Full Time vs Freelance Career

In my career as a software developer I worked as an employee, a founding-team member of a startup, and a business owner. I currently own and operate Rivello Multimedia Consulting (RMC) – an app & game software development company.

Owning a business is empowering and challenging. I love it. It affords me the flexibility to work with the people and technology that excite me and allows me to travel extensively. After years in Los Angeles I decided to take RMC mobile. Working within dozens of countries. I now travel full-time while I work on project-based client-assignments.

In the pursuit of new contracts I’m often approached by recruiters, head-hunters, and software companies to accept full-time positions. While I’m not actively looking for full-time employment, I want to brainstorm ‘The Ideal Full-time Job’ for two reasons. Perhaps I will accept a full-time position AFTER I decide to settle down geographically. So knowing what I want is important. Or secondly, perhaps if I have the ideal situation firmly in mind, I will find something so good it will encourage me to settle down geographically. I’d like to define what is ideal for me and keep an eye out for it.

Its also increasingly possible to be a full-time employee and work some or all of the position as a remote worker.

Let’s take a moment to talk about the full-time lifestyle compared to some alternatives.

FULL-TIME VS FREELANCE VS CONTRACTOR

Here are a few of my own definitions on the types of working relationships we find within the software industry.

An ‘employee’ works 40 (in USA) or more hours per week for the same employee and receives compensation regularly in the form of salary and benefits. He belongs to the company. Generally speaking, the worker is on-site and the employer is his only source of income. The responsibilities are set by one or more bosses. The risks for the employee are low. He is told what to do, he does the work (with varying degrees of flexibility in how he completes it), and then submits it for review. The learning and growth opportunities are controlled by the employer. In short, for the worker, being a full-time employee is a very secure position with some personal and some professional growth potential, but little control.

A ‘freelancer’ works independently for 1 to 40 hours or more for an employer. The worker may be on-site, off-site, or a hybrid combination of both. Most of her power comes before the project is signed. She can seek the project and technologies of interest and offer the calendars and budget (subject to client approval). Once the project begins however, the relationship is mostly employee-employer where the freelancer does what she is told to do. She receives compensation hourly or flat in the form of salary during or after a project. Between projects there is no pay. There is some risk too. Generally she is responsible for her own benefits (health insurance, retirement, etc…). The volume of work to be done between due-dates may be very high, regardless she is responsible to get it done. She receives no training or growth, except what is learned on the specific job at hand. She must train herself on her own time to stay competitive and to offer value. In short, for the worker being a freelance worker is an insecure position with little (on the job) growth yet greater control of the projects and technologies used.

For many, freelancer and contractor are the same. However, I note a difference.

A ‘contractor’ is independent like  the freelancer, but accepts more responsibility and risk. He is free to choose his next project. But can take on projects that are not yet well formed or well documented. This allows him to create the specifications document (subject for client approval) for potentially larger projects. He may hire sub-contractors to help with the project too. At milestones and certainly at the project completion he submits his work to the client for review. Estimating hours and budget is also required. For this additional risk the contractor is paid more. The contractor may also manage her own team and do subcontracting too, where a freelancer is a solo worker. So for the worker, being a contract worker is an insecure position with little (on the job growth) yet a high level of control over what projects are taken and how the projects will be completed. He is responsible for creating specifications, hiring and managing subordinates, and delivering the completed work.

Full-time employees pay taxes annual (in USA, using a w2), freelancers are paid with a 1099, and contractors may use 1099 but there are other options too.

Generally, defining an ‘employee’ is easy, but there is grey area between freelancer and contractor. To me, the more risk and responsibility the worker has, the more the role sounds like a contractor.

PAY COMPARISON FULL-TIME VS OTHERS.

