Non-Employee Work Consulting/ Contract Labor Tom Phillips - Effective Agreements DFW Sales/Bus. Dev. Networking Group July 21, 2009

Non-Employee WorkNon-Employee Work

Consulting/Consulting/

Contract LaborContract Labor

Tom Phillips - Effective Agreements

DFW Sales/Bus. Dev. Networking Group

July 21, 2009

7/21/09

Non-Employee Work

Tom Phillips - Effective Agreements 2

AgendaAgenda 1099 or Contractor1099 or Contractor ConsultantConsultant

– DifferencesDifferences– NeedsNeeds– MarketingMarketing

Pain Versus GainPain Versus Gain Taxes and LiabilityTaxes and Liability

– StructuresStructures

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AcknowledgementsAcknowledgements Kent Billingsley, AIM Sales GroupKent Billingsley, AIM Sales Group

– Taught me all I know about the marketing Taught me all I know about the marketing materialsmaterials

Rob Kibby, Munsch Hardt Kopf & HarrRob Kibby, Munsch Hardt Kopf & Harr– Reviewed legal points and suggested Reviewed legal points and suggested

some additionssome additions

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10991099 A 1099 is A 1099 is notnot a type of employee a type of employee It is an IRS Form, Form 1099 – Misc. It is an IRS Form, Form 1099 – Misc. It applies to non-employees performing work It applies to non-employees performing work

for a company – a contractorfor a company – a contractor The company will file a Form 1099 with the The company will file a Form 1099 with the

IRS and send you a copyIRS and send you a copy– How much you were paidHow much you were paid– What taxes the company paid for you or withheld What taxes the company paid for you or withheld

and deposited (discussed later)and deposited (discussed later) You can be individual, sole proprietor or You can be individual, sole proprietor or

corporationcorporation

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Contract Versus ConsultantContract Versus Consultant The two can run togetherThe two can run together

– Do in my practiceDo in my practice We need some definitions to work with, We need some definitions to work with,

so I will put forward my definitions for so I will put forward my definitions for today’s talktoday’s talk

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ContractContract The company calls you in and wants you to sign their The company calls you in and wants you to sign their

standard contract standard contract Contract is between the company and you – a personContract is between the company and you – a person

– You do not create any companyYou do not create any company Often, the contract says you are not an employee Often, the contract says you are not an employee

and cannot claim any employee benefits such as and cannot claim any employee benefits such as healthcare or 401khealthcare or 401k

Usually no Federal Income Tax (FIT), Social Security Usually no Federal Income Tax (FIT), Social Security (SS), or Medicare is being withheld(SS), or Medicare is being withheld

Paid by the hour, not product or deliverable basedPaid by the hour, not product or deliverable based Often you are:Often you are:

– Doing something others are also doingDoing something others are also doing– Doing more mundane workDoing more mundane work

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Placement FirmsPlacement Firms Several placement firms have contracting Several placement firms have contracting

jobs that pay hourly wagesjobs that pay hourly wages– Fee should be paid by employerFee should be paid by employer

Some do provide benefits to their contractorsSome do provide benefits to their contractors– Insurance, 401(k), vacation pay, holiday pay, stock Insurance, 401(k), vacation pay, holiday pay, stock

options, etc.options, etc.

Firm takes care of FIT, SS, MedicareFirm takes care of FIT, SS, Medicare Advise registering with one of these if canAdvise registering with one of these if can

– However, not easy, especially in these timesHowever, not easy, especially in these times

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The Pain PartThe Pain Part Read the agreement carefullyRead the agreement carefully

– Ask questions, especially if any of the terms strike you as Ask questions, especially if any of the terms strike you as onerousonerous

– Have it reviewed by attorneyHave it reviewed by attorney Company may or may not pay or withhold taxesCompany may or may not pay or withhold taxes

– The company did tell the IRS what it paid you - 1099The company did tell the IRS what it paid you - 1099 Think about the deductions on your pay stub when Think about the deductions on your pay stub when

you were an employeeyou were an employee– FIT, Social Security, MedicareFIT, Social Security, Medicare– Company also paid state unemployment and FUTACompany also paid state unemployment and FUTA

With your normal income tax, you owe a Self-With your normal income tax, you owe a Self-Employment tax based on net earningsEmployment tax based on net earnings

Can be required to make quarterly paymentsCan be required to make quarterly payments

