How to be a consultant, a freelancer, or an independent contractor (2009)

But as much as I’d like to switch to daily/weekly billing, it feels like I would never allow myself to leave the desk to run errands, play with the kids etc - because I promised to work the (whole?) day/week.

Even if you don’t actively tell clients when exactly you do work, clients can see your away/offline status in Slack/Teams, or they might call you out of the blue, which would feel to me like being caught with pants down - talking about a failed deployment on the phone in the supermarket?

And I’d be worried then that the client comes to the conclusion “Oh that guy, bills the whole week but doesn’t even work in the afternoon. What a slacker!”.

How do you or other people handle this?

My wife has been (trying to) freelance since we moved to the US. She applied the playbook, rejected lowball offers, and negotiated higher rates.

The result? She has worked about a total of 2 months out of 1.5 years. The pipeline is dry and nothing is coming her way. In retrospect we regret not accepting some of those lowball offers. Sure, the rates suck, but not having a job sucks more.

My cynical take is that blanket statements like that are unrealistic and even harmful for some.

And then there was this one project that I really liked, and I ended up taking an enormous cut to continue on that project. That was a bad idea. It was a cool project, but being underpaid so dramatically did hurt my enjoyment quite a bit. (And it wasn't a charity or anything; it was a bank.)

Not in the UK there's not.

HMRC refuse to provide a definitive list or say how they determine if a contractor is "acting as a disguised employee" (BTW you're still not an "employee" even if you're working Inside the IR35 regulations).

Instead they provide a vague tool that gives you some suggestions but reserve the right to arbitrarily decided later who is and isn't an independent contractor. They can, and have, retrospectively change the rules even for accepted tax returns.

That puts a lot of risk on anyone doing contract work. When the government changed the rules to shift some of that risk the customer, many customers just decided to drop small external contractors all together rather than work to a vague set of suggestions that they can't definitively say if they're complying with.

For small contractors it's difficult to get insurance for IR35 risks because of this. You can get it but it's not cheap or easy compared to other liabilities.

The contract market in the UK has been slowly dying since the tabloids first decided that contractors where another group they could demonise and the Tories gleefully went along with it.

I had a project at a bank, where I created the initial prototype for a new, vague idea and guided the project (through constantly changing product owners and other team changes) to become very successful. Because the tax service was being difficult about the difference between a self-employed contractor and an employee, the bank had a rule that self-employed contractors couldn't stay for more than two years, but after two years, I wasn't done with that project yet. So I became an employee.

The bank has pay scales for employees, and I had to fit in there. Software engineers could have a pay scale from 8-12, product owners, scrum masters, business architects and other people I worked with had pay scales from 10-13. One freelancer-turned-employee that I spoke to came from a very similar hourly rate to scale 12 (as product owner). I figured I was worth scale 12 too, but it turned out they had no programmers in scale 11 or 12 at all, and 10 was the maximum that was used, despite the fact that 10 was the minimum for pretty much every other job at that department.

Later at a department-wide meeting, the manager had the gall to complain that all their senior engineers would leave.

Many other companies pay similar rates for programmers as employees, but have no problem paying much more for you when you're a contractor or freelancer of some sort.

That's not entirely true. The tax man was lobbied by big consultancies that were losing talent. Because quite often, an employee of consultancy would have found they could make more money by working with the consultancy client directly and cutting out the middleman.

If these arrangements were "a sham" then tax man would have included big consultancies in the scope of relevant legislation, like IR35 here in the UK.

I mean, not only is this my experience, but that's the trope, no? You get fired and then hired back as a consultant for twice the cost? Regardless, if that isn't happening, this doesn't seem like a problem we should be fixing using government. No matter how you are classified, you need to make sure the net compensation you are receiving for doing the job is worth all the costs (which includes not only any time and materials you are supposed to be bringing to the job yourself, but also indirect stuff like occupational risk exposure).

To put this story in reverse: somehow in the United States we've pawned off the problems we SHOULD be solving using government--stuff like health care, retirement planning, and disability leave--to private companies to each separately manage for their individual pool of employees, which has resulted in a system that privileges larger companies that can have larger and more amortized employee pools and has created this ridiculous idea that there is this concept of an "employee" that must be mandated and enforced. It is all a massive misdirection that helps lock in and prevent collective action.

When I was a dev lead, my manager wanted “another me”. I had a friend looking for work and he wanted $80/hour. My manager didn’t have a problem with the hourly rate. He was willing to pay $110 per hour to the consulting agency we were going through so they could hire him and we could work through them.

People who have only ever been employees are often ignorant of how much money is spent on them that they never see. It can be quite a shock when they become self-employed and are required to pay these costs directly. Although that's nothing compared to the shock when they learn they now have to pay taxes quarterly, and in advance of each quarter.

My (very rough, US-based) rule of thumb is that I need to bring in revenues between 50 and 100% greater than what I want to "take home" in terms of personal income.

For example, the book, Million Dollar Consulting, is pretty famous for advocating the "charge by value" approach. I think a lot of what's stated in that book can make sense when you're 1) highly specialized and 2) are in high-demand. You have a lot more leverage in those situations and both sides of the equation likely know what value you're creating. These are the types of situations where managers inside the company you're working for are motivated to get through any red-tape your "non-standard" pricing models create.

However, in a lot of cases, businesses have policies and controls around how they structure contractor pay. You should certainly be flexible to not limit yourself, especially if you don't have a whole host of companies knocking at your inbox.

I'd suggest really thinking through how much time it takes to acquire (pitching, negotiations, other pre-contract meetings) a client, how much admin time it takes, and just build that into your hourly rate. Setting up retainer agreements is also usually a good idea for you and something clients don't typically balk at -- e.g. you will be paid a minimum of 10 hours per week, even if you only worked 5 hours.

For anyone worried about limiting their income by charging hourly rates, I'd suggest looking around at what high-end law firms, creative agencies, management consultants, accounting firms, etc. charge. As a solo consultant, you're ALWAYS going to be constrained by hour many hours you're willing to work, regardless of how you bill.

I think it's very good that the tax service is looking out for underpaid freelancers struggling on the edge of poverty (or often below it), but highly paid software engineers can take care of themselves. If my current client wants to end our contract tomorrow, I'm fine with that. That's why he's hiring me, and not an employee. And that's why he's paying me as much as he is.

I'm all for drawing a line somewhere based on hourly rate. Below $50/h (or wherever you want to draw that line), you may be entitled to employee benefits, above that line, you're on your own, because you can take care of yourself.

Also it helps if you are a saver rather than spender. You should be able to put away half your income in good periods.

You have times where you work much less than that on client projects, maybe just 50% of that, and use some of the "free" time to tinker, learn, improve your internal tooling etc. And of course spend more time with family and friends.

Then there are times where you have to squeeze in as much (billable) work into a week as possible. Deadlines need to be met, quality & testing needs to be rock solid.

Then there are times where you spike up with work and start neglecting family and friends. It's just how it goes. No amount of planning can prevent these spikes completely.

I'm sure there are exceptions, but generally you are in part hired for your flexibility and high engagement. You give certain guarantees that employees don't and you make absolutely sure that those expectations are met.

But again, it's an ebb and flow thing. Or it should be. There needs to be times where you decompress for a while, look at the big picture and sharpen your tools.