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Background: I'm just a couple weeks into starting as a freelance consultant. I'm on a contract at the moment that's like a 20hr/week retainer as a sole prop. I'm planning to incorporate as an S-corp.

Client wants to move me from 20hrs/week to full-time (still remote-work). I currently don't have other clients, but was planning to use the other half-time to build up marketing/blog. Can I suggest a 40hr/week retainer contract through my consulting company? Is that legal for the client under the definition of a full-time employee from the IRS?

What are the pros and cons of this move for the client and myself? For the client: they wouldn't need to pay payroll taxes, benefits, etc. Downsides is that they may feel I'm not as committed to the company. Any other downsides for them?

For myself: I would pay for my own benefits, pay my own taxes, etc. HOWEVER, I quit my previous fulltime because I wanted some freedom and to build this consulting business out, so joining on as fulltime at this client's company is something I really want to avoid. I guess this post is more that I want to understand the downsides for the client and be able to address them when I speak with them.

Additional detail, they want to move me to fulltime then hire a couple more people and have me lead a team.

cgcg
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    They can hire you for whatever you agree to.. how they file their taxes and claim you (as an employee or contractor) is their problem not yours. I would caution you against putting all your proverbial eggs in one basket though. – Scott Jan 27 '17 at 00:20
  • You mention that you had other plans for the other 20 hours of the week. First decide yourself whether you will be able to do what you had planned in that time, if you can manage that while doing additional hours of work then agree to it. Remember the agreement should work for both sides – JavaGuru Jul 18 '17 at 14:21

2 Answers2

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I've done a fair amount of freelancing over my career, here are some answers to your questions.

Can I suggest a 40hr/week retainer contract through my consulting company?

Yes! As long as you're not breaking the law, your contract can say pretty much whatever you need it to r.e. compensation. My approach to this type of commitment (i.e. requested number of hours) is to word the Statement of Work such that you will provide up to that many hours per week/month/year and to get the customer to create a PO in that amount. I try to avoid committing all of my time ("up to" does not commit you to actually work that amount...) unless the rate is really good.

Is that legal for the client under the definition of a full-time employee from the IRS?

Not always, but it's not really your problem; my view on this law is that it prevents employers from cheating employees out of benefits by calling them nonexempt.

What are the pros and cons of this move for the client and myself?

My main concern is the 40hr/wk commitment.

  • 40hrs/wk, your take: At that rate you are full-time for one client. This creates the following problems for your business:
    • You will not have any time for any other customers
    • You will not have any time to develop any other customers
    • You will not have any time to invest in your business (process, tooling, hiring, etc.)

Basically, you are just a full-time employee without the benefits, commitment to professional development, etc. Avoid this if you're serious about developing a freelance business unless there is something else about the job (great rate, tech area you're interested in, flexibility of where/how you work) that makes it special.

  • 40hrs/wk, client take:
    • The upside is that they are not paying taxes and overhead on you and they can terminate you pretty much whenever they want to without running afoul of employment laws.
    • The downside is you are a bit more mercurial and, if you turn out to be good and hard to replace, this can be a significant issue.
    • There is also the issue that, if they treat you like an employee, they my have an issue when audited. If there's just you that they are treating this way then it might not get picked up, if it's a widespread practice then they are at risk.

Downsides is that they may feel I'm not as committed to the company.

Get over that one! You're a consultant/contractor; if they want commitment, they should be looking for a full-time employee.

Chris Forrence
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Jim Culbert
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The beauty of contracts is that they can say whatever you want.

As you and the employer hammer out the agreement in writing you're nearly there.

Then, upon agreement, both of you sign.

Bingo. Whatever is written is now a legal agreement.

SDsolar
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    This assumes the contract itself is legally valid. If provisions in the contract violate the law, some or all of the contract may become void if brought to a court. – user45623 Jul 19 '17 at 21:41
  • This is incorrect. Depending on the nature of the work performed and the relevant laws, most jurisdictions will consider you to be an employee if you are effectively acting as one. – Rich Seviora Oct 21 '17 at 20:27
  • Microsoft got around that by hiring "temp" workers for 360 days at a time. Firing them, then rehiring the ones they wanted to keep. They did that for years. Maybe they still do. – SDsolar Oct 22 '17 at 03:03