paycheck, and I lived in a metropolitan area with a lot of opportunities.

BTW, how did you get from $16/hour to $50K over 18 months? Assuming you are in a 28% task bracket, you will pay something like $5.50/hour in income tax, social security, and medicare. That leaves $10.50/hour x 2800 hours, minus your increase in health insurance premiums, minus any increase in commute time and expense. If a recruiter tells me that $x/hour is equal to a $2000x salary, I call BS and put them on my spam list.

And don't underestimate the cost of commuting. If the new position is 15 miles farther, that's 30 miles per day or 600 miles per month. If you drive a reasonably new car, that will cost you $300/month in gas, maintenance, and depreciation. More if you will be using toll roads. It will also consume a minimum of half an hour per day. That's worth at least another $500/month.

  • Hello Kevin, thanks for the advice. I based the 50k / 16 off the assumption of 2080 work hours over the course of year.. So I guess to be exact 49,920. And I also understand that is before taxes, and under the assumption every week would be a 40 hr work week. So yeah, I see what you are getting at. A lot of assumption involved at this point. From your profile you look to be pretty well seasoned? In your past experience did you ever go down the contract route? – guy Jun 17 '14 at 2:32
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    You don't work 2080 hours per year and you don't want to. With ten holidays, ten days vacation, and five days sick leave you would work 1880 hours. I was a contractor for a few years after the crash of 2001, but I was unemployed when I started. I did fine, but I was a part-time father and was able to work overtime with no effect on my home life. – kevin cline Jun 17 '14 at 2:42
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    +1 Between your answer and mine, we are giving the OP a pretty good picture of what he could get himself into :) – Vietnhi Phuvan Jun 17 '14 at 4:10
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I was at one time in your situation: my late mom to support and a large student debt to pay off. This definitely left me disinclined to take risks that I could not calculate, and the possibility that my calculations would be wrong was always uppermost in my mind.

The first thing I did was to build up the cash reserves. At least, enough cash reserves so that I would not have to fall back on my credit line in case of emergencies and unexpected events. If I got hit with anything untoward like a firing or a layoff, rebuilding the cash reserve was my top priority the minute I was back on the job.

Once I had a minimum of three to six-month cash reserves built up, I was very aggressive in attacking my student debt as I did not want to have it hanging over my head, especially since student debts are not dischargeable in case of bankruptcy. I was also aggressive as hell about building up my skills set. Over time, I proved myself to a series of employers with the result that my salary kept going up.

I'd say, don't plan anything shorter than medium term, don't take chances that you don't have to. One issue that you should consider is, is there any chance, looking forward, that your wife will be able to do better than just make minimum wage? It's easier to take a risk on a new job when you have your wife's income to fall back on, and vice versa.

I'd say that at this point in your life, how well you manage risk will determine how well you will do over the next 20 years. In managing risk, your first order of business is to understand all aspects of it so that you can estimate it.

Good luck and good fortune to you :)

  • Hello, Vietnhi. I really appreciate the advice and positive encouragement. Did you ever do any contracts like this in your past? And if so, anything that caught you off guard? – guy Jun 17 '14 at 2:39
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    @guy 1. I'd stay away from anything that says '1099' - I was never able to deduct the cost of doing business, because the tax man was smart enough to make sure that I couldn't deduct a damn thing. 2. Until you are on your feet and you have a cash reserve or maybe your wife's income to fall back on, I suggest that you stay away from contracting. It's OK to work as a full-time employee for a consulting outfit, though - I found it a great way to build up a skills set fast. I never changed to another job unless either I was confident that I could hack it or I had no other choice, as in "laid off" – Vietnhi Phuvan Jun 17 '14 at 4:03
  • @guy 3. Oh, I forgot. Be careful about that little thing called "billable time" - As a consultant, I almost never managed to bill for every hour that I worked and often enough, the hours undercount was significant :) – Vietnhi Phuvan Jun 17 '14 at 4:13
  • Yeah I have done 1099 in the past. I did not like that at all. This is a W2 contract for a recruiting firm. – guy Jun 17 '14 at 13:07
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It is really hard to advise in such situations. But some questions to consider:

  • New company has likely 3 or 6 months period when you can cancel your contract if they see it "no fit" for whatever reason. Can you return to your current job, or find another one quickly enough? So salary increase cannot be the only deciding factor.
  • And vice versa: You may expect salary increase in your current job, right? So 6 months from now, the difference will be less, and risk will be seen more foolish.
  • Is there someone who you can rely in USA to help you if things will not work out? If not, you need to take less risk that your colleagues with stronger support network.

Maybe you can turn this around: can staying in your current job can give you and your spouse time/resources for her to improve her skills and get better paying job? Which will give you more flexibility in the future. Work like a tag team, you are.

You are completely right that advice from recruiter is biased: s/he is making profit only if you leave current job.

There are plenty of questions to ask (and people will suggest more), and only you will know the answer.

  • Thank you for your input Peter. Yes my wife has considered going back to school. She has some college debt herself and a couple of certificates for jobs she doesn't like. So there are some options there. The big thing right now is the cost of daycare. Anyways, I have been leaning more towards staying where I am at, as I like it and good jobs are hard to come by. But having second or third opinions defiantly helps. – guy Jun 17 '14 at 1:20

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