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Freelancers' FAQ

Last Page Update: Wednesday, February 27, 2008

Freelancers' FAQ

Frequently asked questions about independent technical communication

The information in this FAQ came from a variety of sources. Some of the information came from the May 16, 1996 Rocky Mountain Chapter meeting that featured a panel of independent technical communicators and others in related fields. The panel included Jeffrey Rowe (independent technical communicator), Peter Kent (independent technical communicator), Brian Alexander (CPA), Roxane Brock (recruiter) and was moderated by Roy Sargent (independent technical communicator). This FAQ was written by Linda Gallagher with help from members of the Rocky Mountain Chapter's CIC SIG.       

Important Note:
This information reflects the experiences and opinions of experienced, independent technical communicators. Your experience and opinion may be different. You should consult with your accountant and lawyer in all matters relating to business expenses, taxes, incorporation, and other business issues.

If you have comments or suggestions about this page, contact Gail Bernstein.

GENERAL

What is independent contracting?
Is freelancing different from independent contracting?
Many people seem to alternate periods of direct employment with periods of contracting. Is it possible to make a living as an independent? What percentage of freelancers actually do all their work on a 1099 basis?

W2 VS. 1099 CONTRACTING

What does it mean to work as a W2 employee?
What does it mean to work on a 1099 basis?

GETTING STARTED

What decisions do I need to make before I go into independent contracting?
How do I get started in independent contracting as a technical communicator?
What kind of computer equipment do I need?

TAXES AND LEGAL ISSUES

Are there any tax or legal problems when working as a contractor for a former employer?
What items should be in a contract?
What expenses can you deduct as an independent?
Should I incorporate?

INSURANCE AND BENEFITS

Where are good sources of benefits like health insurance?
Do I need liability insurance?

FINDING WORK

How do I market my services?
Should I use agencies to find work?
What educational background do clients look for?

PRICING

How do I price my services?
Do rates vary according to geographic region? Are rates here (Colorado) lower than in other parts of the country?
How do I bid on projects?
Do clients ever change their minds about the deliverables halfway through a project? What do you do?
How do I calculate the overhead I need to figure into my rate to cover taxes, benefits, equipment, and other expenses?

AVOIDING BURNOUT

How do successful independent contractors avoid burnout, that is, not letting their work take over their lives?

GENERAL

What is independent contracting?

Independent contracting means that you are not a permanent employee of a company. You can work in two ways: 1099 (true independent contractor according to IRS rules) or W2. These terms are explained in detail in W2 vs.1099 Contracting below.

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Is freelancing different from independent contracting?

Freelancing and independent contracting are synonymous. Some people may use the terms in different ways, but the terms really mean the same thing. People often use the term independent alone to refer to freelancing or independent contracting.

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Many people seem to alternate periods of direct employment with periods of contracting. Is it possible to make a living as an independent? What percentage of freelancers actually do all their work on a 1099 basis?

While some technical communicators choose to go back and forth between independent contracting and direct employment, others work successfully for many years as independents. You can make a living as an independent, but you must always be marketing, networking, and looking for that next project or client. No one has statistics on the percentage of freelancers who work solely on a 1099 basis. Anecdotal evidence suggests that a significant percentage of freelancers find 1099 work and do little, if any, W2 work.

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W2 VS. 1099 CONTRACTING

What does it mean to work as a W2 employee?

You work as a W2 employee when your client or an agency puts you on their payroll, usually to work on a specific project. You are a contract employee of the client or agency who reports your income to the IRS on a W2 form. Your employer may specify the exact length of your employment or it may be open ended.

As a W2 employee, you receive a regular paycheck from which your employer withholds all federal, state, and local taxes. You file regular state and federal tax returns, just as you would if you were a permanent employee.

Your employer normally provides the equipment and office space you need. You may be eligible for some or all the benefits your employer offers to permanent employees such as medical, life, and disability insurance, pension plans, sick days, paid holidays, etc.

