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Non-Employee Work Consulting/ Contract Labor Tom Phillips - Effective Agreements DFW Sales/Bus. Dev. Networking Group July 21, 2009.

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Presentation on theme: "Non-Employee Work Consulting/ Contract Labor Tom Phillips - Effective Agreements DFW Sales/Bus. Dev. Networking Group July 21, 2009."— Presentation transcript:

1 Non-Employee Work Consulting/ Contract Labor Tom Phillips - Effective Agreements DFW Sales/Bus. Dev. Networking Group July 21, 2009

2 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 2 Agenda 1099 or Contractor 1099 or Contractor Consultant Consultant –Differences –Needs –Marketing Pain Versus Gain Pain Versus Gain Taxes and Liability Taxes and Liability –Structures

3 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 3 Acknowledgements Kent Billingsley, AIM Sales Group Kent Billingsley, AIM Sales Group –Taught me all I know about the marketing materials Rob Kibby, Munsch Hardt Kopf & Harr Rob Kibby, Munsch Hardt Kopf & Harr –Reviewed legal points and suggested some additions

4 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 4 1099 A 1099 is not a type of employee A 1099 is not a type of employee It is an IRS Form, Form 1099 – Misc. It is an IRS Form, Form 1099 – Misc. It applies to non-employees performing work for a company – a contractor It applies to non-employees performing work for a company – a contractor The company will file a Form 1099 with the IRS and send you a copy The company will file a Form 1099 with the IRS and send you a copy –How much you were paid –What taxes the company paid for you or withheld and deposited (discussed later) You can be individual, sole proprietor or corporation You can be individual, sole proprietor or corporation

5 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 5 Contract Versus Consultant The two can run together The two can run together –Do in my practice We need some definitions to work with, so I will put forward my definitions for todays talk We need some definitions to work with, so I will put forward my definitions for todays talk

6 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 6 Contract The company calls you in and wants you to sign their standard contract The company calls you in and wants you to sign their standard contract Contract is between the company and you – a person Contract is between the company and you – a person –You do not create any company Often, the contract says you are not an employee and cannot claim any employee benefits such as healthcare or 401k Often, the contract says you are not an employee and cannot claim any employee benefits such as healthcare or 401k Usually no Federal Income Tax (FIT), Social Security (SS), or Medicare is being withheld Usually no Federal Income Tax (FIT), Social Security (SS), or Medicare is being withheld Paid by the hour, not product or deliverable based Paid by the hour, not product or deliverable based Often you are: Often you are: –Doing something others are also doing –Doing more mundane work

7 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 7 Placement Firms Several placement firms have contracting jobs that pay hourly wages Several placement firms have contracting jobs that pay hourly wages –Fee should be paid by employer Some do provide benefits to their contractors Some do provide benefits to their contractors –Insurance, 401(k), vacation pay, holiday pay, stock options, etc. Firm takes care of FIT, SS, Medicare Firm takes care of FIT, SS, Medicare Advise registering with one of these if can Advise registering with one of these if can –However, not easy, especially in these times

8 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 8 The Pain Part Read the agreement carefully Read the agreement carefully –Ask questions, especially if any of the terms strike you as onerous –Have it reviewed by attorney Company may or may not pay or withhold taxes Company may or may not pay or withhold taxes –The company did tell the IRS what it paid you - 1099 Think about the deductions on your pay stub when you were an employee Think about the deductions on your pay stub when you were an employee –FIT, Social Security, Medicare –Company also paid state unemployment and FUTA With your normal income tax, you owe a Self- Employment tax based on net earnings With your normal income tax, you owe a Self- Employment tax based on net earnings Can be required to make quarterly payments Can be required to make quarterly payments

9 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 9 A Traditional Consultant We all know what a traditional consultant did We all know what a traditional consultant did Came in and interviewed everyone Came in and interviewed everyone Put together a package containing what the management and employees said – all of which was already known Put together a package containing what the management and employees said – all of which was already known Came to a conclusion that was exactly what management wanted to hear Came to a conclusion that was exactly what management wanted to hear Sent a very large bill Sent a very large bill

10 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 10 Our Working Definition Work is results based, even if the charge is hourly Work is results based, even if the charge is hourly More added value – specialized knowledge More added value – specialized knowledge There is no one else in the company doing the work There is no one else in the company doing the work –Or you are taking on work so an employee can focus on his/her major tasks You use your agreement and negotiate from there You use your agreement and negotiate from there