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A A TraditionalTraditional Consultant Consultant We all know what a traditional We all know what a traditional

consultant didconsultant did Came in and interviewed everyoneCame in and interviewed everyone Put together a package containing what Put together a package containing what

the management and employees said – the management and employees said – all of which was already knownall of which was already known

Came to a conclusion that was Came to a conclusion that was exactlyexactly what management wanted to hearwhat management wanted to hear

Sent a very large billSent a very large bill

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Our Working DefinitionOur Working Definition Work is results based, even if the charge is Work is results based, even if the charge is

hourlyhourly More added value – specialized knowledgeMore added value – specialized knowledge There is no one else in the company doing There is no one else in the company doing

the workthe work– Or you are taking on work so an employee can Or you are taking on work so an employee can

focus on his/her major tasksfocus on his/her major tasks

You use your agreement and negotiate from You use your agreement and negotiate from therethere

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A Consultant in What?A Consultant in What? Must be something you like to do!Must be something you like to do!

– Some passionSome passion May not be what your job wasMay not be what your job was

– If they had you in sales, but you are really If they had you in sales, but you are really good at marketing, choose marketinggood at marketing, choose marketing

– Remember hobbies!Remember hobbies! Something where you have some Something where you have some

proven expertiseproven expertise Take the competition into accountTake the competition into account

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MarketingMarketing Identify your marketIdentify your market Validate that there is enough of a market to Validate that there is enough of a market to

make your efforts paymake your efforts pay Determine how to best approach the marketDetermine how to best approach the market

– There are sales and marketing consultants that There are sales and marketing consultants that work with new companieswork with new companies

Create collateral (Next Slide)Create collateral (Next Slide)– You are now the marketing and sales departmentYou are now the marketing and sales department

Network, network, networkNetwork, network, network Become a speaker if you canBecome a speaker if you can

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Marketing CollateralMarketing Collateral Pick the right name and maybe a logoPick the right name and maybe a logo

– Domain name available Domain name available Professional cards - quality will countProfessional cards - quality will count 30 second elevator speech30 second elevator speech One page concise description of who you are, what you do and One page concise description of who you are, what you do and

why people should use youwhy people should use you– Professional look and feel with white spaces and some Professional look and feel with white spaces and some

pictures pictures – Be sure pictures you use are not copyright protectedBe sure pictures you use are not copyright protected

Articles that show your special knowledgeArticles that show your special knowledge Case studies: What you found, how you fixed it and what was Case studies: What you found, how you fixed it and what was

the result – quantify wherever possiblethe result – quantify wherever possible Testimonials from satisfied clientsTestimonials from satisfied clients Don’t forget to put “Don’t forget to put “©© Jane Doe 2009. All rights reserved.” at the Jane Doe 2009. All rights reserved.” at the

bottom of handouts and articlesbottom of handouts and articles

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Website Website Obtain a domain name and create your websiteObtain a domain name and create your website May want to use a domain host that provides a simple May want to use a domain host that provides a simple

front end page creator, such as Network Solutions (front end page creator, such as Network Solutions (www.networksolutions.comwww.networksolutions.com))

Buy the name from a different company than your Buy the name from a different company than your webhostingwebhosting

Otherwise, must hire someone who will make it Otherwise, must hire someone who will make it presentablepresentable

Some sites are for sales but many are just for Some sites are for sales but many are just for validationvalidation

Attach the articles and handouts as Adobe Acrobat Attach the articles and handouts as Adobe Acrobat files so they may be downloadedfiles so they may be downloaded

When you copy pictures or text, be sure they are not When you copy pictures or text, be sure they are not copyrighted or obtain written permission to use themcopyrighted or obtain written permission to use them

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NecessitiesNecessities Most important: quiet work area with desk, Most important: quiet work area with desk,

filing space (locked), storage for office filing space (locked), storage for office suppliessupplies

Separate phone line with voice mailSeparate phone line with voice mail– Professional messageProfessional message

Computer and quality printerComputer and quality printer Fax machine/Scanner/CopierFax machine/Scanner/Copier Professional dressProfessional dress Understanding with family: you are workingUnderstanding with family: you are working Self discipline to get in there and work every Self discipline to get in there and work every

dayday

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Other RecommendedOther Recommended High speed InternetHigh speed Internet Customer Relationship Manager (CRM) Customer Relationship Manager (CRM)

and bookkeeping softwareand bookkeeping software Post office box, if office out of home – Post office box, if office out of home –

security measuresecurity measure Separate professional email addressSeparate professional email address

