With the current high demand for accounting and finance professionals, you may find that it can be incredibly lucrative to become a contractor. A contractor, also often called a Consultant for higher-level positions, is an individual who is either employed by a third-party agency, or who contracts directly with an organization to provide services.

Some companies rely heavily on contractors. Others have a culture or management team that discourages them. The services to be performed can either be functionally oriented (e.g. an Interim Controller) or project oriented. The scope, length, short and long-term goals of the project should all be outlined in depth prior to initiating a contract. Usually there is an hourly bill rate associated with the contractor's work, but many other arrangements such as fixed periodic fees or fixed project fees exist. The work of the contractor is either supervised by the third-party agency that employs them, or someone at the client site. This is often dependent on factors such as the company or the nature of the work, the agency's and the client's supervisory capabilities.

Below you'll find information and answers to questions commonly asked about contracting work.

How do contractors get paid?

If employed by a third-party agency, the individual will usually be a W-2 employee and receive semi-monthly or weekly paychecks based upon actual hours worked. The agency covers the employer payroll taxes and worker's compensation insurance. Some agencies will pay contractors on a 1099 basis, but only if they are confident they are not accepting additional risk for unpaid taxes or injury to the contractor. In this instance, a minimum requirement would be for the contractor to have their own workers' compensation insurance policy. It is important to check with your state's business licensing bureau's requirements to find out what's best for you.

Hourly pay rates to contractors vary widely by position and project. Like most things in life, the greater the demand, experience, and specialization….the greater the pay. In general, contracting results in greater hourly pay than dividing an annual salary by 2,080 working hours. Agencies may "mark up” a contractor's pay rate to arrive at a billing rate, or they may establish bill rates according to their set schedule, without regard to pay rate.

Agency bill rates must cover many factors in addition to the direct costs of contractor wages, taxes, insurance, and miscellaneous expenses. The rates must also include an allocation for overhead, risk, and profit. The contractor should focus on getting paid fair market value for their skills and experiences rather than the bill rates being charged to clients.

Do contractors receive benefits such as medical insurance and PTO time? It depends on the agency. Agencies who focus on professional level positions and longer term engagements are more likely to pay benefits to contractors. On-Site Financial provides a fixed monthly dollar amount to be used for cafeteria plan benefits after 90 days of service, and also accrues PTO time for contractors.

Can I stay busy contracting?

Yes, but nothing is guaranteed. Contracting can be a challenging, profitable alternative to a "real” job in many cases, but you must understand the very real possibility that you will have periods of uncertainty and unemployment. A contractor's skill set and attitude are probably the two most crucial factors in staying busy, and ultimately being successful at contracting.

Core skills that are applicable to many engagements and flexible attitudes towards pay rate, scheduling, and location make a huge difference. Another big factor is loyalty. While it is smart for a contractor to make themselves known to several agencies, giving first notice of availability and becoming a "go-to” person for just one or two key agencies is usually rewarded with better overall opportunities.

What paperwork is required?

If you are hired as a W-2 employee you will need to complete all of the normal required hiring paperwork (application, I-9, W-4, etc.). If you are hired as a contractor you will need to sign a consulting agreement detailing the nature of the "employment' relationship. In either case you will be asked to undergo a background check and sign some form of confidentiality, non-compete or non-solicitation agreement. As

a contractor you will almost always sign an agreement that indicates that you can be released for no cause at any time.

What is the company culture for contractors?

Don't be surprised if you are not treated like the regular employees. But that's not a negative. You will be amazed at how freeing that can be. If you contract / consult in a company where there is a strong delineation between regular employees and contractors, while it is true that you may not be able to use the company gym, you may be immune to the distractions of politics, culture changes, and even some internal processes. You will have precise deliverables and your only focus will be to meet them. Wouldn't that be nice?

On the other hand, on occasion the delineation between regular and contract employee goes too far, and you may find that the prevailing culture in a company makes it difficult for you to do your job as a contractor. This can happen because information is either withheld because you are contracting, or others neglect to include you in important disseminations because they forget or overlook you.

Ask around before accepting a contract position. Find out what the environment is like for contractors. How are they treated?

Do I need to market myself?

Whether you are selling your services directly to a client company or to an agency which will represent you, know how to sell your product - you. If you are planning to work through agencies you should market yourself as a reliable, can-do resource for them. Always keep your resume up to date and in the latest format according to current best practices.

Keep not only a standard resume, but also a list of career achievements that is one page and highlights the biggest wins you've achieved in your field, whether that be overcoming an especially difficult roadblock of some kind, or receiving some sort of recognition. If you feel that you are awkward in interviews, take a course or work with a trainer who can help you to become a better interviewee.

Independent consultants (as opposed to working through an agency) often have the opportunity to realize higher hourly pay rates and enjoy increased stature, but also have a host of other considerations. If you are considering becoming an independent consultant, know that marketing yourself directly to companies (or referral sources such as CPA's and bankers) as an independent consultant is one of the biggest challenges.

If you are not marketing yourself consistently (regardless of whether you are billing 5 hrs per week or 50 hrs per week) you may find yourself on a financial and psychological rollercoaster where every time a project ends you must endure significant down time (weeks or months) while you re-market yourself to the client and financial community.

What is the duration of contract work?

Contract lengths vary. Companies are careful to avoid co-employment issues and many companies reacted to the class action lawsuit against Microsoft years ago by setting a limit on how long an individual can be a contractor.

Most project contracts will run for 3 to 18 months. Short-term contracts, which are more common in IT than in Finance, can be as short as a few weeks or even a few days.

It is important that you know the length of a contract for which you are being presented by an agency. Even if it is a short contract, it may be attractive to you if the work puts you in touch with the right groups or offers you new skills or experiences to add to your resume.

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