Companies like The Siegfried Group have been poaching people from accounting firms for years, offering them 10% raises and quarterly bonuses. But for many of you, there’s an even better deal than they can offer.
If you work for just 3 months next busy season, can you make 75% of an employee’s annual income as a contractor?
The answer is yes. Here’s an example using a good friend of mine was a Manager at Ernst & Young. He made $90,000 a year, then quit to start his own company. After about a year he decided he need to jumpstart his cash flow as starting a business takes time. He did that by negotiating a $90/hr rate including straight pay for overtime hours.
Here are the financial details starting with his previous EY annual salary:
This same concept applies to any level of accounting work; senior, senior manager, etc.
Now, even though the calculation says ~66,000 and 75%, we all know how things work in public accounting — Deadlines get pushed back, clients stall, and what happens? You end up working even more hours.
But unlike when you’re salaried, every additional hour is paid.
My friend also got all of his travel, room, and food covered by the firm and would be traveling about 70% of the time.
Admittedly, this strategy isn’t for everyone. If you want to make partner or become CFO of a sizeable company, paying your dues in Big 4 and jumping to a full-time position when you are ready is probably the best route. But that’s not the plan for most of us.
Why would the firm go for an arrangement like this? Because it’s a lot cheaper than you think.
Most of the revenue accounting firms make is during busy season. For the rest of the year, they are trying to find things for many of their staff members to do.
With a contractor, they don’t pay benefits: no healthcare, no 401k contributions, minimal training, no internship, etc. Big savings for a firm.
What’s the catch? Will you pay more taxes? As a 1099 contractor, you’ll be able to deduct business expenses and a carefully planned budget could reduce your effective tax liability to the same or less than what you would have as a full-time employee.
Here are some other pros and cons of contracting:
- More freedom
- Increase pay by hour
- Opportunity to organize your profit and loss statement
- Less responsibility and pressure
- Time to start your own business
- Time to spend with your kids
- Self employment tax
- Lack of a clear career path
- Lack of regular pay
- Lack of investment from the firm into your skills
- Potential for decreased annual pay
- Likely to be put on challenging jobs
So, is contracting the right move for you? Does anyone have any experience as a contractor for a CPA firm or other business?