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What does it mean to work on a 1099 basis?

You work on a 1099 basis when you are in business for yourself as a sole proprietor or as a corporation. Your clients report the money they pay you to the IRS on a 1099 form. (Clients do not have to provide a 1099 form if you are incorporated, but the term 1099, as we are using it here, includes sole proprietors and corporations.) Your clients typically contract with you to work on a specific project. You should have a written contract with each client that delineates the work you will perform, the fees the client will pay, and how the client will pay you. Normally you will send invoices to the client in accordance with the contract terms.

You are responsible for making quarterly federal and state income tax payments. You must accurately track all your business expenses and income. You must file a Schedule C with your federal tax return or file your corporate tax return. You are also responsible for paying the full FICA (Social Security tax). This amounts to about an additional 7.5% of your income each year. (When you are a permanent or W2 contract employee, your employer pays that 7.5%.) The actual amount you pay is a little less than 7.5% because part of the FICA is deductible and there are some income limits that affect the exact percentage you pay. You can deduct more expenses if you work on a 1099 basis. (See below for a question about deductible expenses.)

Working on a 1099 basis is working as a true independent contractor under the IRS rules. The IRS has been cracking down on employers who say employees are independent contractors, but who really are not. You should be aware of the IRS rules related to independent contracting.

The IRS has a series of questions it asks to "test" whether an individual is considered an employee or an independent contractor. You can gain insight into what the IRS looks for if you request a Form SS8 from the IRS. Employers can use this form to ask the IRS to classify an employee. You should be aware of how the IRS views this issue to ensure that you retain your independent contractor status. Many of the questions relate to how much control the client exerts over how and when you perform your work and whether you have more than one client. You should consult with your accountant and ask about the pros and cons of W2 vs. 1099 work.

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GETTING STARTED

 

What decisions do I need to make before I go into independent contracting?

You should decide whether you want to be in business for yourself (working on a 1099 basis) or whether you want to be a W2 employee (contract employee). You can explore these options further by reading the previous questions in this FAQ and by talking to other STC members. You should also consult with your accountant and lawyer before making a decision.

Part of your decision may depend on how well you can work on your own in an unstructured environment. As a W2 employee, you are more likely to find a work environment similar to that of a permanent employee. As a 1099 worker, you must structure your own time, find resources and information on your own, and often work alone. This type of work situation is not for everyone.

You should think about what areas you want to specialize in. Many independents work in several areas, but typically have one or two that are specialties. The areas can relate to the industries you work in and the type of work you perform.

You should decide if you want to work on-site or off-site. To work off-site, you must have your own equipment. (As a W2 employee, you cannot deduct office equipment expenses from your tax return. You can deduct your expenses only if you work on a 1099 basis.)

If you are going to start your own business you may want to have a business name. You'll probably also want business cards, letterhead, envelopes, and maybe a brochure. You'll want business cards even if you plan to work on a W2 basis.

If you are starting your own business, you may want to consult a CPA and lawyer about general business issues such as making tax payments, tracking business expenses, using contracts, and incorporating. (See the question below about incorporation.) You can get the Colorado Business Start Up Kit (a booklet about starting a business in Colorado) on the web or by calling the Colorado Business Assistance Center at (303) 592-5920 or (800) 333-7798.
You can also check the following web sites:

Business at Home. The site has information about marketing, taxes, legal issues, as well as product reviews.
Inc. Online. This site contains information from Inc. magazine including articles, worksheets to analyze your costs, and databases of interest to entrepreneurs.
Homeworks. Paul and Sarah Edwards set up this web site. They are the authors of several books about working from home.

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How do I get started in independent contracting as a technical communicator?

You can start a number of ways depending on your situation and ability to deal with uncertainty. You might start looking for projects that you can work on part-time, while you keep your current job. This lets you get some experience as an independent and lets you see how well you work on your own.
You can find projects by talking to colleagues at your current job, friends, and family, and by networking with STC members and the Boulder Writers Alliance (BWA). You may find that a former employer is interested in having you work on a contract basis. (See the question below about marketing yourself.)

