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Contract Employee's Newsletter
Helping Contract Professionals
Manage Their Careers
September 01, 2001
Edited by James R. Ziegler
A Companion to:
The Contract
Employee's Handbook
www.cehandbook.com
Sponsored by:
P.A.C.E. - Professional
Association for Contract Employment
www.pacepros.com
About The Contract Employee's Newsletter
The Contract Employee's Newsletter is a free e-mail publication
for technical and professional contractors containing news, commentary,
tips, links to useful resources, nuggets of wisdom submitted by
readers, and anything else that seems appropriate at the time. The
CENewsletter is distributed bimonthly or whenever issues warrant.
The subscriber list is confidential and will not be disclosed outside
this organization.
In This Issue
Suggest A
Topic For The Newsletter
Mail your suggestions to suggestion@pacepros.com.
Kudos and Testimonials
What People Are Saying About Us
The following links are to articles published by Tech Republic.
You must be a member to view these articles. However, membership
is free and well worth it.
Tech
Republic, Aug 20, 2001
Building the free agent's infrastructure. By
Bob Watkins
"If you’re choosing to do your own sales, there are several
good resources. One of the most convenient is The Contract Employee's
Handbook by James R. Ziegler. The appendix of this free online report
contains more than 75 pages of resources for marketing and self-promotion."
Tech
Republic, Jan 15, 2001
This online handbook is designed for beginning
consultants. By Thomas Pack
"Ziegler is also the founder and director of P.A.C.E. (Professional
Association for Contract Employment), a payroll management firm, benefits
administrator, and employer of record for independent contractors
who want to maintain W-2 status. With that background, you can bet
on the value and reliability of this site. The Contract Employee's
Handbook is certainly recommended reading for anyone considering
making the leap from a regular corporate job to contracting work."
Tech
Republic, Jan 3, 2001
Need the benefits and perks of an employee?
A pass-through agency can help.
By Meredith Little
"Of the several sites I researched, I liked PACE (Professional
Association for Contract Employment) best."
"[The Competition] didn't give me quite the same feeling as
PACE did, perhaps because [The Competition] is a publicly traded
company with a slick site. To me, PACE seemed more overtly intent
on honesty. . ."
Return to Table of Contents.
Marketing Tips
Be a Mentor
What is a mentor? It is someone who meets these three criteria:
- Knows more than you do about a specific area of expertise.
- Expresses an interest in your progress and success in that area.
- Is willing to share their knowledge and insight with you over
an extended period of time.
Hey! That could be a description of YOU. YOU can be a mentor!
Here's how. At each contract assignment select one or two bright
co-workers who have expressed an interest in your skill set. Take
the initiative to coach them in your area of expertise. As a mentor
you will earn the respect and gratitude of your co-workers, not
just those you are mentoring, and they just might recommend your
services to their own clients and employers later on. Those who
have benefited professionally from your mentorship will return your
investment many times over.
The relationship between mentor and mentee is one of the strongest
relationships in the professional world. Keep in touch with your
mentees, for they are your eyes and ears, and they will keep
you working if you give them half a chance.
It is an interesting observation that the mentoring relationship
is much less effective if you expect a payback for your efforts.
Ironically, you create the greatest respect, the strongest relationships,
and the greatest potential for a positive return when you share
your knowledge and expertise without any expectation at all.
Return to Table of Contents.
Ask Dungaree Dan
Client Of 1099 Contractor Is Slow Paying
Q: Dear Dan -- My contract with the client says they will
pay me within 15 days of receiving my invoice. Business is slow.
It's been over 30 days now and they keep putting off payment. I
am afraid I may never get paid if my client goes under. They still
want me to show up every morning at 8:00 am and put in a full day
of work on this project. They are so controlling. They are watching
me like a hawk to make sure they get their money's worth. I even
have to submit a detailed status report every evening before I leave
work. -- Signed: Involuntary "Volunteer"
A: Dear I.V. -- I think your client is treating you like
an employee, and I think the IRS, your state's Department of Labor,
and your state's Department of Employment would agree with me. This
is a situation where it may be in your best interest to be reclassified
as an employee of the company.
