More people starting out for themselves can have several causes, and one of those strongly correlates with unemployment. Not everybody that starts for themselves does so because they think that 'working for the man' is no longer for them, as often as not it is that the man has decided that he has surplus employees and kicks them to the curb. That those people then need income and that many of them are then forced to start their own business or perish is a direct effect of this. If you throw that many people into the meatgrinder some of them will succeed but let's not pretend that those choices were made of free will.
1099 is not necessarily "your own boss." Much of the time it's just an employer refusing to bring on permanent employees, opting for contractors and no benefits, and minimal relationship and responsibility. Some 1099s are good, others are near last resort.
If an employer treats you like an employee, and simply uses the 1099 as a benefit/tax dodge, you have options. Last I checked, such employees are able to go to the IRS and have the employer pay their taxes. So that's a risky thing to do as an employer.
Look up IRS 20 questions for details. But in general, if you can't hire people to do your work, and you lack freedom in how you accomplish tasks, then you're probably not a contractor.
Of course, in reality, there are probably people that'll just go along with whatever just to have a job
NBC and a few other companies have been doing this for a very long time for many positions. They get away with it by using third party agencies and there isn't any recourse for the employee.
You nailed it. I started my own business because it was this or nothing at all. I got a job but it was just plain awful environment. There was absolutely nothing great about employed but when you become unemployed starting your own business is the only choice.
It's unfortunate that the employment market is filled with engineers who continually undercut each other because employers are looking to save as much as possible and have ample amount of desperate people readily available to replace whoever is burnt out.
Good luck to everyone in 2015. Hopefully this is the year where all the work I put in starting my own SaaS will pay off.
It is not engineers who are undercutting each other. It is the staffing companies, who I call as pimps. They are doing much damage to the contract rates. There is another thing going on: kickbacks to managers from staffing companies.
Engineers undercut each other all the time, implicitly, by going for the "do what you love and be paid for it!" nonsense companies throw, by feverishly working on unsupported open source projects for notoriety or to participate in the new culture of "github profile required or we won't consider you," and other ways I'm not listing here.
Those recruiters wouldn't be able to do what they do without at least some tacit approval or participation of labor.
A better approach is to just name your price, adjusted for the benefits you will have to pay out of your pocket. In Brazil, my contractor rate is about twice my full-time employee rate to account for all benefits I'll have to pay on my own and the reduced income taxes I'll pay.
This comment demonstrates one of the fundamental reasons economies in Europe are floundering. It is seen as reasonable that companies be forced to keep surplus employees. In France you don't hire someone as much as adopt them, you are now responsible for them. The most terrifying thing for a company in Europe is hiring.
I think it is reasonable to demand that companies have some responsibility for people who spend roughly 40 hours a week at their place following their orders.
Companies are not "forced to keep surplus employees", it's a reasonable expectation of law makers that people in charge of a company are able to plan ahead with their business strategy for more than 5 minutes.
It's the opposite: Companies want to retain employees through times of economic struggle, because it is just incredibly expensive and sometimes impossible to replace people.
The government has the same interest, because it's much cheaper to support companies and employees for a few months of economic struggle than to pay for social security etc. until they have found new work (which is hard in a time when the economy struggles).
It's a win situation for everyone involved: the company, the employee and society; but it requires law makers which don't live in a bubble of extremist ideology about how an economy is supposed to work.
That's pretty much the case why the US are struggling (and are changing the rules of how their GDP etc. is computed every year), while many European countries kept flourishing or are recovering fast:
In many countries in Europe law makers do whatever makes sense and works; where in the US every proposal is measured in relation to extremist ideologies ("OMG we can't do that!!! That's communist stuff! This is not Sweden where Stalin still rules!!! This is MURICA!!! Capitalism forever!!!").
There are some significant disadvantages as well, though. One is that there are fairly large cost/access disadvantages for healthcare compared to being part of a corporate group plan, although Obamacare has improved the access part.
