Thursday, February 23, 2012

Employment Models: 1099, W2 Hourly or Salaried, which is right for you? UPDATED for 2016


(This post has been updated in 2015)
An important question during most interviews in the HCIT industry is: Do you prefer W2 Hourly, 1099 or Salaried employment? Normally the candidate will understand the distinction between Salaried employment and W2 hourly or 1099 (Contract), but many questions arise during this part of the interview as the candidate tries to determine which scenario is best for them, particularly if it is someone that is new to consulting.

I won't delve much into salaried employment, which is pretty self-explanatory. Salaried employment or Permanent employment is when you accept an internal position with a company where you will earn a salary, receive full benefits and any other bonuses that company may offer. You can consider it like a marriage... you go into it, hoping it will last forever.

The 2 models I would like to dig into are W2 hourly and 1099 Contract and what the distinctions are between them. Consultants that have been in the industry for years normally prefer one to the other, but are typically open to either depending on the company they will be contracting for. Frequently when speaking to folks that are just venturing into the consulting arena, they express confusion over which option is best for them. Below is a simple break down that covers the basics.

W2 Hourly: In layman's terms W2 hourly is like short term employment. You receive an hourly rate for your work, you will often have the opportunity to opt into partial benefits, you will fill out necessary Tax Forms and the company will take out taxes prior to paying you. Your "employment" will last for the duration of the engagement that you have accepted. At the end of the engagement you will be free to accept another engagement from another company or if you're working for a company that is on their toes... they may have a new engagement to offer you and you can extend your time with them.

1099 Contract & Corp to Corp: The difference between 1099 and Corp to Corp is simple. In the case of 1099 you will use your social security number and be paid as an outside contractor by the company, this scenario is rarely practiced anymore. In the case of Corp to Corp you will have created a legal business for yourself (LLC or S-Corp etc) by registering through your state and you will sign a business agreement/contract between your company and the firm you are going accept the engagement through. Many firms are trending away from 1099 and Corp to Corp agreements. The reasoning behind this trend is related to the IRS cracking down on companies that utilize independent contractors when they deem the company should have brought the consultant on as a W2 hourly employee.** Typically the lines are blurred when discussing 1099 vs Corp to Corp because the term "1099" has become a catch-all phrase for both. As your own business entity you will be required to invoice the company you are contracting for. You will be paid an hourly rate for your services.

Which is best for you? Lets break them down:
Salaried / Permanent Employment
Benefits:
>Security - the security of internal employment within a company and the opportunity to advance within that company. 
>Full Benefits, bonuses, PTO, 401K etc
>Regular pay schedule
>Necessary equipment provided
>Company covers liability insurance
>Corporate Credit Card for travel when applicable (in most cases)
>Being on a consistent team
Potential Draw backs:
>Income is often less than what you can bring home as a W2 Hourly or Corp to Corp Contractor
>If working for a consulting firm or EMR vendor you don't always have the freedom to choose your engagements and must go where the company sends you.
>May have to relocate/no freedom to live where ever you want.

W2 Hourly
Benefits:
>Company deals with the taxes and covers liability insurance
>Option for benefits / PTO / 401K (in most cases)
>Equipment provided (in most cases)
>Regular pay schedule
>Regular travel reimbursement schedule or paid travel when travel is required
>Freedom to choose your engagements
>Potential for higher income vs Salaried employment
Potential Draw backs:
>Largely responsible for finding your own engagements
>Typically full benefits, bonuses, 401K and PTO are not included

1099 or Corp to Corp
Benefits:

>Full control of your business endeavors
>Higher income (in most cases) than Salaried or W2 Hourly consultants
>Freedom to choose your own engagements
Potential Draw backs:
>Must pay your own taxes on a quarterly basis*
>Must provide the company you are contracting for with invoices from your business
>Must maintain your own liability insurance
>Must provide your own benefits
>Often paid 30 days on invoice
>In some cases responsible for your own travel expenses (all inclusive rates)

*Always consult a CPA / Accountant when creating your own business to gain a full understanding of the tax laws and expectations.
** Tax Lawyers have explained that an old and somewhat obscure Federal Tax Law (#1706 from 1986) states that if the I.R.S. determines that a self-employed worker should have been an employee, it imposes substantial back taxes, penalties and interest on the hiring company AND on the contractor — even if the self-employed worker fully paid his/her taxes. For this reason many companies are shying away from using Corp to Corp (and 1099) contractors unless those contractors can prove that their business meets the federal criteria listed in the law. (employs at least 2 other people beside themselves and family members OR if they are in a partnership with someone other than family members OR they have incorporated (S Corp, C Corp etc) and file a 941 and pay yourself a salary) 

For more information on this law consult your local Tax Attorney.

