Contract work: a viable option in a bad economy?

I recently got an email from an Intern 101 reader regarding contract work. Our reader, R, had an informal interview with a firm, and R was asked if he would start his own "drafting company" and work as a contract employee. Some firms are using contract employees because it allows them to meet deadlines and client demands but still save money. By hiring you as a contract employee, the firm doesn't have to pay you health and retirement benefits, and it can also save them on Social Security, employee taxes, and unemployment payments. Working as a contract employee can help you get or stay employed in a bad economy, padding your bank account and helping you gain more IDP credits. However, there are a few things to consider when engaging in contract work for a firm.

What are the rules for making your own business? You'll need to check with your state's chamber of commerce or department of licensing and permits to see what the rules are for creating your own business. For example, in the state of Colorado (where I live), you would need to have an architectural consulting business; since you're not licensed, you can't be an architect but you can be a consultant. These governmental agencies should also be able to tell you about your tax responsibilities, which brings me to my second concern.

What are your newfound expenses? Your employer may not be paying taxes on you, but the government will still want its share of your income. It also may require that you withhold your own unemployment insurance. Also, will you be able to do all your printing on the firm's dime (or be reimbursed for it), or will you have to absorb that cost? You'll want to make sure that whatever you're being paid by the firm will cover those additional costs. Take whatever your hourly rate or salary would usually be (without working for them conventionally) and work forward using the information you collect from your state's business/commerce department.

Are you covered under their liability insurance? When you work conventionally for a firm, the fee they charge an owner for your work includes enough to pay for their liability insurance. This is the insurance that protects them if they're ever found negligent on a project. The question you want to ask is if you're covered under their liability insurance. If you're not, it's possible (however unlikely) that the firm could come after you if they get sued for a project that you worked on. If you're not covered, I'd be a little suspicious.

Can you use your experience for IDP? First, the good news is that IDP allows interns to work as independent contractors as long as they're working for a licensed architect. (Check here for the acceptable work settings in which you can accrue IDP credits.) You'll want to make sure that you keep good records on your time working for this firm to make sure that you can use the credits for your IDP. In R's case, he'll be working in a foreign country for an architecture firm. If the architect he's working for is not licensed in the U.S., then he can't use the hours for IDP. But in R's case, the experience of working in a foreign country may be worth not being able to count the hours. After all, you can still put the experience on your resume, and that's always good.

Questions? Concerns? Comments? Issues? Enemies list? A topic you'd like to see covered on this blog? Feel free to leave it in the comments or email me at the address in the sidebar. Thanks!