Taking the Independent Plunge: Dip Feet or Dive?

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If you’ve never explored the world of independent consulting, you may regard those who have with a combination of admiration and envy. You might see them as a different breed of people: fearless, entrepreneurial—embodiments of the career and life you would choose if you could only conjure up enough courage.

But as many successful consultants discover, the gap dividing traditional careers from independent ones can be more of a crack than a chasm. Seldom do professionals simply slam the door on a W-2 position and begin consulting exclusively. Most talented individuals test the consulting waters by trying a project or two on their own time while working their full-time jobs. Before long, though, these pros are faced with the decision of whether or not to take it all the way.

The reasons for going independent are as diverse as the independents themselves. This same diversity applies to the factors that you should consider when debating whether or not you should remove yourself from the benign predictability of traditional employment. In weighing these factors, ask yourself: Am I reliant on a steady income? Do I have enough saved to survive a few months of downtime? Am I responsible enough with my money to set some aside when the going is good? Do I have a marketable skill and a means of getting it in front of people?

Answering “no” to these questions may indicate that the potential pitfalls of independence aren’t worth the risk—at least not now. Only you know if your life situation can tolerate it. But for those who have read this far, for those thinking of giving full-time consulting a try, the first thing to do is to understand your options for getting your independent career off the ground.

Generally speaking, there are four categories of independent consultants. Explore the advantages and risks to each before you decide which works for you.

  • Working through a staffing company: A common first step for new consultants, staffing companies match you with projects—thus eliminating the need to market yourself. However, expect to earn only about 50 percent to 75 percent of what the staffing company charges for your work. You usually become a W-2 employee of the staffing company as you work your assignment, so taxes are withheld automatically and you may participate in employee benefits and retirement programs.
  • Working as a sole proprietor: Also known as “1099s,” sole proprietors are as independent as you can get. They find their own work without giving a dime to any intermediaries. Be prepared, however, for challenges that come with the territory: finding business and health insurance, setting up a retirement program, client billing and collections, filing quarterly tax estimates and more. Also note that the IRS often cracks down on businesses that use sole proprietors, so many potential clients simply won’t work with you.
  • Self-incorporating: Many consultants establish their own corporations. Clients are sometimes more willing to work with corporations than sole proprietors, but not always: Corporations still incur IRS risk for their clients. While creating the entity is only mildly time-consuming, ongoing administrative overhead is greater than the other categories, and you still need to secure your own benefits. Self-incorporation is best for experienced independents who have an established infrastructure for dealing with the administrative challenges. (Qualified accountants and lawyers are a must!)
  • Working through a portable employer-of-record: Relative newcomers, portable employers-of-record (PERs) are quickly gaining popularity. PERs, like staffing companies, serve as W-2 employers for independents as they work on projects, conveniently handling all administrative duties and withholding taxes. But PERs don’t match you with projects—you have to find them on your own—and they consequently charge much less than staffing companies. They also are likely to provide superior benefits, as they want to keep you “portably employed” throughout your independent career.Whichever category you choose, one thing is constant: Once you take the plunge, there’s nothing forcing you to stay in the pool. If the trials and tribulations of independence are more than you can handle, you can jump back into the W-2 world and leave it all behind. But don’t be surprised if your first glimpses into the empowerment and wealth potential of independent consulting help you stick with it, even if you hit rough patches along the way.

    Gene Zaino is president and CEO of MyBizOffice Inc., and is the primary force behind a consultant engagement process that provides independent professionals with a “portable” employment and benefits infrastructure, while helping their clients reduce the costs, risks and administration associated with using them. He can be reached at gzaino@certmag.com.

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