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Businesses IT

The Hidden Costs of Going Freelance 160

snydeq writes: IT pros lend firsthand advice on the challenges of going solo in Bob Violino's report on the hidden costs of going freelance in IT. 'The life of an independent IT contractor sounds attractive enough: the freedom to choose clients, the freedom to set your schedule, and the freedom to set your pay rate while banging out code on the beach. But all of this freedom comes at a cost. Sure, heady times for some skill sets may make IT freelancing a seller's market, but striking out on your own comes with hurdles. The more you're aware of the challenges and what you need to do to address them, the better your chance of success as an IT freelancer.'
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The Hidden Costs of Going Freelance

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  • uh? (Score:4, Insightful)

    by Anonymous Coward on Tuesday December 01, 2015 @01:36AM (#51031819)

    I'm seeing all this as though it's a choice. Like there's some guy with well combed hair, checking his watch and driving a lexus who makes the choice to begin an exciting new chapter in his life.

    Do you stupid fucks seriously think I want to work like this with no insurance and dental and being afraid of starving?

    THERE'S NO FUCKING JOBS YOU IDIOTS

    Subby needs to get his teeth knocked the fuck out with a clue stick.

    • by Anonymous Coward on Tuesday December 01, 2015 @03:07AM (#51032017)
      When I read some blogger bragging about the great joys of freelancing, I want to beat them over the head. Sure, you can make a living, for a while... and if you have the right skillset you might even make good money... for while! but skillsets change over time and although you can reskill, you'll never be as good at tomorrow's tech as what you are with today's.

      What counts most in business is connections. Freelancers by definition don't have connections. When work dries up, no one has has their back.

      These freelancing is greeeeeeat bloggers are like some guy bragging he picks up lots of babes. Maybe he does. Maybe he doesn't. So some harsh truths:

      > the freedom to choose clients,

      Truth: You will beg for work, take anything thrown your way, and be thankful for it.

      > the freedom to set your schedule,

      Yeah. Lots of time to do what you want "between jobs"

      > and the freedom to set your pay rate while banging out code on the beach

      Truth: Payrates are pretty low. You are competing with guys in third-world countries. Some of them write sucky code, sure, but others are very good, and they can live very comfortably on what for you is a meager wage.

      Freelancing can mean varied work and even good pay... for a while! but there are many advantages of working for the man: job security, safety in numbers. and being able to fallback to a career in management which has good pay and doesn't demand you're up to date with the latest tech.

      So next time someone brags about being a freelancer, wonder why if business is so good he is able to waste time blogging, and while you ponder this question, give him a wedgie.
      • Re: (Score:2, Interesting)

        by Anonymous Coward

        I agree. I have done some freelancing (because I had no other job).

        1) There is hard competition. There is always some guy from india or china (or africa) who offers to do the job for 5 USD/hour or less - and have PhD + work experience in that particular field and his costs of living are much lower than yours.
        2) It is very difficult to get enough money for living. You might get some good deals but in practice there are times when you cannot get no work so I hope you have a house and some savings or otherwise

        • by plopez ( 54068 )

          You're fishing in the wrong pond. I usually worked for small to mid-sized businesses which did not have money to sink down a rat hole or with enough IT knowledge to set up their own IT or programming department. I did that for them, among other things. It was also a situation where a face-to-face relationships were the most important.

      • The life of the IT contractor is always intense.
      • A friend of mine who freelances full-time told me I should quit my day job and become a full-time freelancer. And, yes, there is a temptation there because the freelance rates I charge are over 3 times my day job's hourly rate. However, whenever I look into it, I quickly realize how much more I'd need to make just to stay at my current level (once you factor in health care and other benefits I'm currently getting), how much I'd need to work unpaid (to drum up more business), and how much my "salary" would

        • by ranton ( 36917 )

          the freelance rates I charge are over 3 times my day job's hourly rate

          So much of what you wrote does not mesh with your statement above. Lets say you make $100k per year, so your hourly rate is roughly $50 per hour. That puts the freelance rate at $150 per hour. Lets add in a great family insurance plan that would cost you $15k per year, the employer's portion of your taxes at $8000 per year, and an extra $2000 per year in hardware purchases since you can't use the company laptop anymore. Add in another $5k for good measure, and you would need $130k to make the same as your l

          • by Karlt1 ( 231423 )

            So much of what you wrote does not mesh with your statement above. Lets say you make $100k per year, so your hourly rate is roughly $50 per hour. That puts the freelance rate at $150 per hour. Lets add in a great family insurance plan that would cost you $15k per year, the employer's portion of your taxes at $8000 per year, and an extra $2000 per year in hardware purchases since you can't use the company laptop anymore. Add in another $5k for good measure, and you would need $130k to make the same as your l

            • by ranton ( 36917 )

              So just to be equivalent you would have to make around $80 an hour.