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What kind of computer equipment do I need?

The kind of computer equipment you need depends on the type of work you do and where you perform your work. If you work on a W2 basis, normally your client provides the equipment. You would not have to have your own. If you work on a 1099 basis from your own office, you need a fully equipped office which would include:

• High-end IBM-compatible PC or Macintosh
• Laser printer capable of producing 600 dpi output
• Fax - either a standalone machine or a good fax modem with the related software
• High-speed modem (preferably 28.8 bps)
• Software that technical communicators commonly use such as MS Word, FrameMaker, and PageMaker (you should have at least one of these). You may need a graphics package such as CorelDraw, HiJaak Pro, or Photoshop depending on the type of work you do.
• E-mail or internet account
• Answering machine or voice mail (this is not necessarily computer equipment, but it is something you should have).

Considering the speed with which computers change and advance, you should buy the most computer you can afford (without having to take out a mortgage to finance it). Your exact needs depend on what you know how to use, the type of work you do, and what your clients want.

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TAXES AND LEGAL ISSUES

 

Are there any tax or legal problems when working as a contractor for a former employer?

Some former employers have specific rules about contracting with (or not contracting with) former employees. Apparently the IRS has nabbed some companies for hiring former employees as consultants, believing that the companies are trying to avoid paying payroll taxes. According to some accountants, if you consult for your former employer, your employer is at risk--not you. If audited, your former employer bears the burden of proof to satisfy the IRS. You should, however, be sure that you make your quarterly tax payments if you are working on a 1099 basis and that you satisfy the IRS contracting questions mentioned earlier.

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What items should be in a contract?

You should consult with your lawyer about the terms to include in a contract. The CIC SIG held a meeting on April 30, 1998 where Stewart Olive, Attorney at Law, discussed contracts. You can use the sample contract that we discussed and see notes that summarize the key points we discussed. You can read the article Proposals and Contracts for information. You can also find sample contracts on the web at the HyText Consulting site.

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What expenses can you deduct as an independent?

You should consult with your accountant about deductible expenses. If you work on a 1099 basis, you can deduct expenses that relate directly to starting and running your business. For example, you can deduct what you spend to print business cards, brochures, and other marketing materials. You can deduct hardware and software you purchase. Be sure to ask your accountant about the best way to handle large purchases. You can also deduct office supplies, telephone expenses, professional development (seminars, conferences), professional dues, and many other expenses.
You can learn more from your accountant, from IRS Publication 334 - Tax Guide for Small Business, and from IRS Publication 17 - Your Federal Income Tax for Individuals.

If you work on a W2 basis, you can still deduct some business expenses on Form 2106 - Employee Business Expense. Consult with your accountant about the types of expenses you can deduct.

You can access the IRS forms and publications from the IRS web site. Different publications are available in different formats (PCL4, SGML, PDF, etc.). The best way to retrieve publications is to search for the publication number at the IRS site .

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Should I incorporate?

This is another issue about which opinions vary. You should consult your lawyer and accountant about your specific situation. Some pros and cons are listed below.

Pros - Some people believe that someone who goes through the trouble of incorporating takes the concept of going independent more seriously. You may also find that some potential clients will only work with you if you are incorporated. If you are concerned about liability, you might want to incorporate. (Someone cannot come after your personal assets if you are incorporated.) You have more retirement plan options in a corporation. Some people also believe that you can write off more expenses and reduce your taxes if you incorporate. If you do a lot of subcontracting, you might want to incorporate.

Cons - The easiest way to start a business is as a sole proprietor. There is no real need to incorporate. Some people believe that you cannot deduct much more as a corporation than you can as a sole proprietor. If you incorporate, you must make sure you run the corporation correctly. You must also do paperwork and pay filing fees every year. This is in addition to the initial fees and paperwork to set up the corporation. You have more important things to worry about first than incorporating.