Companies must pay their employees promptly, but they can slow
pay or outright stiff their independent contractors. In the case
of bankruptcy employees are always paid first. If the company wants
to treat you like an employee they should pay you like an employee.
Here is how you can get paid for everything, immediately. I must
caution, however, that what I am advocating is a very hardball approach,
and you should do this only if you have exhausted all diplomatic
avenues for collecting what is owed to you. Use this approach only
if you are afraid that the company is dealing with you in bad faith,
or if you think it is on the brink of bankruptcy.
Step 1.
Bone up on the differences between an employee and an independent
contractor. First, read Chapter
1 in The
Contract Employee's Handbook.
Second, download and print the IRS training manual, Independent
Contractor or Employee? IRS Training Course 3320-102(10-96), from
the IRS website at http://ftp.fedworld.gov/pub/irs-utl/emporind.pdf.
Just showing this 160-page document to the people in HR should rock
them in their boots.
Third, download IRS Form SS-8 at http://ftp.fedworld.gov/pub/irs-pdf/fss8.pdf.
The questions in this form will help you identify how you are being
treated like an employee.
Use your new knowledge to write down all the reasons why you believe
that you are actually an employee of the client. Now, create a bulleted
list that itemizes the ways that you are treated just like the client's
regular employees.
Step 2.
Write a letter to the key person in your client's HR department.
Use the following text as a model.
Dear [Top HR Person]
It was always my understanding that my relationship with this
company was that of vendor and client. However, I now believe
that the relationship was misrepresented to me and that I am actually
a regular, hourly-paid employee of your company. Here is a list
of ways that your company has consistently treated me as an employee.
- First Reason
- Second Reason
- Additional Reason
- Additional Reason
- Etc.
Because I believe that I am a misclassified employee, and because
this company has not paid me for my work, I intend to take the
following actions immediately.
- I will call this state's department of labor and ask them
to assist me in collecting my back wages. I will explain that
other employees are paid on regular paydays, but that you have
not paid me in over 30 days.
- I will file an unemployment claim against this company stating
that I was forced to terminate involuntarily because the company
has not paid my wages in over 30 days.
- I will explain to these agencies that I believe there may
be other misclassified employees at this company, and I will
suggest that these agencies investigate to see if other workers
are being denied coverage for their lawful entitlements, including
Unemployment Insurance, Social Security, Medicare, and other
applicable payroll taxes, as well as state and federal withholding
taxes.
If this company wishes to reaffirm that I am in fact an independent
contractor and not its employee it can pay me immediately for
all outstanding invoices. If I have to leave the building today
without receiving payments owed to me I will assume that I am
indeed a misclassified employee of this company, and I will take
the actions listed above.
Sincerely,
Ima Tuff Contractor
Step 3.
Sign the letter, keeping a copy for yourself. Do not yet seal the
letter. Do not mail the letter. Hand carry the letter to HR and
ask to speak with the company's top HR official.
Hand the letter to the HR official. Ask him or her to read the
letter. Say nothing. I repeat, say nothing. Keep cool and
show no emotion. Wait for the HR official to explain how the company
will resolve the issue. After all, there is nothing for you to explain.
The message in the letter is clear. Either the company pays you
immediately what they owe you as an independent contractor or you
will seek payment as an employee through the appropriate government
agencies.
I assure you, you will be paid, and you will be paid promptly,
if not as an independent contractor then as an employee of the company
at the not-so-polite urging of the state DOL and DOE.
If the company is stiffing several independent contractors you
may want to carry out this exercise as a group.
I hope no one ever has to take such an extreme measure with a deadbeat
company, but desperate situations demand desperate measures.