11 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 11 A Consultant in What? Must be something you like to do! Must be something you like to do! –Some passion May not be what your job was May not be what your job was –If they had you in sales, but you are really good at marketing, choose marketing –Remember hobbies! Something where you have some proven expertise Something where you have some proven expertise Take the competition into account Take the competition into account

12 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 12 Marketing Identify your market Identify your market Validate that there is enough of a market to make your efforts pay Validate that there is enough of a market to make your efforts pay Determine how to best approach the market Determine how to best approach the market –There are sales and marketing consultants that work with new companies Create collateral (Next Slide) Create collateral (Next Slide) –You are now the marketing and sales department Network, network, network Network, network, network Become a speaker if you can Become a speaker if you can

13 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 13 Marketing Collateral Pick the right name and maybe a logo Pick the right name and maybe a logo –Domain name available Professional cards - quality will count Professional cards - quality will count 30 second elevator speech 30 second elevator speech One page concise description of who you are, what you do and why people should use you One page concise description of who you are, what you do and why people should use you –Professional look and feel with white spaces and some pictures –Be sure pictures you use are not copyright protected Articles that show your special knowledge Articles that show your special knowledge Case studies: What you found, how you fixed it and what was the result – quantify wherever possible Case studies: What you found, how you fixed it and what was the result – quantify wherever possible Testimonials from satisfied clients Testimonials from satisfied clients Dont forget to put © Jane Doe 2009. All rights reserved. at the bottom of handouts and articles Dont forget to put © Jane Doe 2009. All rights reserved. at the bottom of handouts and articles

14 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 14 Website Obtain a domain name and create your website Obtain a domain name and create your website May want to use a domain host that provides a simple front end page creator, such as Network Solutions (www.networksolutions.com) May want to use a domain host that provides a simple front end page creator, such as Network Solutions (www.networksolutions.com)www.networksolutions.com Buy the name from a different company than your webhosting Buy the name from a different company than your webhosting Otherwise, must hire someone who will make it presentable Otherwise, must hire someone who will make it presentable Some sites are for sales but many are just for validation Some sites are for sales but many are just for validation Attach the articles and handouts as Adobe Acrobat files so they may be downloaded Attach the articles and handouts as Adobe Acrobat files so they may be downloaded When you copy pictures or text, be sure they are not copyrighted or obtain written permission to use them When you copy pictures or text, be sure they are not copyrighted or obtain written permission to use them

15 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 15 Necessities Most important: quiet work area with desk, filing space (locked), storage for office supplies Most important: quiet work area with desk, filing space (locked), storage for office supplies Separate phone line with voice mail Separate phone line with voice mail –Professional message Computer and quality printer Computer and quality printer Fax machine/Scanner/Copier Fax machine/Scanner/Copier Professional dress Professional dress Understanding with family: you are working Understanding with family: you are working Self discipline to get in there and work every day Self discipline to get in there and work every day

16 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 16 Other Recommended High speed Internet High speed Internet Customer Relationship Manager (CRM) and bookkeeping software Customer Relationship Manager (CRM) and bookkeeping software Post office box, if office out of home – security measure Post office box, if office out of home – security measure Separate professional email address Separate professional email address –I prefer one tied to web site Location of every Starbucks within 50 miles Location of every Starbucks within 50 miles

17 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 17 Networking Venues A few examples: Chambers of Commerce Chambers of Commerce –Dallas, North Dallas, Richardson, Plano Discipline Specific Discipline Specific –Marketing Executive Networking Group (MENG), Financial Executive Networking Group (FENG), Financial Executives International (FEI) Task Specific Task Specific –Association for Corporate Growth (ACG), Turnaround Management Association (TMA), Project Management Institute (PMI) Non-Specific Non-Specific –NetWeavers, TexChange, Southwest Venture Forum, MIT Forum

18 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 18 Consulting Pluses Flexibility Flexibility –Work for many different companies –Learn something new each time You are the boss You are the boss –Your contract should allow you to choose hours or days you perform work and where you perform it –Schedule vacations when you like (remembering you dont get paid!) Can reject jobs Can reject jobs –If you get an uncomfortable feeling on your first visit, trust your instincts –Judge how you think your supervisor will be as a temporary boss