              His statement was he could make 3x his current hourly rate as a freelancer, or $150 per hour (assuming he makes $50 per hour salaried). If this is the case, he could work 5 months out of the year and match his old salary. 7 months could be spent learning new frameworks or whatever else he wants. It gives plenty of buffer to be out of work and still pay the bills, along with keeping his skills up to date.

        • The simple truth is that you need to line up a long term (9-12 month) freelance contract before you quit your day job. Take 50% of your paycheck and sock it away into a savings (or stock market) account. Then you are set. When you are between jobs, draw from that account. When you are working, then deposit into that account 50%. You'll be set with a 9-12 month cushion after your first gig. When you get down to the last 2-3 months, consider looking for a full time job again. Rinse, repeat as necessary

          • The simple truth is that you need to line up a long term (9-12 month) freelance contract before you quit your day job.

            And you've hit on one of my three top reasons why I would find the transition to full-time freelancer to be tricky. (Right after "I prefer the steady income of a salaried job" and "I'm horrible at selling myself.") Right now I freelance in my spare time. I can put in about 10 hours a week freelancing in addition to my full-time job. This gives me enough time to take on one or two clients

        • You say this as though freelancers don't have a steady paycheck and don't have a family. When in fact, I am a freelancer (in the sense of a contractor), have a family and a nice house.

          The trick is to save a couple of months of expenses, start freelancing and then continue to save in your business account. From the business account, pay yourself a regular salary. I've continued saving into the business account until I had a year of living expenses. And I'll probably continue saving.

      • by ranton ( 36917 )

        What counts most in business is connections. Freelancers by definition don't have connections. When work dries up, no one has has their back.

        While freelancing has its downsides, this is absolutely not one of them. Almost no one has better connections than a good freelancer / consultant. It can be hard to build a good network when you stick with a single company for years. When you are constantly meeting new people at new consulting gigs, you will build a network very quickly. And these are people with the power to make buying decisions, or else they couldn't hire you as a freelancer. So your connections on average will be with much more influent

      • by judoguy ( 534886 )
        I've freelanced on and off for over thirty years. I'm 62 and no degree and I'm currently making around $170,000 a year. Not as much as I'd like, but I'm getting by.

        What are you whining about? Make yourself marketable or go away. I have learned whatever I needed over the years to to make myself desirable to clients. New languages, etc., whatever it takes.

        Now as a member of the bewildered elderly, I simply told my current client I'd do whatever they need. No whining to be working only with the latest tech

    • Are you looking in the right place?
      They are jobs but if you want to be freelance you need to on the watch all the time and that extra cash you make needs to go into that time between jobs.

      The key reason why I don't freelance is because I suck at selling myself to new people. Once I am in they tend to love me, but before that I am just like any other smo.

      • The key reason why I don't freelance is because I suck at selling myself to new people. Once I am in they tend to love me, but before that I am just like any other smo.

        I have this problem too. This is second only to "need a steady source of income" in reasons why I only freelance on the side. I know I'm good at what I do, but when it comes time to sell my talents to others my brain suddenly turns on me and tells me that I know nothing and there are tons of people out there who know more than I do. The la

      • You realize that comes off no different than saying the number one reason you can't be hired is because you have no skills. I presume you are on this forum because you work in a tech field, and that you set about developing skills in the field because it is a profession you desired. Why should the skill of self-promotion be any different? You'll need it to excel in life, whether you are a freelancer or not.
        Unless your daddy hired you, you managed to sell yourself enough to get a full-time gig, so I also thi

    • Do you stupid fucks seriously think I want to work like this with no insurance and dental and being afraid of starving?

      You apparently are not aware that it is possible to obtain insurance and dental without getting it from an employer? Well, it is a relatively new thing that started in only the 1920s.
      In fact, I have had insurance outside of my employer (several different employers in fact) for about 20 years now. Although the employers like to make you think you are stuck with them and their insurance is cheaper, in fact that has never been the case. Why would anyone even think that buying insurance from the company store

      • by Karlt1 ( 231423 )

        You apparently are not aware that it is possible to obtain insurance and dental without getting it from an employer?

        Unless you or anyone in your family has a "pre-existing condition", at least before the ACA.

        Although the employers like to make you think you are stuck with them and their insurance is cheaper, in fact that has never been the case. Why would anyone even think that buying insurance from the company store would be cheaper than buying it from hundreds of companies that are competing for your bus

        • You think you can negotiate better rates than a company with 100's of people?