If you are in fact a fully IRS-compliant independent contractor
then your only recourse is an escalated collections process culminating
in legal action through the courts. If you are not in too deep with
the company you can sue the company in small claims court.
If you think that there is a chance that the company will file
bankruptcy then you must file suit as soon as possible. Claims against
the company filed prior to bankruptcy have precedence over claims
filed after bankruptcy. -- Signed: Dungaree Dan
[Unabashed self-promotion: Contract
Professionals can greatly minimize revenue collection problems by
using the ProTrac back office services offered by The Professional
Association for Contract Employment. P.A.C.E. specializes in negotiating
short payment cycles with your client and collecting your overdue
receivables. Your job is earning the money. P.A.C.E.'s
job is making sure you get paid on time.]
Questions for Dungaree Dan
Send your questions about contract employment to Ask
Dungaree Dan. We will try to answer all of your questions, and
we will publish the most interesting ones in The Contract Employee's
Newsletter.
Return to Table of Contents.
Survival Tactics
Job-hopping Is Good For You
Want a raise? Quit your job. Last year a study commissioned by
the California Education Development Department
(EDD) reported that 77% of 124,000 workers laid off in 1996-97
found new jobs within a year. The average salary of those new jobs
was over 15% higher than the salary earned at the previous jobs.
By contrast, full-time employees who remained employed during the
same period received annual raises of just 5%. Reported in LA
Times. That Job Layoff Might Really Be a Career Move by Jerry Hirsch.
10/20/2000.
A new study by the Economic
Policy Institute (EPI), confirms the $value$ of job-hopping.
NET WORKING: Work patterns and workforce policies
for the new media industry by Rosemary Batt, Susan Christopherson,
Ned Rightor & Danielle Van Jaarsveld reports on a study
of 335 workers in New York City's Silicon Alley, a concentrated
area of Internet-related companies. The study found that new media
workers have the best chance of boosting salaries by moving quickly
from job to job.
In his review of the EPI report for CNET
News, Brian Livingston makes the following points:
- New media workers have a high level of turnover. Independent
contractors had an average of six clients during the past year.
Full-time, permanent employees averaged two employers during the
same period.
- 87% of the study participants reported that they relied on
self-teaching to learn new skills, spending 15 hours of paid time
and 13.5 hours of unpaid time per week developing new skills.
- Only 16 percent of those surveyed would reject an offer from
a different employer if it came with higher pay.
- New-media people almost never move up within a company; they
move up by moving on.
- Career success is more dependent on personal connections than
impressive credentials; on who you know, not what you know.
- Most jobs are filled through employee referrals, not resumes.
The message is clear. Develop and maintain a powerful professional
network, and leverage your connections to land a succession of short-term
contract assignments at successively higher billing rates. As Livingston
concludes: "... you may have the greatest job security by not
staying too long with any one employer."
For this reason I recommend that you negotiate contracts with terms
of six months or less. That way you can more easily track increases
in the overall market rate for your skillset, and also earn what
your newly acquired skills are actually worth.
Employees must wait for their annual reveiw to get a raise, but
Contract Professionals can give themselves a raise every time they
negotiate a new contract.
Return to Table of Contents.
Resources
Contractor-friendly Job Boards
By contractor-friendly job boards I mean job boards that discourage
postings by third-party firms such as placement agencies, recruiting
firms, contract employment agencies, and other so-called consultants
in the bodies-for-hire business. At the very least, contractor-friendly
job boards identify agency postings, or they let you exclude agency
postings from your search.
I invite you to submit your favorite contractor-friendly job boards.
I have started a list of contractor-friendly job boards in Appendix
A: Resources for Contract Workers in The
Contract Employee's Handbook.
You can help me expand the list by letting me know about job boards
that work particularly well for you. I want to support job boards
that respect the independence of Contract Professionals. Send your
recommendations to Resources@pacepros.com.