19 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 19 Less Attractive Comparison Company Employee Pay check is dependable Pay check is dependable Group medical coverage available, and usually some portion is paid Group medical coverage available, and usually some portion is paid Company pays its portion of SS and Medicare, and withholds and deposits FIT and your portion of SS, and Medicare Company pays its portion of SS and Medicare, and withholds and deposits FIT and your portion of SS, and Medicare Company keeps track of what it paid, withheld, etc. Company keeps track of what it paid, withheld, etc. Own Business Work when you find it Individual policy medical coverage, if you can get it, and you pay the premium You pay Self Employment tax (Described Later) Must keep track and put aside money for income and Self Employment tax

20 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 20 Solemn Warnings You are the entire staff, including IT You are the entire staff, including IT Rarely get any time off between client work, marketing and administration Rarely get any time off between client work, marketing and administration –Half of the weekend if lucky When you are very successful, up to your neck in client work, you are not marketing When you are very successful, up to your neck in client work, you are not marketing –The pipeline will be dry when you are done

21 Legal and Tax Stuff

22 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 22 Huge CYA Caveat I am not an attorney and cannot give legal advice I am not an attorney and cannot give legal advice –Before you do anything, check with your attorney I am not an accountant I am not an accountant –Before you do anything, talk to your CPA

23 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 23 Structures Hourly contractor Hourly contractor Sole proprietor Sole proprietor LLC LLC C Corporation C Corporation Just to name a few Just to name a few Remember any form may also require a d/b/a (next slide) Remember any form may also require a d/b/a (next slide)

24 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 24 DBA Special note required for d/b/a (doing business as) Special note required for d/b/a (doing business as) If you are doing business under a name other than your name or your companys name if you form one, must file d/b/a If you are doing business under a name other than your name or your companys name if you form one, must file d/b/a Register the name with the state (online) Register the name with the state (online) A d/b/a must be registered in every county in Texas in which you conduct business A d/b/a must be registered in every county in Texas in which you conduct business

25 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 25 Hourly Contract Flows into family same as salary did Flows into family same as salary did –1099 or W2 Some deductions, I think Some deductions, I think –Mileage? –Supplies? Safest to set up separate bank account Safest to set up separate bank account Remember previously mentioned firms that provide benefits, withholding, etc. Remember previously mentioned firms that provide benefits, withholding, etc. Liability stays with you, even if all you did every day is what they told you to do Liability stays with you, even if all you did every day is what they told you to do –Clearly less risk in this case

26 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 26 Sole Proprietor Treating as consulting under our definition Treating as consulting under our definition May look better on resume: one company rather than many May look better on resume: one company rather than many Believe profit flows right to you and gets worked into your Form 1040 Believe profit flows right to you and gets worked into your Form 1040 Pay self-employment tax to cover Social Security and Medicare (Schedule SE) Pay self-employment tax to cover Social Security and Medicare (Schedule SE) –More complicated as there are limits on how much you have to pay and some adjustment to gross income Liability also flows through to you Liability also flows through to you –Even if they cannot get house, can get everything else

27 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 27 Limited Liability Company Protection against liability Protection against liability Additional record keeping Additional record keeping –Basically a partnership if more than one member, and files like one –Disregarded if one member –May be required to pay taxes quarterly Employees get W2s or 1099s Employees get W2s or 1099s ** Consult accountant on the tax implications ** Understand they are easy and cheap to create Understand they are easy and cheap to create

28 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 28 C Corporation Is a separate entity and you become officer and employee Is a separate entity and you become officer and employee Issues you a W2, as an employee Issues you a W2, as an employee –Same deductions from the paycheck as with a big company Files a separate tax return and pays own tax if there is a profit Files a separate tax return and pays own tax if there is a profit Withholds and deposits FIT, SS, and Medicare from employee Withholds and deposits FIT, SS, and Medicare from employee –Must file employee tax Form 941 each quarter and Form 940 at the end of the year Pays own SS, Medicare, Texas Unemployment and Federal Unemployment Pays own SS, Medicare, Texas Unemployment and Federal Unemployment May be required to pay quarterly May be required to pay quarterly