When comparing the financial side of a full-time position vs a freelance/contract lifestyle, one must consider more than just the salary. All other things being equal, the freelancer must be paid significantly more than the employee for the freelancer to be a financially competitive option. Think of all the costs you must pay as a freelancer that you don’t pay as an employee:

  1. Utility bills. The heat, water, light and phone bills may all be higher when you’re home all day. As a worker, your boss essentially paid for some of this by hosting you at their place of business .
  2. Employment tax. Your employer footed the bill on half of this. As a freelancer, you pay both halves yourself. You can look up your tax deduction on a pay stub to see how much more you’ll owe the IRS. You’ll also likely pay state business taxes as a freelancer.
  3. Equipment. Your boss provided a computer, Internet access, printer, paper, and everything else you needed to work. Now, you’re on the hook for all those costs. When the computer dies, guess who gets to call a tech — or buy a new one?
  4. Marketing costs. You didn’t need to get out and market your business when you had a full-time gig. Now, you might need to purchase publications, join associations, take trainings, pay a web host, send direct-mail postcards — all those marketing costs are yours to bear.
  5. Non-billable hours. A full-time job gave you a guaranteed 40 hours of work each and every week. Freelancing isn’t like that. You’ll have hours you need to spend marketing, doing bookkeeping, chasing after slow payers. So to end up with equivalent pay, you’ll have to figure how many billable hours you’ve really got in a month and divide the monthly total you need by that figure, not the 180+ hours of a typical employee.
  6. Unpaid vacation and sick time. Your boss might have floated you a couple weeks free a year or more, and may have covered a week or more of sick days, too. As your own boss, when you don’t work, you don’t get paid.
 
ASSIGNING A VALUE TO YOUR WORK
The full-time position includes compensation in payment and benefits. So when offering services as a freelancer or contractor, you have a competitive edge in finances. You can ask for more payment, since typically no benefits are included.
 
Variables to Consider for a Consultant:
  • Length of contract, Temp to Perm, Work from home, # of hours per week, Overtime, Technology, Client
  • When was the contract signed, different Market Conditions?
  • W-2 vs 1099 (Taxes need to be paid by company or individual 6.2% SS or 1.45% Medicare of Gross Pay)

Think like a consultant:

  • 160 hours per month (2 weeks vacation, 9 holidays, 3 sick days, 10 days to find a new job), so to figure out what the candidate would earn in 1 year of consulting, probably multiple (Rate * Hours per month * 10.5/12 months)
  • Cost of Benefits, $500 to $1,000 individual or $1,000 to $3,000 family
  • Talk to accountant about write-offs, filing taxes, etc

Rules of Thumb:

  • Once a consultant, always a consultant
  • Consultants make more $ than a fulltime employee
  • Fulltime employees converting to contract roles worry about Benefits, Stability and Taxes
  • Big Companies hire Consultants
The following chart (2011) shows a comparison of hourly pay (freelance/contract) to full-time pay.

Consultant Hourly Pay                                                                   Full-time Employee Pay

$25 per hour                                                                                                      $40,000

$35 per hour                                                                                                      $50,000

$40 per hour                                                                                                      $60,000

$50 per hour                                                                                                      $70,000

$60 per hour                                                                                                      $80,000

$65 per hour                                                                                                      $90,000

$70 per hour                                                                                                      $100,000

$75 per hour                                                                                                      $115,000

$80 per hour                                                                                                      $120,000

 

THE QUESTION OF PERSONALITY

Because full-time positions offer less control and full-time/freelance positions offer less risk, we see that workers’ personalities generally fit one better than the other. Here is a partial list of thought-provoking points;

  • If you like to be told what to do (and that is not necessarily a bad thing), to do it, and to be paid then full-time is for you.
  • If you like to be a leader within an existing structure – the corporate ladder of being an employee is for you.
  • If you can take a bit more risk in your lifestyle and want to say ‘no’ to projects that are not of interest
  • If you are willing to take risks for greater control – contracting may be the best fit.
SO WHICH IS BEST?

Historically, workers are employees. There was a time when finding one great company and investing 40 years there, was the ideal. However, with changing business models companies and heightened competition companies are less likely to want or be able to hire life-time employees. The trends point to more of the world-wide (professional) workforce being contract-based independent workers. This lowers risk for the companies and requires more responsibility from the workers. Workers must more actively manage their own professional education and steer their careers. Still many of us start our careers as employees.

For many, particularly younger workers, the decision is ‘I am an employee, should I become a freelancer’. As outlined above that decision is usually “do I want to accept more responsibility and risk for the benefit of more control and income.” For me that decision was met with a resounding “yes” years ago. But it is not for everyone.

  • Vaibhav tyagi

    if there’s one lesson to be learnt, it’s that there’s no right way to build your career; if you want
    something enough, you’ll find your own way to make it work. http://www.hokite.com