If you’re considering becoming an independent contractor, a big part of that decision is figuring out whether to be completely independent or to use some or all of the services of an agency. Although you may think you want to work as a true independent, there’s more to it than you might have considered at this point.
For example, as a true independent, not only would you have to find your own contracts, you would assume the risk of clients that are late to pay or don’t pay at all. The question, then, is how much an agency can help you in your quest for independent employment. In this article, I’ll talk about what to look for in an agency and how to handle the details of working with one.
What a full-service agency can offer you
A full-service agency finds you the job and sets up the interview. If you get hired, your agency tells you when to show up for work and what the conditions of employment are, handles your invoicing and billing, withholds your taxes, and cuts you a check on a regular basis. But wait, you say, that sounds like my job now!
You’re right. Working for a full-service agency can seem a lot like a regular job. So, why would you go out on your own in the first place? A good agency can find you contracts that keep increasing your skill set and thus your career knowledge.
You may want to consider starting out with this type of agency if:
- You’re unsure whether contracting is for you.
- You want the variety of new work experience without all the risk of contracting.
- You don’t have a well-developed network and aren’t sure how to establish one.
Working with an agency also takes some of the burden of self-employment off of you. Specifically:
- You can let the agency find the jobs.
- You don’t have to make quarterly estimated tax payments.
- You may qualify for benefits or paid vacation and sick days.
- You receive a paycheck (giving you W-2 status) on a regular schedule, regardless of when or if the client actually pays.
Having W-2 status opens up a lot of jobs that are closed to contractors who work on a 1099 basis. In addition to any company’s healthy aversion to the IRS, there was last year’s judgment that Microsoft had treated temporary workers like regular employees and thus owed them big bucks in benefits—including the current value of stock options they would have received. Thus, some companies simply won’t work with anyone for any length of time unless he or she is a W-2 employee, whether the company’s or the agency’s.
If you choose an agency, ask this question first
If you decide to work with an agency, one question will tell you what kind of agency you’re dealing with. For any assignment, simply ask, “What is your bill rate for this job?”
The bill rate is what the agency bills the client for your work, versus the pay rate, which is what the agency pays you. Unfortunately, many agencies don’t want to disclose their bill rate. You may hear that it’s confidential or that they don’t share this information.
Nonetheless, you have the right to know what your services are worth. You also have the right to know what you’re paying the agency for—the difference between the bill rate and the pay rate is what you’re paying the agency to do things like withholding taxes and finding you a job. If you work with a full-service agency, you can retain a great measure of your independence by insisting on fair treatment.
Know what you’re paying for
A 65 percent cut may sound like a lot, and it is. You should try to find an agency that takes somewhat less. But keep these considerations in mind: An agency pays the half of the FICA tax that you’d have to pay if you were your own employer, which is 7.5 percent straight to Uncle Sam (up to a certain amount of income). They find the job and handle billing, invoicing, and collection. The agency assumes the risk of nonpayment or slow payment. Have you researched the cost of benefits for the self-employed, especially if you need a family policy? An honest agency will tell you the bill rate and be able to completely justify their take of it.
Before you ask the bill rate, think about what you’ll do if agency personnel won’t tell you what they bill for your services. Actually, it’s unethical not to disclose what your services are worth. But it’s your decision whether to walk if they won’t tell you.
Who’s the boss?
Remember: You don’t work for the agency, the agency works for you. Don’t forget that the agency makes its money off your work and your effort. Any agency that’s guilty of the following doesn’t deserve your business:
- The agency insists you don’t work with other agencies.
- The agency is unprofessional with your references by soliciting them for opportunities or asking for other references. Call your references occasionally and make sure they aren’t being abused, or you might lose them.
- The agency is not confidential with your information, sending your resume out without telling you about the job and getting your permission.
The middle ground: Pay only for what you need
If you don’t like the idea of a full-service agency but aren’t completely comfortable with the risks of doing everything yourself, look for companies that offer only those services you need. You may have to look hard, but there are agencies out there that offer all or some of the following services, and charge a percentage of your bill rate for those services you use:
- Job finding: This can be pricey but is often worth it. If you work with a broker, remember that no broker has the right to represent you exclusively.
- Employer of record services: If you want a job that’s only open to W-2 employees, you can find an employer of record. On paper, you become a W-2 employee of that company, and the company handles the billing for you but not necessarily the collection. You find the job and handle all other aspects.
- Collection: If you aren’t good at playing the bad guy, consider using a company’s invoicing and collection services to help ensure you get paid for your work. Some companies will pay you even before they’ve collected all the money from the client, which is basically a loan on their part and will cost you additional money. If you don’t have extensive cash reserves, it may be worth your while to make such an arrangement.
Meredith Little has worn many hats under the broad term of freelance writer, including technical writer, documentation specialist, trainer, business analyst, photographer, and travel writer.