29 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 29 C (Cont.) Must be created with state filing Must be created with state filing –Some people do it themselves, others use attorneys –More expensive to create either way Better have a good set of books for your accountant Better have a good set of books for your accountant There can be some tax advantages There can be some tax advantages Liability goes to corporation, not you Liability goes to corporation, not you Must be careful not to pierce the veil Must be careful not to pierce the veil –Much more record keeping

30 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 30 Pricing Price You Charge in General Less Operating expenses -Internet, Phone, Web Site Charges -Supplies, from computers to pencils plus collateral -Networking Expense (charges to join and attend) -Insurance – individual health, liability, etc. -Professional Services: marketing -Allowance for vacation and/or sick time -Savings (reserve, IRA, etc.) Less All Taxes -FIT, Self Employment or separate SS, Medicare and unemployment = What you have on which to live: take home net **Consult With Accountant on What to Charge** **Consult With Accountant on What to Charge**

31 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 31 Take Away If you forget everything else you heard here, please remember this slide If you forget everything else you heard here, please remember this slide If you do not want to find yourself having to come up with a large payment to the IRS: If you do not want to find yourself having to come up with a large payment to the IRS: –Put the FIT and Self Employment Tax safely aside, preferably in a separate account, every time money comes in or you pay yourself As C Corporation, I pay all employer taxes, and deposit all employee deductions, to/with the IRS and the state every time I issue myself a paycheck - immediately As C Corporation, I pay all employer taxes, and deposit all employee deductions, to/with the IRS and the state every time I issue myself a paycheck - immediately Everything can be done on line easily Everything can be done on line easily

32 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 32 Reading Materials IRS actually has tons of information on the tax matters around starting a business IRS actually has tons of information on the tax matters around starting a business –It is non threatening and pretty user friendly Same for Texas, on the Secretary of State web page Same for Texas, on the Secretary of State web page Will find many books on Amazon, but also at Half Price Books and the public library Will find many books on Amazon, but also at Half Price Books and the public library I used Going Solo by William Bond and Marketing Your Services by Anthony Putman I used Going Solo by William Bond and Marketing Your Services by Anthony Putman

33 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 33 Sample Agreements Many of the books on consulting may have drafts that need to be checked by counsel Many of the books on consulting may have drafts that need to be checked by counsel Use an attorney Use an attorney The attorneys are particularly important with issues such as: The attorneys are particularly important with issues such as: –Creation of Intellectual Property –Accepting equity as any portion of the payment –Indemnification

34 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 34 If You Have Questions Tom Phillips Effective Agreements 972-235-7656 – Office 214-549-1770 – Cell tphillips@effectiveagreements.com www.linkedin.com/in/tomphill

35 Back Up Information

36 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 36 URLS IRS Business Information: www.irs.gov, and click on Businesses tab IRS Business Information: www.irs.gov, and click on Businesses tab Quarterly employee tax forms and payments: www.eftps.gov Quarterly employee tax forms and payments: www.eftps.gov –Must enroll, but directions are on the site Texas Unemployment filing and payment: www.texasworkforce.org/customers/bemp/bempsub3.html Texas Unemployment filing and payment: www.texasworkforce.org/customers/bemp/bempsub3.html Both Federal and State will allow tying to checking account Both Federal and State will allow tying to checking account Small Business Administration: http://www.sba.gov/ Small Business Administration: http://www.sba.gov/

37 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 37 URLS www.mengonline.com www.mengonline.com www.thefeng.org www.thefeng.org www.financialexecutives.org www.financialexecutives.org www.acg.org/Dallas www.acg.org/Dallas www.texchange.org www.texchange.org www.turnaround.org www.turnaround.org www.swvf.org www.swvf.org www.pmi.org www.pmi.org www.ceonetweavers.com www.ceonetweavers.com

38 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 38 LLC AND Sole Proprietors Employer/Client LLC Family Sole Proprietor Liability Fee IRS/Social Security Administration Fee Income TaxSelf-Employment Tax

39 Non-Employee Work 7/21/09Tom Phillips - Effective Agreements 39 C Corporations Client C Corporation Fee Family IRS/Social Security Administration Salary + Income Tax Withheld FIT* SS*Medicare* Liability Corp. Income Tax + Net of employee FIT, Medicare, and Social Security * Both corporate and employee portions (deducted from Salary) Texas Unemployment FUTA


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