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INSURANCE AND BENEFITS

 

Where are good sources of benefits like health insurance?

You should ask other independents and small business owners. Come to an STC CIC SIG meeting and ask around. You can also consult with one or more independent insurance agents. Your unique circumstances dictate the insurance plan that will meet your needs. No one can recommend a single provider or plan that will meet everyone's needs.

See notes from the CIC SIG insurance meeting.

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Do I need liability insurance?

You should ask other independents about this issue. You should also consult with your lawyer and one or more independent insurance agents.

See notes from the CIC SIG insurance meeting.

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FINDING WORK

 

How do I market my services?

You can market your services in a variety of ways. Ultimately, you need to find the methods that work for you. You should network with colleagues, friends, family members, former employers, and anyone else you know.

Knowing how to sell yourself is an important skill to develop. If you've ever sold anything, draw upon that experience. If you have not, you might talk with colleagues or read some articles and books about selling. One key point about selling is listening carefully to what your potential client is saying.
The list below contains more marketing ideas that have worked for independent technical communicators. (Some of these are ways to get known that can get you leads.)

• Writing articles for magazines, journals, or newsletters
• Speaking before groups at meetings, conferences, or seminars (Work at becoming good speaker if you are not one already.)
• Cold calling companies that may need your services
• Sending direct mail (letter, brochure, and other materials about your business) to companies that may need your services
• Working with one or more agencies that place technical communicators (See the next question for more about working with agencies.)
• Volunteering for one or more committees of professional organizations such as STC (and in the Denver area, the Boulder Writers Alliance)

Read the notes from the CIC SIG marketing meeting. You might want to read the following books for more information about marketing:

• Selling Your Services by Robert W. Bly, Henry Holt and Company, Inc., 1991
• Getting Business to Come to You by Paul and Sarah Edwards and Laura Clampitt Douglas, J. P. Tarcher, 1991
• How to Succeed as an Independent Consultant by Herman Holtz, John Wiley & Sons, 1993

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Should I use agencies to find work?

Using agencies has advantages and disadvantages. One advantage to using an agency is that you spend less time on marketing. You market to one or more agencies (the more agencies you contact, the greater the chance you'll find steady work) and the agencies market you to their clients. Using agencies can be a good way to start out in independent contracting. Agencies may also be able to get you into some of the larger companies that you cannot get into on your own.

The disadvantages to using agencies include lower pay rates (generally) than you can get on your own. The agency gets a share of the rate the client pays and pays the remainder to you. This is one of the trade-off you make when you have the agency doing the marketing for you. In addition, agencies place primarily W2 employees and much agency work requires you to be on- site.

Since agencies operate differently, you should talk with several agencies, learn how they work, and decide if they fit your needs. STC volunteers have compiled a list of agencies that place technical communicators.

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What educational background do clients look for?

Successful independent technical communicators come from a variety of backgrounds. Many clients like to see a degree on a resume, but experience often substitutes for a degree. The type of degree may not be important either. Independent technical communicators have degrees in everything from engineering, English, and technical communication to geology, finance, Spanish, and computer science.

Many clients are interested in your experience with the tools that they want you to use. Sometimes these skills seem to override their interest in writing skills. You may have to sell a client on the idea that your ability to write is most important and that you can learn new tools quickly.

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PRICING

 

How do I price my services?

Pricing services is a tricky question. No single formula works for everyone or in every situation. Below are some opinions about how to price services.

Opinion 1 - You want to get away from an hourly rate because clients get nervous when they think the "clock is running" and their total cost is open ended. You should give a price for a project and include a clear scope of work. If the work goes beyond that scope, you receive additional compensation. You can also work a retainer arrangement when you do work on a regular basis for a client. You need to estimate how much time you expect to spend each month and have the client pay you a retainer each month. This applies primarily to consulting work. You also tend to hit a ceiling when you use an hourly rate. To get a higher hourly rate, you need to charge by the project. No one really knows how to define "an hour" of time. Someone charging $100 an hour may cost less than someone who charges $35 an hour. Charging for a project eliminates this problem and lets you earn more. You may want to work hourly on your first few project and track your time carefully. Use your performance on those projects as the basis for estimating project rates on future projects.