          Of course he can. He's John Galt.

        • You think you can negotiate better rates than a company with 100's of people?

          You don't even have to negotiate. You just take the advertised rate and save money. You will always save money when there are hundreds of companies offering a product over when there is only one product available. This was true even before ACA, but everyone was told that it wasn't true and they should stick with a company plan. I wonder why that was? Kickbacks? Executive Perks?

          • by Qzukk ( 229616 )

            You will always save money when there are hundreds of companies offering a product over when there is only one product available.

            If you're 20 and healthy then yeah, getting a personal policy all by your lonesome will be cheaper than joining a risk pool of employees of all ages and health levels.

            If you're 60 then getting a personal policy all by your lonesome will never be cheaper than joining a risk pool padded out by the 20 somethings buying the company plan. Unless you're talking about buying high-deduct

            • You will always save money when there are hundreds of companies offering a product over when there is only one product available.

              If you're 20 and healthy then yeah, getting a personal policy all by your lonesome will be cheaper than joining a risk pool of employees of all ages and health levels.

              If you're 60 then getting a personal policy all by your lonesome will never be cheaper than joining a risk pool padded out by the 20 somethings buying the company plan. Unless you're talking about buying high-deductible ER-only coverage, in which case your tricycle doesn't even rank with the Ferrari's everyone else is getting and you should feel bad for claiming it's a better deal because it's cheaper.

              High Deductible aka Major Medical is the only kind of insurance that actually IS insurance.

      • by Qzukk ( 229616 )

        in fact that has never been the case

        Unless you've had a history of cancer, diabetes, multiple sclerosis, or any of a number of other "preexisting conditions". In that case, it's never been the case since Obamacare kicked in.

    • Re: (Score:2, Insightful)

      by JeffOwl ( 2858633 )

      Lol. Tech sector unemployment is STILL UNDER 5%. There are plenty of jobs out there, apparently just not jobs you are qualified for or willing to do for the pay.

      My wife created a consulting company (woman owned small business, yea!) and hired herself. Lots of advantages, max the employer side of the 401K, pay a reasonable but small salary and take the rest in profit; it still goes against income, but you don't pay payroll tax on it. Work from wherever you want most of the time, tax free mileage reimbu

  • Missing cost (Score:5, Insightful)

    by AK Marc ( 707885 ) on Tuesday December 01, 2015 @02:07AM (#51031879)
    The Slashdot header says cost, TFA header says "pitfalls". One I've seen that is either (or both) is sales. When you are freelance, you have to spend time bidding, designing for bids, building client confidence, and other things that aren't billable.

    If you aren't prepared to spend 20% of your time on unpaid sales, you aren't ready to go freelance. Yes, that's a high number. But in a down/slow time, it'll not be far off. When things are good, you'll be spending a few spare minutes on the next job, but if you only plan for the best, you'll only get the worst.
    • by m2pc ( 546641 )

      Meetings can be another time waster and non-billable. Unless you specify upfront that _any_ time spent with the client is billable, you will eat the cost of sitting through sometimes hours-long meetings just to define the project you will bid and be paid on.

      On top of that, some clients will expect you to meet them wherever they need you to be, even if it's several hours away, again at your own expense.

      I've been freelancing for the past couple years and love it, but just keep this in mind!

      • This is something IT freelancers need to learn from other billable industries: any time spent on the client is billable. Interior designers, architects, lawyers, doctors, lobbyists, ad agencies and every other upper-middle class profession based around working with clients works this way. It's normal and as long as you're up front about it, no one will think twice about it.

        Break up your time into 15 minute chunks and bill for it anytime you're doing something for your client.

        -Chris

  • by cerberusss ( 660701 ) on Tuesday December 01, 2015 @02:12AM (#51031897) Homepage Journal

    Couldn't find it on the list: time for getting new client.

    I've been doing the contracting thing, where the client hires me to extend their on-site team. Recruitment agencies call me, I have an intake over the phone with the client and then meet them face-to-face. So I don't recognize the things mentioned like "fixed-price contract", I just have an hourly rate. You can spend anything from a couple of months to a couple of years working for the same client.

    I very much like it, but I work 4 days a week. That one day a week is really useful when the contract ends, because then you'll have to start emailing recruiters, looking for the next project. The phone and face-to-face interviews take hours, and it's hard to stuff that away in the usual 9-5 business hours.

    The iOS job market is great currently, so it's not hard finding a project.