Here are two sites that I really like:
FlipDog
www.flipdog.com/
FlipDog.com claims to be the single largest employment search engine
on the Web. Jobs are gleaned directly from company web sites, so
most of the jobs are regular full-time. Be sure to UNCHECK the box
in the left margin of <Find Jobs> labeled "Show recruiter
& staffing agency listings". This way you will filter out
almost all recruiting firm listings.
Use the divide-by-1000 rule of thumb and go after the jobs on a
contract-to-hire basis. You'll earn top dollar and get paid for
every hour worked. Use an umbrella service, e.g. P.A.C.E.,
to obtain W-2 tax status and receive executive-level benefits and
tax-exempt expense reimbursements.
Software Contractors'
Guild
www.scguild.com/
For an annual fee of $20 you can post your profile at The Software
Contractors' Guild. Your resume is displayed where it can be viewed
by prospective clients and agents alike, indexed and sorted by skill
specialty and availability date. If you are available immediately,
your name automatically appears at the top of the list for your
skill specialty. No system is perfect, but you can reduce the number
of calls from third-party recruiters and staffing agencies by putting
the following message at the top of your resume:
COMPANIES ONLY. ABSOLUTELY NO THIRD-PARTY RECRUITERS.
My Employer of Record for W-2 Tax Status is P.A.C.E., Professional
Association for Contract Employment. http://www.pacepros.com/
Of course, you don't have to name P.A.C.E. Naturally, I'm highly
biased in favor of P.A.C.E., but you can name any other pass-through
agency or umbrella service that you want to use.
Return to Table of Contents.
P.A.C.E. News
P.A.C.E. Has A New Website
I am very pleased to announce the inauguration of the new P.A.C.E.
Website. As a matter of fact you are inside the new site right now.
The URL, www.pacepros.com,
is unchanged.
I encourage you to read the new P.A.C.E. website from cover to
cover. It is filled with detailed information about how P.A.C.E.
works.
Notice that the title page features four services:
- ProTrac (Virtual Back Office For
Contract Professionals)
- ProExec (ERISA Compliance and Outsourced
Corporate Employment for Key Employees)
- ProTect (Risk Management Solutions
For Companies)
- ProCure (Marketing Solutions For
Contract Professionals)
ProTrac
ProTrac is P.A.C.E.'s employer of record service, and is the only
section of the new website that is currently active. Click on the
ProTrac image to proceed. ProTrac is the service that P.A.C.E. has
been offering to Contract Professionals for the past three years.
ProTrac lies at the core of everything we do at P.A.C.E.
ProExec
ProExec is a related service that P.A.C.E. will soon roll out for
the principles, executives, and key employees of micro-businesses.
Now, for the first time, micro-businesses can compete with the "big
guys" for talented employees by outsourcing their corporate
employment through P.A.C.E., thereby offering their key employees
the best benefits package available to ANY executive in ANY company
in the USA.
ProTect
ProTect is a suite of services that P.A.C.E. will offer through
a strategic alliance partner. ProTect will offer 1099 compliance
testing, and a patented technology to track and manage a variety
of co-employment issues.
ProCure
ProCure is designed to help Contract Professionals market their
consulting services directly to prospective clients. It will incorporate
a new P.A.C.E. Certified Marketing Agent (PCMA) program that
is designed to replace predatory recruiting firms with talent agents
who will work directly for Contract Professionals without conflicts
of interest with client companies. P.A.C.E. will provide the support
infrastructure to make it all possible. P.A.C.E. has not yet officially
launched the PCMA program, but you can read about it under the section
called P.A.C.E.
Sets The Standard.
ProCure will also offer through a strategic alliance partner a
patented online resume processing system based on highly sophisticated
artificial intelligence technologies. This system can be used by
Contract Professionals to extract information from a submitted resume
to create a standardized functional resume and skills profile that
will make Contract Professionals more attractive to prospective
clients.