This is something I think tech professionals should be able to ameliorate. You can do 'group health' (like AARP does) with a group membership organization. Is there not anything like that available from at least the IEEE or the ACM?
That's more of a marketing partnership, unfortunately not a proper group plan. I looked at it a few years ago, and it was missing the one key part of a proper group plan: mandatory coverage. If you work for Google, you are automatically covered by Google's group-plan health insurance; the insurer does not approve or reject specific employees. Whereas with ACM's partnership, being an ACM member is no guarantee of coverage. You have to submit an application, and the insurer can turn you down (or at least could, a few years ago).
Obamacare hasn't improved the access part unless you're subsidized. Maybe the plans are a little better, but you're still paying exorbitant premiums, especially in corrupted states like New York where you've got to subsidize the high incomes of medical malpractice lawyers.
Important to note that employees of large corps are still paying big premiums, they just think they're not because the employer is paying half or more. But if those costs weren't there they could be passed to the employee as wages. This is one of the strongest explanations for the stagnation and decline of wages in the US over the last couple decades. If we made everyone buy their own insurance, there'd be riots in the streets.
> Obamacare hasn't improved the access part unless you're subsidized.
That's the "cost" part of cost/access; access is whether you can get health coverage at all. Pre-Obamacare, access to healthcare was pretty dicey outside a corporate health plan, up to the insurer whether they were interested. If you had significant negative health history, you effectively had to work for a large corporation in order to get under the group umbrella. My own health is fortunately good, but I have more than one friend who chose not to start a company or join a small startup because of the healthcare issue (one has a congenital heart problem, which poses no issue for getting corporate group coverage, but previously made individual coverage a no-go).
I'm part of that group of people. I held back on starting my own business for almost a year because I would not have had access to health insurance at all due to my medical history. Obamacare means that I can buy it. After that it's just money. Bill a few more hours and/or raise my rate a few percent and I don't notice the difference.
"access to health care" and "access to health insurance" are still 2 pretty different things. obamacare somewhat addressed one, but didn't do very much for the other, ime.
Is the tax advantage really that clear cut? You can deduct business expenses but there's self-employment tax and in some places business taxes (like the Unincorporated Business Tax in NYC) that can really add up.
In NYC the taxes are much higher on the self-employed. I asked my CPA why this is and he said "well you get more deductions." Hmm, not really, but okay, I guess NYC is expecting me to take some frivolous/borderline deductions?
They don't have to be frivolous. Do you have an office in your primary residence? Take the cost of that residence (rent or mortgage) * (area of office / area of residence) and deduct that. Bought new paint for that room? Deduct it. Did you get a new computer that you use for work? Deduct it. But talk to your tax professional first because I'm not one and this is not advice :)
well on stack exchange workplace site it appears that in the USA freelance contactors (especially w2 ones) don't get a big premium id expect a minimum of 100% when compared to an equivalent fulltime as a contractor in the uk.
I've noticed W-2 contractors will get about 50% more, in Midwest USA at least. You're looking at $70/hr for comparable full-time roles that might pay $100K/year.
Funny how we went from the 17th/18th century model of self employed craftsmen, to the 19th/20th century model of working for a large manufacturer, and now the trend appears to be back towards self employment.
Of course, as jacquesm noted in his comment, a lot of this is probably due to people being unable to find other, desirable work.
While it is great if people started businesses when they can't find work this has not been my experience. The people that I see starting businesses are the most ambitious and are seeking more.
Well "starting a business" and being a 1099 earner are conceptually two very different things that only sometimes overlap, though within this thread they are often being used interchangeably (probably because the article this thread is about conflates them in some places).
I know of a few people who are now 1099 earners not because they wanted to "start a business" in the traditional sense but rather because they are working through temporary staffing agencies structured this way to avoid the benefits they would otherwise have to provide when using full-time W2 employees. Celebrating this state of affairs as people being empowered to become their own bosses is very misleading. To be fair to the original article, it does make mention of the fact that this situation is not all roses, but the message is overall somewhat muddled by the title and overall gist.