Opinion 2 - Pricing by the job can be dangerous if you miscalculate or if your clients change their minds about deliverables. In a highly volatile environment or when your client cannot clearly define deliverables for you at proposal time, hourly pricing gives you and the client more flexibility to deal with changes.

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Do rates vary according to geographic region? Are rates here (Colorado) lower than in other parts of the country?

Just as salaries vary based in part on where you live, so do rates for technical communicators. Again, STC Rocky Mountain Chapter has no hard statistics on this, but anecdotal evidence shows that the rates on the east and west coasts can be significantly higher than in other parts of the country. Rates here are not necessarily lower than in other parts of the mid-west.

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How do I bid on projects?

Bidding on projects is also tricky. Again, no single formula works for everyone or in every situation. Below are some opinions about how to bid on projects.

Opinion 1 - No one really knows how to estimate projects. You make an educated guess. You should log all your time to learn how long it takes you for each project. You need to bid high enough that you cover any miscalculations.

Opinion 2 - Sometimes if you bid high, you can get the project because the client thinks you know what you are doing. This does not always work, but you may want to try it for a project that seems very difficult or that you don't really want.

Opinion 3 - You need to sell the client on the value of what you are doing. You should not be afraid to say what the work is really worth.

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Do clients ever change their minds about the deliverables halfway through a project? What do you do?

Yes, they do change their minds. You should be sure to have a contract that describes the deliverables and describes how to handle changes to deliverables. You should consult with your lawyer about how to write these terms into your contract. Assuming your contract lets you renegotiate fees and due dates if the scope of work changes, you should take the opportunity to revise the deliverables, schedules, and fees based on the changes.

Other approaches include removing or scaling down one or more deliverables and creating the new deliverable instead. You can also suggest ways in which you can change the original deliverables to meet the new needs. Try to be creative in meeting your clients needs.

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How do I calculate the overhead I need to figure into my rate to cover taxes, benefits, equipment, and other expenses?

Opinion 1 - Look at what you want to make at the end of the year and add in your risk (time between projects) plus 15.3% for FICA (social security).
Opinion 2 - For every dollar you earn, put half in a separate account to cover your taxes and other expenses. This is a very conservative approach and it requires self-discipline.

Opinion 3 - Typical direct business expenses vary from about $6,000 per year to about $15,000 per year depending whether you buy computer equipment. You also have to take into account medical insurance, FICA, and income taxes. The only additional tax (that W2 or permanent employees do not pay) is the additional FICA, about 7.5% of your income. You should think about everything you get from your employer now and how much it will cost to replace the benefits that you need to replace. Your needs will vary depending on whether your spouse works and has benefits that can cover you.

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AVOIDING BURNOUT

How do successful independent contractors avoid burnout, that is, not letting their work take over their lives?

People avoid burnout in different ways. Some work a "normal" workday, maybe 8 a.m. to 5 p.m., and only work more hours when absolutely necessary. Some people thrive on working 80 to 100 hours a week and don't burn out.

In general, you want to take on enough projects to stay consistently busy, but not so many that you must work 100 hours a week to meet your commitments. This can be difficult to do. You have to try to balance your work life and your personal life.

You should find ways to define the boundaries, especially if you work from home. If your office is on a different floor from your main living space, going from your office to your living space helps to close out your business day. Make sure you take some vacations that get you completely away from your office, even if it's just a long weekend away. Set limits on the number of hours you work on weekends and in the evening. Take time occasionally on weekdays to get out of the office to go to lunch, run errands, go shopping, go to an exercise class, ride your horse (if you have one), or pursue some other activity.

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