Look for the inauguration of ProExec, ProTect, and ProCure soon.
P.A.C.E. truly sets the standard for the ethical treatment of Contract
Professionals.
Signed –
James R. Ziegler, Ph.D.
Executive Director, P.A.C.E.
Return to Table of Contents.
Contract Employee's
Handbook
Resumes For Contract Workers
Q: When is a resume not a resume?
A: When it's a P.A.C.E. Functional Resume. Huh?
As a contract professional your resume should look more like a
Yellow Page ad than a typical employment resume. Follow the simple
guidelines for the P.A.C.E. Functional Resume and you will create
a powerful marketing tool that will have potential clients begging
for interviews. Read about it in Chapter
5: Resumes for Contract Workers in The
Contract Employee's Handbook.
Return to Table of Contents.
Contract Employee's
Glossary
Terminology For Contract Professionals
This issue focuses on various uses of the term "1099".
IRS Form 1099-MISC
Companies use this form to report to the IRS payments over $600
paid to unincorporated independent contractors. Companies do not
have to prepare Form 1099-MISC for corporations. Many companies
make it a practice to prepare Form 1099-MISC for all their vendors,
even when it is not required.
IRS Form 1099-MISC states the client’s (payer) name, address
and tax identification number. It also states the independent contractor’s
(recipient) name, address and tax identification number.
IRS Form 1099-MISC reports total non-employee compensation in Box
7. Backup withholding is reported in Box 4 only if the client withheld
a 31% income tax assessment because the independent contractor failed
to supply a Social Security number or valid tax identification number.
1099 contractor
1099 contractor is an informal name for independent contractor.
The term comes from the fact that individual workers who are independent
contractors receive an IRS Form 1099-MISC from the payer at the
end of the year. 1099 contractors are distinguished from W-2 contractors
who are regular employees of their employer of record, and who therefore
receive IRS Form W-2 from the payer at the end of the year. I have
heard independent contractors referred to as 1099 contract employees,
but this usage is obviously a contradiction in terms.
1099 contract
A 1099 contract is a contract between an independent contractor
and the contractor’s client. The term is frequently used to
describe either the business relationship or the actual contract
between an independent contractor and the contractor’s client.
Examples are the contract between an independent contractor and
a recruiting firm, or between the contractor and a 1099 pass-through
agency. The term also describes a direct contract between an independent
contractor and the end user of the contractor’s services.
1099 employee
1099 employee is a contradiction in terms, an oxymoron, used to
describe an independent contractor who is “employed” by
a client. There is no such animal as a 1099 employee. The ambiguity
inherent in this term goes to the heart of the entire issue of contingent
work, and to the proper classification of workers as either independent
contractors or employees.
An independent contractor who does not comply with the common law
factors that define an independent contractor places the client
at risk of having the IRS or another government agency reclassify
the contractor as an employee of the client. Likewise, employees
of the client who treat an independent contractor like a fellow
employee also place their employer at risk. The consequences of
reclassification are dire, and they fall much harder on the client
than they do on the reclassified independent contractor.
1099 pass-through agency
A 1099 pass-through agency is an “agency of record” as
opposed to an “employer of record.” It operates like an
employer of record in that it signs a contract with the client on
behalf of the independent contractor. Likewise, it invoices the
client and collects revenues on behalf of the contractor, and it
pays the contractor, usually upon receipt of payment from the client.
Technically the independent contractor (hence 1099) subcontracts
his or her services to the agency.
Reputable 1099 pass-through agencies scrupulously confirm that
their independent contractors comply with common law factors defining
1099 tax status. Unscrupulous, negligent, or just plain stupid agencies
may represent their independent contractors as their W-2 employees.
This practice places both the agency and the client at serious risk
that the IRS will successfully reclassify the contract worker as
an employee of the agency, the client, or both the agency and the
client.