    • Does your field (which sounds like app development) allow you to charge a premium rate so you can drive down the number of hours worked? Solo shops and microshops in other professional services (like PR/marketing) essentially plan on only 50% billable time, with the remainder going to biz-dev and a little admin.

      But for that to work at a decent salary equivalence, your hourly rate (or equivalent if you do fixed-fee work) needs to be $100 an hour or more. Is that reasonable in your field?
      • Yes, it's app development. But I don't do fixed-price projects, I just join/extend their team. I've just started, so my current rate is at the local bottom at 65 euros. However, that translates into a decent salary for me.

      • Does your field (which sounds like app development) allow you to charge a premium rate so you can drive down the number of hours worked? Solo shops and microshops in other professional services (like PR/marketing) essentially plan on only 50% billable time, with the remainder going to biz-dev and a little admin. But for that to work at a decent salary equivalence, your hourly rate (or equivalent if you do fixed-fee work) needs to be $100 an hour or more. Is that reasonable in your field?

        I bill $100 an hour and I find that to be extremely cheap for the work that I do. I recognize that when I was working at a company with all the meetings and interruptions, that the amount of work that I got done in a day now takes me about an hour to do on my own. So i am turning around $1500 or more of work in an hour, but only billing $100 for it.
        A local medium sized business does daily rate for it's consultants. An entry level consultant bills out at $1,500 a day. That is almost $200 an hour right ther

    • by tlhIngan ( 30335 )

      I've been doing the contracting thing, where the client hires me to extend their on-site team. Recruitment agencies call me, I have an intake over the phone with the client and then meet them face-to-face. So I don't recognize the things mentioned like "fixed-price contract", I just have an hourly rate. You can spend anything from a couple of months to a couple of years working for the same client.

      In other words, you're contracting involves a "body for hire", which is a perfectly reasonable way to do contra

      • Another form of contracting is a traditional contract - you have to do X and produce Y deliverables in preferably a Z timeframe, which is more project oriented

        I've done these on a much smaller scale, moonlighting during my previous (regular) day job. But I found it's pretty easy to sign yourself into bankruptcy. Just make a faulty estimate, then let the client sue you. And there are always surprises. So personally, I wouldn't want to do fixed price projects as a one-man shop.

        • by swb ( 14022 )

          In my experience, flat-rate projects succeed or fail by the contract terms. The deliverables have to be fixed and the project completion has to be extremely well-defined so you can declare it complete when the deliverables are complete. Scheduling should also be part of the contract so that client delays can't sap momentum and drag the project out. All change orders should be time and materials at a rate significantly higher than the flat rate average to discourage scope creep.

          I usually see the problem

    • Yes, getting a new client takes a lot of time, and you don't always know exactly when one will end, so it is hard to schedule another one to start until you are definitely done with the old one. In may case, I have several clients and I don't spend 100% of my time with any one of them, but your situation is very different because you are "supplemental staffing" which means they need you the bulk of the time.
      In my last experience with independent consulting, back when the economy collapsed due to 9/11, it w
      • Yes, that is one of m fears; the economy going downhill in a big way. Before starting contracting, I worked for 8 years at a scientific institute, which offered a very solid position. In any case, my SO will still earn a bit of money as a teacher, that's a bit of an insurance.

    • You don't work four days a week, you work five days a week and only get paid for four.
  • You automatically rank in the highest tax category as a freelancer. Of every buck you make, 60 cents go to the state.

    You have to keep your own pension in mind, and let us face it, most programmers are not that good at selling themselves. While exceptions are there, once you start as a freelancer, you might start to appreciate those pesky sales droids a lot more.
    • Re:60% tax (Score:4, Informative)

      by aaarrrgggh ( 9205 ) on Tuesday December 01, 2015 @02:55AM (#51031985)

      You can pay a lot of taxes, but (in the US at least) you can do a solo-401k retirement plan, which will let you save $37k with zero taxes and $17k with just 15%. You can also deduct expenses, and if you are creative with your business structure you can avoid some other taxes.

    • Re:60% tax (Score:5, Insightful)

      by Actually, I do RTFA ( 1058596 ) on Tuesday December 01, 2015 @02:55AM (#51031987)

      You automatically rank in the highest tax category as a freelancer. Of every buck you make, 60 cents go to the state.

      If that happened to you, without you suddenly making the income that would justify it, for the love of heaven seek out a tax professional. You do have to pay both your half and the employer half of FICA. But, almost certainly your tax bracket should go down*. Or you FUBARed your taxes.

      • You automatically rank in the highest tax category as a freelancer. Of every buck you make, 60 cents go to the state.

