The best take away is yet another damning piece of evidence against the "gig" economy.
Also $12-$14 hour is a livable wage in rural America, for full time hours, if you didn’t have to worry about health care.
The biggest issue with the gig economy is our insane health insurance system where the only way you can get affordable insurance is through your job.
But expecting college students to work for that amount is crazy.
(in USA #1)
I never have, and do not ever expect to have to, worry about it, because Euro
Also, if a scenario is about a U.S. company, and pay in USD, talking about America seems reasonable.
But you can make decent money in rural America, if you have a family, and still qualify for subsidies through the aca.
Are there good books/papers that have good research on this?
The usual difference between part time and full time employment is subsidized health insurance, paid time off, and sometimes a 401K employment match.
At least with the ACA, everyone can get insurance, whether everyone can afford insurance is a different issue.
For people like IT workers in the right market, whether to go contract vs. full time is just a numbers question - can you make enough to compensate for having to pay self employment taxes, health insurance, and unpaid time off.
For people on the other end of the spectrum - those who are getting paid much less and have to pay thier health insurance - it sucks.
The people hit hardest are for some reason some of the same ones who support candidates who want to get rid of the ACA.
Now, between the tax cut that makes our marginal tax rate 24%, and that my primary job puts me over the social security maximum, my total taxes would be 32.8%. But I still have a magic number that no one has been willing to reach to make side work worth it for me.
Utica isn’t exactly a big city or prosperous place.
And on 1099 too. You've managed to play so much financial hop scotch that you've gotten out of paying FICA taxes and labor premiums, and you still can't sustain your business?
I don't care how many bad charts they put up, their employee costs were pretty low either way I think. They just couldn't float the boat through a storm fundamentally.
Not saying $24k is a lot of money, just pointing out how low the poverty line actually is in government regulations.
and then, a child comes along.
Yes, this shouldn't be a surprise.
>> it’s all about connections
Getting anything done requires the help of others. That's how society works. The best way to get what you want is to help others get what they want. Focus on the people and you will be 100x better equipped to deal with anything than any amount of technical or operational knowledge.
this is only true if what you're doing isn't innovation, but just making business.
It's not fair if your worldview is limited to a deep technical one but that's not how the world works, we need other people to support, help and guide us. We are closer to a hivemind in that aspect as we build on our collective knowledge.
What evidence would you be looking for to sustain that conclusion and never bring it up again?
ZOMG. Who is this "Ryan Keating", a high school intern?
There's also a "his side of the story": http://fortune.com/2015/08/13/zirtuals-outsourced-cfo-gives-...
I’m probably using the words wrong, but I would understand the concept from two courses of accounting I took over 20 years ago. What business does anyone have being a CEO that doesn’t understand simple accounting?
There were probably a number of other problems here. The CEO should have known of this particular problem, even without help from the interim CFO. Still, in this area he didn't really help as much as he could have.
For instance, as a private citizen, I would be responsible for making sure I pay the appropriate amount of taxes even if I had an accountant if I was a self employed consultant. If I get audited, my neck is on the line.
Ignorance is the reason that most professional football players go broke shortly after they retire and they depend on “professionals”.
But that brings us to the real issue, which is that they were obviously operating way too tight if a difference of 2 pay periods a year was enough to bankrupt them.
No way were they bankrupted just because of 2 pay periods. There is more to the story.
You might need access to the spreadsheet to see where the calculations came from but it's only high school maths.
A startup with these particular hiring needs might have been better served to chop the year into 26 periods than to bother thinking about months... a part-time CFO is unlikely to suggest that.
Maybe smooth is fine for modeling, but when making decisions of when to spend or not spend, you need to know when you will have money. It could be that delaying the transition to full-time by 1-2 months would have made it all work
Donovan “dug into the numbers herself” and discovered that Keating’s payroll projections assumed two pay
periods a month for a total of 24 pay periods a year. In reality, since Zirtual was on a two-week pay cycle, the company had 26 pay periods a year.
It almost sounds like he wrote up some kind of simplified model, not something meant as an actual operating document. She wanted to convert people to employee status and took the doc as justification, rather than understanding the actual data presented. Keating was not employed as CFO or similar role, so apparently decided he was under no real obligation to provide further guidance.
I think what's most interesting about this is that I recall doing case studies on basics like this 20 years ago as an undergrad; because it's just that basic. One is left wondering if there's a deeper story that would make these seemingly obvious mistakes (IE: there is no way they could afford to make those people employees) less obvious. Or, was it just hubris that they could keep growing the business / an investor would come along and rescue them.
So much this.
I know of a case where a company hired a junior java dev for a desktop project and after his second week on the job the manager posted a ticket instructing the newbie to implement a component to receive a video stream from a drone, stitch the video stream into a 3D model, and render the 3D model in real time. "How many days do you need to finish this?"
* Not knowing the difference between ignorance and knowledge.
Most probably both at the same time.
Like the Dunning-Kruger Effect?
In such a position I would slightly prefer to say “I should have hired an expert” and not “I was not keen enough to know that the person I hired was not actually an expert”
Sometimes, we misjudge that risk or get unlucky.
This isn't quite true if said employee is not salaried. You can still have an hourly employee and then cut their hours if there is no work for them. Employees may not like it, but businesses do this all the time. There are some minimum hours according to each states wage laws, however.