1099 pass-through service is provided by stand-alone pass-through
agencies and by full-service recruiting firms. Stand-alone pass-through
services usually charge $4 or $5 per hour. Recruiting firms typically
charge significantly more, especially if they also located the assignment
for the contractor. Contractors who “work 1099” through
a full-service recruiting firm invariably take a hit financially
compared with “working W-2” because recruiting firms almost
never pass through the entire payroll tax savings to their 1099
contractors.
The independent contractor who works through a 1099 pass-through
agency is responsible for paying all payroll taxes and quarterly
estimated state and federal income taxes. The agency reports the
contractor’s non-employee compensation on IRS Form 1099-MISC.
Return to Table of Contents.
Contract Employee's
Workshop
Have LCD Projector - Will Travel
I am developing an all-day Saturday Workshop for technical and
professional contractors. I call it The Contract Employee's Workshop.
(How original!)
During the initial shakedown period I will offer the workshop in
the San Francisco Bay Area. Cost of admission will be in the neighborhood
of $50, provided I can locate an inexpensive yet comfortable venue
large enough to hold at least 50 people. It would be nice to have
a corporate sponsor for the workshop, especially if I don't have
to sell my soul (and halo) to qualify for their support. Ideas anyone?
Participants will leave the workshop with a solid understanding
of how this crazy contracting industry works. Agency contractors
will learn how to increase their earnings by 30% to 50% on their
very next contract assignment. The handouts alone are worth the
cost of admission.
After the initial shakedown I'll take the workshop on the road
to those cities across the US that express the greatest interest
in The Contract Employee's Workshop.
I'm open to suggestions. E-mail your ideas and suggestions to workshop@pacepros.com
Return to Table of Contents.
The Contract Employee's
Project
What Is It?
The "Contract Employee's Project" is the name I have
given to all that I do to promote and defend the interests of Contract
Professionals. The Contract Employee's Project encompasses:
- The Contract Employee's Handbook
- The Contract Employee's Newsletter
- The Contract Employee's Workshop
- Professional Association for Contract Employment (P.A.C.E.)
Return to Table of Contents.
Copyright and
Publication Info
Copyright (c) 2001, James R. Ziegler. All rights reserved.
You may copy or forward this free publication provided it is left
intact with all links and this notice unchanged. Any unauthorized
duplication, including republication in part or in full for commercial
use, is an infringement of copyright.
Published by:
P.A.C.E. - Professional Association for Contract Employment
1355 Willow Way, Suite 244
Concord, CA 94520
U.S.A.
http://www.pacepros.com/
Editor:
James R. Ziegler, Ph.D.
Executive Director
P.A.C.E. -- Professional Association for Contract Employment
(925) 680-0200
ziegler@pacepros.com
Return to Table of Contents.
Disclaimer
The Contract Employee's Newsletter is designed to provide information
in regard to the subject matter covered. Use is granted with the
understanding that the publisher and authors are not engaged in
rendering legal or financial advice. If expert assistance is required
you should seek the services of a competent professional.
The purpose of this information is to educate and entertain. The
publisher and contributors shall have neither liability nor responsibility
to any person or entity with respect to any loss or damage caused,
or alleged to be caused, directly or indirectly, by the information
contained in this Newsletter or by information contained in any
web site or resource referenced by citation or hypertext link within
the pages of this Newsletter.
Return to Table of Contents.
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Employee's Newsletter
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Return to Table of Contents.
Sign-off
I hope you have found the information in this newsletter to be
interesting, informative, and provocative. I encourage you to share
the CENewsletter with your friends, colleagues, co-workers, clients,
and agency recruiters.
Why share this newsletter with clients? Because Contract Professionals
need every ally we can get. Why share it with agency recruiters?
Because they need to know the jig is up.
Wishing you success in your contracting career,
James R. Ziegler, Ph.D.
Executive Director
P.A.C.E. -- Professional Association for Contract Employment
Return to Table of Contents.
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