If you are considering getting into healthcare IT consulting as a contractor, something you obviously have to be prepared for is getting new contracts. Depending on the length of the projects you are on, you may look for new contracts from one to three times a year on average. Unless you have built your own client base, you are going to most likely make yourself available for projects through a firm that specializes in finding engagements that require people with your background.
Below are a few different scenarios to consider:
Consulting firm that hires consultants as FTE’s of their firm as well as contractors on an as needed basis
Contracting firms that will pay a salary, hourly, benefits to W2 employee or set up a subcontractor (corp to corp) relationship
Contracting firms that pay hourly or subcontractor (corp to corp) without providing benefits
Firms to avoid:
Consulting Firm That Hires FTE’s as Well as Contractors
As I have described in other posts, there are consulting firms that hire their own employees as their main avenue to filling their client engagements. However, these firms will find that from time to time one of their clients may have a need that they do not have an available employee for. Or there may be a situation where a client needs a type of skill set that they do not get requests for very often. In both of these situations, these firms may look to engage the services of an independent contractor for a particular engagement with both parties having the understanding that once the engagement is complete, neither the consulting firm nor the contractor will have any obligation to each other.
Contracting Firms That Will Pay a Salary, Hourly, Benefits or Set Up a Subcontractor (Corp-to-Corp) Relationship
This type of a firm is set up to work with individuals on a contract basis. They have assignments and look for individuals who can perform the work. They will work with you to find a new engagement but they normally will not pay for bench time (time in between engagements). Because of this, you should expect to make a higher level of compensation than if you were full time employee of a firm where bench time is provided. These firms will pay benefits as a part of your compensation plan and they may or may not pay salary during the contract should you prefer a predictable form of compensation during the length of your engagement. These firms just offer more variety in how they compensate when compared to following example.
Contracting Firms That Pay Hourly or Subcontractor (Corp-to-Corp) Without Providing Benefits
This group is not much different than the previous group mentioned, except that they do not offer the option of salary or benefits. Salary is not offered only because the firm prefers to pay hourly as the work is being performed as opposed to averaging out the compensation over the course of the contract. Since benefits are not offered, these firms tend to attract contractors who already have their benefits in place.
Situations to Avoid:
You get paid when they get paid.
Why is this done? They do this because the company or person offering you the contract does not have the money to pay you. This is normally an independent contractor with their own corporation. They are at a client site and become aware of a need the client has. This person knows that you can do the work and since they already have an agreement with the organization they think it would be great to bring you in as their employee and make a couple of bucks. This scenario will work out just fine more times than not. But here are a few things to take into consideration before signing up for this type of situation. The problems you will face will be this: The client does not pay on time. This is an issue if you have to have money within a certain timeframe. So if you don’t get paid until the independent contractor gets paid, even if the contract calls for them to be paid in 30 days, you will have an issue if they do not get paid for a much longer period of time. I can tell you with 100% accuracy, that 40% of clients will not pay the invoice within the timeframe stated within the contract. So you have to be prepared to deal with this.
Next, what if the client is unhappy with work that is provided and decides they are not going to pay for some of or all of the work you performed? If you working through a company that pays you on a regular basis, this would not be an issue for you, as the company takes all the risk. But, if under a “you get paid when we get paid” situation, this then becomes your risk. Is this something you want to be concerned with?
They want to classify you as a 1099 when you do not have your own corporation.
1099 is for an independent contractor. Let me explain what a true independent contractor would be:
A company needs 200 order sets built. They have the specifications in place. You go onsite one time to meet with everyone and make sure there is a clear understanding of what is expected of you. You determine how long it will take you to do what they need. You provide a flat price to do the work along with a payment schedule. You also establish a date when you will be completed with and able to deliver the work. You leave and work at your own location to get the work done.
Once a client decides to:
Pay you on an hourly basis as they do some employees;
Require you to be at certain locations on a regular basis as they do employees;
Pay you whether or not you completed the work you were hired for;
Then you are no longer considered an independent contractor.
So why do these organizations what to classify you that way? Because if they do, they will not have to pay the payroll tax on you like they would if you were their employee. As a 1099, you will be required to pay the payroll tax. Normally the reason this is done is because these companies do not have the proper infrastructure in place to perform a regular payroll. This in itself should be a concern.