Hello!
I am considering performing either contract or part-time employment with an employer in a different state (KY). I currently work full-time, remotely, in FL.
I believe because my residence is in FL that contracting will be my only option (due to employer rules on hiring out of state).
To contract, I believe I’d have to be a sole proprietor (I think) and submit a bid, etc.
I don’t need to do this financially - and am going to move to KY in the next year (making part time employment possible instead of contracting). In other words, I could just… wait or not do this at all. My main goal here is just to make some extra money - but if taxes or something was going to make me miserable then I can just not do this.
Questions:
- What effect would contracting in a different state have on my taxes?
- Should I just wait til I move to KY and try to go the part-time employment option instead of dealing with the sole proprietorship?
- Any other advice / thoughts you have?
Those are all true, and I’ll add one more: many times contractors have specific expertise that warrants higher pay.
The part I can’t reconcile basically relates to long-term contracts. I have one client who has been paying me for as much time as I can give them for about four years. On an hourly basis, I probably cost them 80% more than the fully-burdened labor cost of an equivalent W2 hire (including taxes and benefits and overhead). Or in other words, for the ~20-25 hours/week I do work for them, they could have someone working 40 hours a week instead. In this case, your second and third points aren’t really a factor, so I’m banking the extra as a “risk premium.” They seem happy to pay it.
In a rational and efficient market (myths, I know), they would have hired a full-time W2 person to do the work I’ve been doing, long ago. And I don’t really get why they haven’t.
There are some companies with so much overhead with regards to hiring people that it is much quicker to just approve a consultant, and the cost/benefit analysis takes this into account. Sometimes it is because project dollars and employee dollars come out of different buckets, with different approval chains. There may be more money in the project budget with a simpler approval process, making it easier to contract than to hire.
Regardless, internally they have a budget for each job you do. It may be simpler for them to simply approve each job as they come, even at a premium, then to fight to get more headcount approved. Theoretically this also gives them the opportunity to cut you on each job, but if you are that awesome they’ll keep signing you up.
(And in some dysfunctional companies, headcount is directly related to management authority, so it can be easier politically to spend more on a consultant than to fight to figure out which manager gets to become more important by having another direct report.)