From 2004-2016 it was only $455/wk though (~$23k/yr).
What the article does not address seems to be the changes to the incentive structure after the transition. Which I believe contribute to the failure to an extent.
I think this was a larger systematic thing.
One thing that's not mentioned about the gig economy is that contractors on 1099 don't have taxes withheld from their paychecks, so they get the temporary impression that they're getting paid more than their actual post tax amount. They're usually in for an unpleasant surprise when taxes are due.
How did you arrive at this conclusion?
That's literally what the article says. That people started quiting because of it.
It seems like the actual reason they had to go down was because they didn’t have enough customers as opposed to the 20% extra employee costs. Plus every where in the industry the hourly rate of contractors is higher than the the employees because of the benefits. Was the CEO a high schooler?
Another theory if they cut staff they'd have to cut clients and therefore revenue would take a hit which would be bad for their image raising most more money. Might as well go "all in" hope to raise some more. If you go bust start another startup.
Yeah you can. It's called firing them under right-to-work.
You probably mean "at-will employment." "Right to work" is related to union membership.
Each of these concepts is applicable in some U.S. states.
The gig economy done right is a great idea. Right being fair to both the contractor and the employer. Problem is, I almost never see it done right. Instead, I see gig economy workers being taken advantage of left and right.
Let's take the middle of the pay, $13 per hour. For comparison, median pay for plumbers in 2017 was $20.17 per hour. Figure 2080 paid hours in a year for a contractor for our purposes (that's no vacation). That's $27,040 per year gross. Now let's adjust that to reality (i.e., net spendable income). For ease, I'll round to the nearest whole dollar.
First, taxes. $27,040 puts the person squarely in the 12% federal income tax bracket. Remember we are assuming fresh out of college, not married. Social security self-employment tax was 12.4% is 2017. Medicare self-employment tax was 2.9% in 2017. Let's assume they live in a state that levies income tax (excludes WA, NV, WY, SD, TX, AK, FL), but they live in PA, one of the lowest tax rates at 3.07% in 2018. Let's also assume no deductions for ease (unrealistic, but I am not a tax accountant). So that's a total tax levy of 12%+12.4%+2.9%+3.07%=30.37%, bringing us down to $18,828.
Second, healthcare. You can't say that this is for people with insured spouses, so healthcare is hand-waived. Instead, healthcare.gov defines affordable health care at 9.56% of salary. Typically an employer pays two-thirds the cost of the health care plan, so let's say 28.68% and round up to 30% because insurance companies charge more for individuals (could easily be more than ~2% extra, but lets go with that). That's 30% of the initial gross, not our after taxes figure, so a cost of $8112, bringing us down to $10,715. That's $206 a week, or $893 a month, to cover rent, food, transportation, internet costs (digital remote worker), and clothing.
To put that into perspective, it's $1425 below the 2018 Federal Poverty Level for an individual: $12,140. Some agencies compare the FPL to before taxes, some after taxes, but it's still almost $1500 below the FPL.
Another thing is that gig economy workers are often asked to shoulder costs that would have been the responsibility of an employer, forcing some gig workers to work crazy hours or in crazy conditions. In Zirtual's case, gig workers could have been paying for their computers, internet, and any software when they were contractors.
When you are a contractor you need to be making 160% of what you would if you were an employee, to cover insurance, increased taxes, and expenditures that now come out of your pocket. You also shouldn't be charging at a dollar rate, as it's an accounting nightmare and lends itself to some clients (or gig economy startups) nickel & diming you or micromanaging your time.
Instead, charge a flat weekly fee based on assuming each week you'll work 36 hours on client work, 10+ hours on business marketing and administration, and that you'll take a two week vacation. So let's say as a fresh college grad I want to make the equivalent of if I was an employee making $45k per year. That means I need to gross $72k. Dividing that by 2000 hours to allow for two weeks vacation, I need to make $36 per hour. Remember that you have to assume you are only going to get 36 billed hours, so multiply that by 40/36, which handily works out to $40 per hour (I swear I did not plan that). Now multiply that by 40 to get a rate of $1600 per week. That's not contributing anything to your retirement or emergency fund (yes, you should start right out of college - I didn't and regret it mightily). Especially if you are a contractor, you must have a enough in an emergency fund to last you 2 months without pay. So add %10 to your emergency fund, taking it to a weekly charged rate of $1760, until your emergency fund is 2 months. Put any windfalls (tax refunds, gift checks, etc.) into that emergency fund until it is up to two months of pay, and hopefully it will be there by the end of a year. Two years is more realistic.
If you are a more experienced contractor, things get wonky at the $128k level, because social security not longer applies and retirement stuff is different. If you are a contractor on the side (make sure your employer's IPR agreement allows this, or get a explicit written statement allowing it), you can probably charge 120-140% of what you want to make from your contracting work.
Make sure your employer's work comes first though, or you will find yourself out of a job. That also assumes you work for 'Big Corp', not a startup at the ground floor. If you work for a startup and you have non-trivial equity, you are working for yourself and should be pouring everything into the startup.
The cost of living comfortably relative to the average income in the U.S. seems to me to be higher now than it's ever been in my lifetime (50 years). One estimate in 2012 says it took $150k to live comfortably in the U.S. then, and it seems to have gotten worse since.
I am not an accountant, a lawyer, a doctor, and you should not construe any of the above as legal, accounting, or medical advice.