Except for working at WebMind and Google, I have been a 1099 consultant for about 16 years.
One thing I worry about is the USA government, that seems very keen on extracting taxes from non-rich people, will start plugging up some of the fair tax right offs that 1099 workers get.
The first part of this process, I think, has been the pressure on companies to make people work as W-2 workers. W-2 workers have fewer tax write offs.
You need to find a tax person ASAP. Do not wait till the end of the year - do so immediately. They will tell you what records you need to keep, how detailed they are, as well as keeping track of the constantly changing regulations which can occur at federal, state, county and city level. For example my tax person required me to keep detailed mileage logs.
In general you get to make the expenses of your business be pre-tax. Exactly how you count your home office/mortgage/bills has implications, and is likely your largest expenses. But your city/county may have additional requirements - eg wanting to tax your business use of the home. Only someone familiar with the area will know the right thing to do.
In some cases the various rules are so bad that it works out cheaper to not follow some and pay the resulting fines, than to do things the right way. Again your tax person will know.
As @snowwrestler has mentioned, the disadvantages arise from the Company required to take on liability for damages, work not completed etc, as well as the provision of benefits (sick leave, retirement plans etc).
In the context of being an Independent Contractor however, my experience has been that very few companies are willing to directly hire a person as a 1099 Software Contractor. A majority of them have you come on as a "W-2 Contractor". What this means is that the Recruiting Company "forces" you to sign up with them as a "W-2 Contractor", and they in essence withhold taxes, and provide mostly Sh*ty benefits, and give you a lower rate than if you were an independent 1099 Contractor.
On the flip side, the Company at which you will be performing your work has none of the risks associated with 1099 Contractors, and can fire you at any time without any risk of a lawsuit from you, since their legal agreement is with the recruiting company that hired you as a "W-2 Contractor", and not with you directly.
Hope this makes sense.
I hate this situation and I wish some Jobs / Career startup company would address this pain point, i.e. software engineer forced to go through "W-2 Companies" and hence getting a lesser hourly rate and thrust with benefits that the contractor doesn't need (as his spouse may have medical benefits from a fulltime job etc).
i.e. it would be cool if a startup career website could connect 1099 Independent Contractors with the Companies that need them, and get them the higher rates that are currently being "eaten" by the middle-men / brokers that masquerade as Recruiting Companies and make you get on a W-2 at a much much lower rate.
Like many others have mentioned, the client companies don't want to be involved in hiring 1099s directly because of the liability (lookup google/odesk). What our startup http://www.oncontracting.com is doing instead is making the staffing space more transparent and empowering contractors with information- so you can lookup the various preferred staffing agencies that service certain clients and then shop among them to go with whoever charges the lowest markup.
Basically, employers aren't supposed to hire people as independent contractors (1099) and treat them like employees by doing things like requiring them to work specific hours, supplying their equipment, or giving them a semi-permanent position. The IRS views that as misclassifying employees to avoid paying their share of the social security and medicare taxes, which get foisted onto the contractor in the form of the self-employment tax.
The employees have payroll tax, health insurance, various compliance requirements, and some rights. You also have to tell the government when you get rid of a lot of them
Contractors have less baggage, as long are the IRS doesn't decide to audit you and apply their rules for who is a contractor vs employee.
As I understand it, there can be a big difference in liability. Generally speaking, when you contract with someone, the liabilities are generally limited to what is defined within the contract. When you employ someone, you open yourself to the full spectrum of labor regulations and liabilities.
When you have W2 employees, there are additional taxes you have to pay, which you don't have to worry about if they are 1099. At a certain size, you are also mandated to provide Health Care benefits etc
It's almost as if there is some sort of huge incentive for organizations to not have full time employees or have to pay for their healthcare, vacation days, taxes etc.
