When employment trends such as downsizing and offshore outsourcing occur in the workplace, working IT professionals might do well to consider how they would react should they fall prey to these events.
Among the many choices that individuals must consider when planning for such contingencies is freelance or contract work versus a permanent employment situation. In other words, it boils down to becoming self-employed or finding another permanent position with some company or organization that has such a job to offer.
The pros and cons of contract work versus permanent employment are interesting, but they also have a profoundly personal and psychological dimension, as well as related costs, benefits and other considerations.
For many people, the mental hurdles involved in choosing self-employment rather than a permanent job are simply too high to get over. For such individuals the stability, predictability and benefits (especially medical insurance) are so important that they're not even willing to consider finding some way to provide them on their own. For this component in the IT workforce, the contingency plan then becomes "find another permanent job." Members of this group need to keep their resumes current and well-tuned, practice interviewing skills occasionally and maintain a strong network of professional contacts so they'll be ready to move quickly if and when job changes occur. But that's about it.
That said, there is another choice for people. It may seem risky, but it can represent both a good long-term and short-term job change or contingency management strategy — namely, temporary work. Many companies that place workers in temporary positions later decide to hire such workers as permanent employees. Thus, though you may work for three months at Company A and then six months at Company B, you're actually a full-time employee of Company T and get the same pay check, benefits and so forth for the duration.
Then, too, temp work is a great way to check out a company on a trial basis to see if you really want to work there or not. Many temporary staffing companies encourage their employees to take permanent positions at client companies because their contracts invariably include payments they receive by way of placement fees should a temporary worker prove desirable enough to merit a permanent job offer.
Expenses to consider for self-employment
When figuring out how much money they need to earn, potential self-employed IT professionals must understand and be willing to shoulder the not-so-obvious burdens as well as the more obvious ones. In a nutshell, that means picking up the overhead. It involves numerous expenses that the would-be self-employed IT professional should consider carefully:
- Social security and Medicare taxes: Self-employed individuals must contribute 12.5% up to the ceiling ($90,000 last year) for social security and about 2.9% for all earnings (works out to about 14% overall).
- Office and equipment expense: This could be peanuts for a small corner in a room, laptop and dial-up connections and an e-mail account or it could be $1 per square foot in an office building or suite arrangement. Let your income projections drive your office expenses, and don't commit to anything long-term that you can't afford to carry month after month after month. The same thing is true for office equipment. You probably should plan to replace your equipment once every 24 to 36 months and budget for yearly software purchases, upgrades, subscriptions and license renewals (figure on at least $100-150 per month, or more as your needs dictate).
- Medical, dental, vision and other health coverage: For many IT professionals, this is a big hurdle indeed. Look into your options and balance what you can afford versus what you (and your family) really need. Health Savings Accounts (HSAs) let you spend pre-tax dollars for medical care and are a great deal for the self-employed. Consider balancing a high deductible major medical policy against a regular monthly contribution to an HSA (my policy has a $5,250 deductible and I also put that amount into an HSA to cover the gap).
- Vacation and sick leave: Most people like to take at least two weeks off every year, and the average American worker takes somewhere between three and six sick days per year. If you plan to earn an extra three weeks' pay to cover sick leave and vacation in your income projections for the other 49 weeks of the year, you'll be able to stay in bed or go to the beach with a clear conscience — and enough cash on hand to meet your income needs.
The rewards and downsides
The rewards of self-employment can be pretty substantial to those who can stomach the costs and take responsibility for arranging their work and cash flows. Less obvious benefits include the option of working at home (and avoiding the commute), more time with family, flexible working hours and more variation in ongoing work flows and loads.
Less obvious downsides include a constant need to look for new work and develop new customers, more time spent planning for the future and tracking current progress and finances and difficulty breaking away from the office (or work in general). It's also important to do regular long-term planning and career development work to keep yourself heading in the right (and profitable) directions over time.
Everyone has his own working rhythms and needs for stability and security. Those who survive as permanent employees in somebody else's outfit have their own tradeoffs to make, and their own careers to nurture and cultivate as well. But for those who tread the path of self-employment, the work experience becomes very much what you make of it. For the right people, it can be a rewarding experience.
Ed Tittel is a long-time follower of the IT certification market, who usually keeps at least one eye on what Microsoft is doing. Among other things, Tittel created (and edited) the Exam Cram cert prep book series from 1997 through 2005; he's also a contributing editor for Certification Magazine. E-mail Tittel at email@example.com.