Future of Work | Product & Project Management
Employee or Consultant: Which Suits You Better?
By Kathy Jung
May 8, 2014
Are you at a point in your career where a transition from permanent employment to independent consulting or contracting might make sense? At EM Marketing, we talk to lots of folks in this position, and it can feel like a big jump to start your own business. From financial to personal questions, here are a few things you should consider. (You may find a slight bias in our notes below!)
Reasons to Be an Employee
- Continuity. Being an employee does offer more continuity than being a consultant. Consulting projects are by nature short-term projects centered around deliverables.
- Security. Many people feel more secure as an employee (though job security isn’t a given anymore).
- Fringe Benefits. Many companies offer benefits such as health care, retirement, vacation, paid holidays, sick leave and childcare subsidies to their employees. Of course, many of these are not requirements.
- Easier Taxes. Income and social security taxes are withheld per pay period. The employer pays half of the social security taxes, and all of the unemployment insurance tax. In contrast, independent contractors are responsible for estimating and paying quarterly taxes for themselves (including self-employment tax – which is the social security and Medicare taxes similar to those withheld from paychecks of employees).
- Workers Compensation. Companies pay for workers compensation insurance which means employees are covered in case of injury or sickness on the job and coverage may include medical care, temporary disability benefits, permanent disability benefits, supplemental job displacement (retraining) and death benefits.
- Career Advancement. It may be more clear to see opportunities for climbing the corporate ladder, increasing responsibility or becoming an expert in a single area within a company.
- Camaraderie. You’ll likely feel more connected to a team and build deeper relationships as an employee.
Reasons to Be an Independent Consultant
- Work/Life Balance. Full-time employees are typically in the office five days (working ~50-70 hours) a week and deal with a regular commute. Consultants can often choose where they work, limit the number of days and times they go into a client’s office and schedule off-peak commutes.
- Control. You are your own boss. If you would rather not work on a project, you can decide not to take it.
- Varied Experiences/New Skills. Consultants have the opportunity to work with many different types of organizations in various capacities, and because of this, new skills may be developed. These experiences can accelerate career advancement and offer greater flexibility for future employment down the road.
- Deductions. Independent contractors may end up in a better tax situation if they understand how to take the right deductions. Contractors are businesses whether they set themselves up formally or not. By default, they are sole proprietors and may be able to deduct expenses such as mileage to and from their client site, meals with clients and collaborators, home office and equipment expenses, the employer equivalent portion of the self-employment tax, health insurance costs, etc. (Be sure to consult a tax professional to determine which expenses are legitimate.)
- Fewer Requirements. You don’t have to pay for unemployment insurance or be covered by workers compensation. (On the other hand, you may want to get workers compensation insurance for yourself to protect yourself in case of injury or sickness.)
- Fewer Meetings. As an independent contractor, you may not have to go to as many meetings and attend to the same level of politics. Of course, if there are meetings that would benefit your project, you should go, and a healthy awareness of the politics can only help your project. But you may notice that you have fewer “useless” meetings, and that the politics won’t bother you as much!
Taking into account your own situation — what you value in your career and life, your skills and your general approach to work — will help you decide what’s best.
Thank you for writing this article, Kathy. I get asked this question a lot. The funny thing is that I get asked it by people who are most concerned about security. For me, those are the very people that should NOT contract. It’s an uncertain world and you have to be in a position where uncertainty is OK financially and emotionally. Only then do I think you can enjoy the challenge and personal benefit of contracting.
I have been both, for the same corporation – and I have enjoyed it both ways – but lately, I am VERY MUCH enjoying being a contractor! Being free from much of the politics that going on as an FTE is like getting 10 hours BACK a week – not to mention the worry. Another plus for contractor – there are few tax free options to save for myself and my family, outside of the $17500 allowed into a 401K – depending on how much you make, you are able to save nearly 3X that, with some sound yearly planning. And with new solo 401k’s (combining a SEP and 401K into one account), you don’t have to make $250K to be able to save the max. I feel lucky to have been able to try FTE and contractor, and for now, contractor really works for me and my family.
In my experience, if you are a person who loves to do their job, but doesn’t want to get sucked into politics, travel, employee drama, and wants to be pay to command a fair rate, then you should consider consulting. Of course, I’m biased, but I think consultants get the intangible benefit of being my highly by their co-workers (weird that you gain IQ points being from the outside), and you can do better work because you aren’t affected by personalities and politics as much. I could actually go on and on and on, but this is a fair and balanced summary.
Love the independence and creativity of being a contractor. The flexibility of being able to work from home or anywhere, is amazing and i’m always up for a new challenge.
I love consulting. It can be the best of both worlds. If you do your job well most gigs can last a while and it works to your advantage if you are more interested in getting the job done vs. spending 8 hrs. /day in the office.
At this stage in my career and my family life, consulting is working very well for me. My experience and high performance results as an employee have provided consulting opportunities that I don’t think would have been possible earlier in my career. I’m enjoying the flexibility and control that comes with consulting. I truly don’t miss the meetings or politics, but I do miss the camaraderie that comes with being integral to a highly-efffective team of employees.
I love to tackle serial challenges. Consulting provides the best framework for digging in and working through a juicy project, and then being able to change the dial completely; I like to take travel breaks or dedicate time to helping a family member or friend. One thing to watch out for though is that as a self-employed professional, it may be more difficult to get a mortgage until you have a decent track record over a number of years.
Hey! I realize this is kind of off-topic however I needed to ask. Does building a well-established blog such as yours take a lot of work? I’m brand new to running a blog but I do write in my journal everyday. I’d like to start a blog so I will be able to share my experience and views online. Please let me know if you have any kind of recommendations or tips for brand new aspiring bloggers. Thankyou!
Thanks for your interest. A blog is generally more work than it looks, though it all depends on your needs and purposes. Our advice would be to just start blogging, to get in the habit of writing and posting and sharing your thoughts. A couple of our old blog posts might help you focus on some specifics: http://e-m-marketing.com/2013/10/how-to-write-a-great-blog-post/ and http://e-m-marketing.com/2014/05/how-to-cure-your-tedious-redundant-self-defeating-and-finite-blog/. We also found this article that has some good tips: http://www.theminimalists.com/blog/. Hope this helps, and happy blogging!
very useful and informative stuff you have provided here, Thanks for sharing this knowledge. Good job.
I love what you said about developing new skills as a consultant. I think that hiring a compensation consultant is a smart move. I’ll look for one that is passionate about their work.
Excellent article! Thanks or sharing this knowledgable information. it’s very helpful content for people who want to hire a consultant.
Nice article and thank you for providing valuable information