As the IRS continues to crack down more and more, industry employers are moving away from 1099/C2C agreements and expecting the consultant work on a W2 hourly basis. Consultants that are flexible and open to W2 hourly contract work will increasingly have a better chance of placement as the industry trends in that direction. 
If you're a seasoned consultant and have comments about these options please post them!!

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Thursday, February 9, 2012

Traveling Weekly for Work ~ What is it REALLY like?

Over the past 8+ years I have spoken to hundreds of EMR Professionals that want to enter the world of the traveling consultant.  Most consultants in our industry will travel weekly on a Mon-Thurs or Sun-Thurs schedule with exceptions for longer stays on a client site or variable remote work. 
When discussing the nature of weekly travel to a "newbie" I have learned to play devil's advocate.  The first person I ever interviewed when I entered into this Industry had never traveled before.  He assured me that he "LOVED" to travel and was totally "psyched" about the opportunity.  Six months into his engagement he called me to resign, said he couldn't take the weekly travel any longer.

Recently I discussed the rigors of weekly travel with some seasoned road warriors.  Below are results of the Q & A from those discussions:
What made you decide to start traveling for work? Most Frequent Responses:  Higher Income.  New Surroundings and co-workers with each new engagement. Enjoy travel & seeing new locations.

What was the hardest adjustment you had to make when you transitioned into traveling weekly for work? Most Frequent Responses: Being away from family(pets). Missing out on family or other functions (weekly bowling or child's plays etc) and having to leave spouse to do all the work. Navigating the airports, luggage, flight delays, airport security etc.

What do you wish all consulting/staffing firms offered that would make your travel life easier for you?
This question received the most diverse answers, some of the most frequent responses were:  Corporate Credit Card for travel, better discounts on hotel, car, flights etc.  Occasionally paying for spouse to travel, like over the holiday work weeks etc., better assistance for new travelers, even something simple like a handbook with traveling suggestions.

What did you have to give up when you started traveling weekly?  The number one answer was time with family and friends, some other responses were: freedom to join sports leagues or meet friends for dinner once a week during the week, and for single folks: having a pet, being home during bad weather (someone had a water-main break in sub zero temps and didn't realize until they got home days later) and being in one place so it's easier to start a romantic relationship.

What did you gain from becoming a traveling consultant?  Some of the top answers for this question were:  better income, seeing out of town family & relatives more, greater independence, being able to travel to new places, less stress, meeting new people, and quiet time at the hotel in the evenings.

Here are a list of tips from the road warriors:
1.  Pack Light!  Learn to pack everything you need for the week into a carry-on bag.
2.  When traveling coast to coast, find extended stay hotels and if you travel home, leave most of your belongings at the hotel during your absence.
3.  You can bring your pet, just check for local pet friendly hotels.
4.  Always have an extra charger (computer, phone, iPod etc) handy.
5.  Make sure your ID, discount cards, credit cards etc are kept in the same place, are always handy and are in a front pocket for safe keeping.
6.  Keep a folder or file or zippered pouch for all your travel receipts so they're easy to locate at the end of the week for the purpose of scanning and emailing or mailing to your employer. (if you're 1099, for tax purposes)
7.  Set up a calendar alert to remind you to log your time & file your expense receipts each week.
8.  Know the name and number to your employers IT Helpdesk in case you have problems with your company issued lap top.
9. Whenever possible do not wear a belt, difficult to remove shoes, hair pins, excessive jewelry, etc so that you can move through airport security quickly.  Make sure your laptop is housed in a safe but easy to manipulate bag, keep your pockets empty etc.
10. If you are single and live alone, make sure you have a neighbor or relative that can check on your place of residence in your absence.
11.  Provide neighbors and relatives the name and number of your hotel, along with your cell phone so they can easily contact you in case of an emergency.
12.  Have the number of your direct boss, a company co-worker and your direct report at the client hospital programmed into your cell phone, that way if your flight is delayed you will be able to alert people of your delay.

If you're a seasoned traveler and you have other important tips I've missed, please feel free to add a comment below!

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