        If that happened to you, without you suddenly making the income that would justify it, for the love of heaven seek out a tax professional. You do have to pay both your half and the employer half of FICA. But, almost certainly your tax bracket should go down*. Or you FUBARed your taxes.

        Well let's hope that he's not a freelance accountant or tax planner...

      • He's pretty far off, 20% or so depending on the state. Assuming $100k, he's paying 15.3% in SS/MED, and ~21% max on Fed tax. State taxes at that income are usually around 4-6% at most, so 42% worst case scenario before income deductions.

        • Self employment tax, the 15.3% minus the taxes on that amount so the effective rate is around 12.6%. At least that was what I paid when I was self employed. I argued that with a professional tax consultant, he was adamant 15.3%. The fact that you can deduct the 15.3% from your taxable income for income tax purposes escaped him.
          • You can't deduct fica taxes from fed taxable income, they fall under the same level (fed taxes) and thus use similar taxable buckets (albeit with different exemptions allowed). If you did, it would create a feedback loop. Some local taxes like property tax reduce income, or you may have been thinking about the bush tax holiday, where the percentages were lower by 2%, or thinking about a sole proprietorship aspect of income taxes on your yearly return. Paying fica taxes at a fixed percentage per paycheck/

    • by jtara ( 133429 )

      Nonsense. At least in the U.S.

      For one, how does one "automatically" rank in the highest tax category? That would depend on your income, not your freelancer status.

      Make sure to incorporate (C or S). (Or form an LLC.) You then have many options not available to a sole proprietor:

      • Your medical insurance premiums are deductible. (You do not need a company-sponsored plan.)
      • You can receive your personal income as a combination of salary and distributions. Only salary is subject to social security taxes. This can
    • Re:60% tax (Score:4, Interesting)

      by tompaulco ( 629533 ) on Tuesday December 01, 2015 @10:24AM (#51033239) Homepage Journal

      You automatically rank in the highest tax category as a freelancer. Of every buck you make, 60 cents go to the state.

      You are automatically in whatever income bracket your income qualifies you for, just like anybody else.

      You have to keep your own pension in mind, and let us face it, most programmers are not that good at selling themselves. While exceptions are there, once you start as a freelancer, you might start to appreciate those pesky sales droids a lot more.

      Pension? BWAHAHAHA. Oh, thank goodness the company has my back. Yeah, right! These days, when you work at a company, you ARE an independent contractor. There is no pension. There is no retirement unless you are paying into it yourself (and they might match you for a few percent). As soon as they can find somebody that they think can do your job for a nickel cheaper, you are out the door. There is no loyalty from the company, but if you aren't loyal to the company and not willing to work 12 to 16 hour days every day, then you are "unprofessional". If you don't give two weeks notice, you are "unprofessional". But they can walk you out the door at a moment's notice, and that is supposed to be okay.

  • by CaptainOfSpray ( 1229754 ) on Tuesday December 01, 2015 @07:59AM (#51032655)
    Yes, those things listed in TFA are important but they are not that difficult to handle. The worst thing about TFA is that it mostly does not offer the obvious solutions.
    1. Getting to work remotely is straightforward. Don't ask for it till you have done an onsite contract first. Prove that you deliver. Then you can be trusted.
    2. NDA. Yes, insist on the "standard exceptions" or walk away. There are plenty of other fish in the sea.
    3. Yes, you have to educate people you work with. Also true when an employee.
    4. Riding out storms. It's not hard to build up reserve money in your business - simply park some of the profit. I always had 6 months worth. You have to park quite a lot anyway, so that you have it ready when tax payment day comes.
    5. Keeping up to date. Yes, that's tricky - but you do NOT need to chase the Flavour-of-the-Month like employees do. I only needed to change direction once in 20 years - plenty of earning opportunities always there
    6. Reconcile agile and fixed-bid? That's ridiculous FUD. No freelancer is so stupid they do fixed-bid with open-ended requirements, surely? Leastways they only do it once. Every freelancer I have ever worked with was on time and materials.
    7. Communications gaps. This is not a threat, this is an opportunity! This is where the freelancer can shine, by doing the internal communicating that the customer is themselves is incapable of. I have done this on every project, and got kudos for being helpful.
    8. Time management. Ho hum. Everybody, freelancer or employee, has to manage their time.

    Time needed for handling getting requirements and doing proposals? You call that non-billable? No, Dorothy, you roll that into your daily rate.
  • You know, before slashdot turned into a circle jerk of low level programmers complaining about how they could totally do their PHB's job a million times better than their PHB (yet strangely nobody else notices), this article would be laughed into oblivion. Hidden costs of going freelance? Could that sound more naive?

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