I have an interview coming up for a video production job. I would be editing videos for training and marketing purposes for a company that installs natural gas pipelines. They did say that it is a contract position. How would that be different from being a regular employee?
Generally a limited duration assignment. The contract has a certain time frame specified (months to years), and at the end you both can part ways without any fuss although if they like you and you like them, there can be contract renewals. Also you likely won’t get the same benefits that regular employees get, or be subject to the same restrictions.
Psychologically, a contractor is working for him/herself providing services to another company for an agreed-on fee schedule rather than being employed directly. This probably makes sense for a company that installs natural gas pipelines the needs video production services, but doesn’t want to get into employing people that far outside their core competency.
You would be contracted to do a specific task or set of tasks within a set period of time. Once the task or tasks are completed your contracted is fulfilled and you no longer work for the company. The company may determine that your work was exceptional and either offer more contract work, or even hire you on a full time basis.
Practically, there’s something a lot of people don’t consider: you may not have any withholding taken from your pay.
A lot of people hear that and go “yay!” but those people have never had to make quarterly social security (the whole thing, not just the half you’re used to having deducted) and income tax payments.
Usually contract positions provide no benefits. No health insurance, limited or no vacation/sick leave, no 401k participation, etc.
I’ve been retired for quite a while, but in the 1990’s many companies were forced by IRS rules to change “contractors” to some sort of “temporary employees.” In my case, IIRC, the only real change to my status was that pay was withheld.
I agree with the above, and want to emphasize KneadToKnow’s point. As a contract employee, you will receive a Form 1099 (instead of a W2) showing how much you were paid, and you will need to file quarterly estimated income tax payments, and pay 100% of your Social Security and Medicare payments (instead of just half, like an employee). Not to mention that you get no vacation leave, sick leave, etc. You need to make sure you negotiate a rate of pay that makes all of this worth it. Contractors are paid much more on an hourly basis than permanent employees, maybe 50% more for the same job.
Microsoft got into some hot water over this in the timeframe you’re talking about, where they had contractors that they were treating in all respects as employees except they weren’t paying the payroll taxes. The IRS determined they had to pay the payroll taxes, then the workers took the opportunity to sue for other retroactive benefits. That case really changed the climate for how businesses use contractors.
Holy crap, I added something valuable to a discussion?
Two or three more times, and I’m going to start needing a second hand to keep count of these moments. 
I’ve been an independent sales representative and worked with freelancers in publishing. The relationship can be easily muddied, it is more than if your pay is reported on a 1099 vs a W2.
Like many things in business, it’s all about the rules. Income taxes, worker’s comp, unemployment are all going to depend on how you are classified. IRS pub 15-A (PDF) defines the relationship for tax purposes. The three tests involve behavioral control, financial control, and type of relationship.
In general, as a contract employee, you are a sole proprietor of a small business with just one employee, you. You are also must be allowed to act like one.
You should have complete control over how you work as long as you meet the outcomes specified in the contract. When I needed a freelance editor, I could specify a deadline, but I couldn’t say I expected them to work 8 hours a day or that I needed them available between certain hours because those would cross the contractor-employee line.
Another key aspect of being a contractor is that you are responsible for your own profit/loss. You should request and expect more money for the position, at least 50% more than as an employee, as you are paying your own expenses and your own benefits. For example, you will owe social security taxes and medicaid taxes (the self-employment tax) at about 15%. You’ll want to add in the cost of paying your own health insurance and to fund your retirement plan. When the contact ends, it is unlikely you will qualify for unemployment. You can also write off expenses and anything else that qualifies on a Schedule C rather than on the 1040.
Keep up with your taxes and learn about paying quarterly, I learned the first year about underpayment penalties. You’ll really develop a true love for the byzantine mess that is our tax code. :rolleyes:
I’ve enjoyed being an independent, you get to make work fit in to your life rather than the other way around.
It’s been said three times, but I cannot stress it enough: You MUST ask for and receive more money than you normally command. You’re going to have to pay double the social security and medicare taxes that you usually have deducted.
If you don’t do this, you’re going to get screwed.
You have to receive significantly more money as a contractor because of lack of job security, no benefits, increased FICA payments and, in some cases, having to move for the contract. Example: when I was a software contractor most of the 90s, usual salaries for programmers were, IIRC, in the $50-80K range. My rate as a contractor was $80-110/hr, depending on location, convenience and length of contract.
Not always. I did a contract position for about a year at a big insurance firm. I actually received health insurance and had the option to participate in a 401k, but it would be through the contracting firm that hired me, not the client firm I actually worked at.
Which is a bit of a distinction from the consulting firm I work for now. The main difference being that even if I don’t have a client to go to, the consulting firm still pays me (called “being on the bench / beach”). For a contracting firm, I only get paid when at a client site.
Contracting and consulting has become popular, particularly in tech or creative media fields. The main reason for this is that most of this work is project based and companies don’t always have a need to maintain the same volume of projects over time. Like they aren’t going to a widget machine installation every month. They’ll do one and subcontract it out to a firm that specializes in installing widget machines.
Very true. However, it appears from the OP that the situation is a direct 1099 arrangement rather than corp-to-corp through a contracting company, since the company told boffking directly that it was a contract position. In your situation, normally the contracting company is brokering the assignments.
I don’t know how it works in video production, but in IT it is very rare for a worker not to be someone’s employee. Generally speaking, if you work at their premises at hours of their choosing, you are an employee. As many have stated, you are often the employee of a separate company. These arrangements can come in different flavors and I really don’t know that much about them. The main difference is whether you get a W-2 or a 1099. If you get a W-2, you get certain protections. For instance, what happens if the company for whom you are doing the work does not pay its bills? Or simply pays its bills late? If you have a W-2 arrangement, there is an obligation to pay you anyway. If that does not happen, you have legal recourse (exactly what that recourse is will vary from state to state). Otherwise, you are simply a provider who did not get paid. You do have legal recourse, but it is much slower. You might wait a long time to be paid and your legal fees might be much higher. In some industries, slow and late payments are the norm and you just have to suck it up and wait.
I think you really need to find out what your situation would be. At the very least, read the contract very carefully. Reach out to others in your field (LinkedIn?) and find out their experiences.