Direct Engagements: How Contractors Can Take Advantage
I am frequently asked by independent workers about ways to get more money and satisfaction out of their contracting careers. Almost invariably, my advice is to explore the possibilities of engaging clients directly, rather than using a staffing or consulting company.
Direct engagement simply means that a contractor (freelancer, consultant, etc.) goes to work for a client company without relying on traditional staffing intermediaries. It's a 21st century redefinition of the contractor-client relationship -- one that's gone virtually unchanged since the 1970s. Yes, it flies in the face of tradition, and yes, it will take some getting used to. But direct engagement is the first real contractor employment trend that benefits the individual while letting companies trim away at the whopping $100 billion spent on contract assignments each year (almost all of which, by the way, is paid to intermediaries).
Why Is Direct Engagement Emerging?
It begins with communication. Today's technology (i.e., the Internet) enables contractors and companies to find each other more easily than ever. Certainly several web sites exist that embody the direct engagement concept, but, more importantly, more and more companies are actually posting their contract positions on their own web sites.
What's in it for Me?
Because direct engagement means that you go to work for a client without using an intermediary -- such as a staffing company -- it means that you'll no longer have staffing recruiters finding projects for you. You'll have to find project on your own... but most independents find the benefits to far outweigh the challenge of self-marketing.
First and foremost, direct engagements mean real relationships between you and your clients -- relationships that can stay with you forever. Enjoy working for a particular client? When you engage directly, you may re-engage with them in the future without wrestling with the staffing layer or worrying about non-compete clauses between you and your client. And as you work for more and more clients, you're building equity in your future -- an unfamiliar concept to purely staffing-based contractors.
Direct relationships also mean more career independence. Besides the obvious liberation from staffing companies, you can give yourself executive-style perks (including more lucrative expense reimbursement programs) and work on multiple projects simultaneously.
And of course there's money. Because there's no staffing intermediary, contractors who go direct tend to make more money and keep more of what they earn. (More on that later.) Going direct is also attractive to clients, as the elimination of the staffing intermediary results in cost savings for them as well.
Making it Happen
With all these advantages, it's surprising that more contractors don't engage their clients directly. But lingering misconceptions about the difficulties of direct engagements -- especially tax issues that W-2 staffing contractors don't have to deal with -- are enough to keep many talented professionals away.
In reality, beginning a direct contracting career is easier than you'd expect. You simply need some preparation, patience, and creativity. Here are some tips:
1. Arm yourself. Align yourself with an employment services company that will hire you as a W-2 employee as you work on projects. This will give you a convenient corporate-like infrastructure that will handle your administration (billing, collections, and tax payments), provide liability insurance, and offer traditional benefits (health insurance, retirement, etc.) Your affiliation with such a company will look better to potential clients, as clients are often leery of engaging contractors whom they have to pay on a 1099 basis.
2. Promote yourself. Use any means possible to tell the world you're ready, willing, and able to establish direct contracts. Scan online job boards and marketplaces for companies looking to hire contractors on their own. Already have a list of target companies in mind? Scour their websites for posted positions and project information... and don't be afraid to email your resume to any project managers or HR people you come across. Never stop working your personal network. And be sure to ask your employment provider (from tip 1 above) which companies they work with -- they can be your most convenient contract vehicle.
3. Price yourself. Because you'll now be covering your own payroll taxes and other costs, you'll need a higher rate. A general guideline is to multiply your current pay rate (gross wages) from your staffing company by 1.2. This 20% increase will be more than enough to cover the expenses of direct engagement with a greater profit for you. And your client will still pay 20-25% less than if they engaged you through a staffing company.
Be sure to do your research and survey the vast landscape of self-marketing initiatives available to you. If you're comfortable promoting yourself -- and you're ready to experience true independence and remarkable financial, lifestyle, and career improvements -- chances are direct engagement is the right choice for you.
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