– I prefer one tied to web siteI prefer one tied to web site Location of every Starbucks within 50 milesLocation of every Starbucks within 50 miles

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Networking VenuesNetworking VenuesA few examples:A few examples: Chambers of CommerceChambers of Commerce

– Dallas, North Dallas, Richardson, PlanoDallas, North Dallas, Richardson, Plano Discipline Specific Discipline Specific

– Marketing Executive Networking Group (MENG), Financial Marketing Executive Networking Group (MENG), Financial Executive Networking Group (FENG), Financial Executives Executive Networking Group (FENG), Financial Executives International (FEI)International (FEI)

Task SpecificTask Specific– Association for Corporate Growth (ACG), Turnaround Association for Corporate Growth (ACG), Turnaround

Management Association (TMA), Project Management Management Association (TMA), Project Management Institute (PMI)Institute (PMI)

Non-SpecificNon-Specific– NetWeavers, TexChange, Southwest Venture Forum, MIT NetWeavers, TexChange, Southwest Venture Forum, MIT

ForumForum

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Consulting PlusesConsulting Pluses FlexibilityFlexibility

– Work for many different companiesWork for many different companies– Learn something new each timeLearn something new each time

You are the bossYou are the boss– Your contract should allow you to choose hours or days you Your contract should allow you to choose hours or days you

perform work and where you perform itperform work and where you perform it– Schedule vacations when you like (remembering you don’t Schedule vacations when you like (remembering you don’t

get paid!)get paid!) Can reject jobsCan reject jobs

– If you get an uncomfortable feeling on your first visit, trust If you get an uncomfortable feeling on your first visit, trust your instinctsyour instincts

– Judge how you think your “supervisor” will be as a Judge how you think your “supervisor” will be as a temporary “boss”temporary “boss”

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Less Attractive ComparisonLess Attractive ComparisonCompany EmployeeCompany Employee

Pay check is dependablePay check is dependable GroupGroup medical coverage medical coverage

available, and usually available, and usually some portion is paidsome portion is paid

Company pays its portion Company pays its portion of SS and Medicare, and of SS and Medicare, and withholds and deposits withholds and deposits FIT and your portion of FIT and your portion of SS, and MedicareSS, and Medicare

Company keeps track of Company keeps track of what it paid, withheld, etc.what it paid, withheld, etc.

Own BusinessOwn Business Work when you find itWork when you find it Individual policy medical Individual policy medical

coverage, if you can get it, coverage, if you can get it, and you pay the premiumand you pay the premium

You pay Self Employment You pay Self Employment tax (Described Later)tax (Described Later)

Must keep track and put Must keep track and put aside money for income aside money for income and Self Employment tax and Self Employment tax

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Solemn WarningsSolemn Warnings You are the entire staff, including ITYou are the entire staff, including IT Rarely get any time off between client Rarely get any time off between client

work, marketing and administrationwork, marketing and administration

– Half of the weekend if luckyHalf of the weekend if lucky When you are very successful, up to your When you are very successful, up to your

neck in client work, you are not marketingneck in client work, you are not marketing

– The pipeline will be dry when you are The pipeline will be dry when you are donedone

Legal and Tax StuffLegal and Tax Stuff

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HugeHuge CYA Caveat CYA Caveat I am not an attorney and cannot give I am not an attorney and cannot give

legal advicelegal advice– Before you do anything, check with your Before you do anything, check with your

attorneyattorney I am not an accountantI am not an accountant

– Before you do anything, talk to your CPABefore you do anything, talk to your CPA

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StructuresStructures Hourly contractorHourly contractor Sole proprietorSole proprietor LLCLLC ““C” CorporationC” Corporation Just to name a fewJust to name a few Remember any form may also require a Remember any form may also require a

d/b/a (next slide)d/b/a (next slide)

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DBADBA Special note required for d/b/a (doing Special note required for d/b/a (doing

business as)business as) If you are doing business under a name other If you are doing business under a name other

than your name or your company’s name if than your name or your company’s name if you form one, must file d/b/ayou form one, must file d/b/a

Register the name with the state (online)Register the name with the state (online) A d/b/a must be registered in every county in A d/b/a must be registered in every county in

Texas in which you conduct businessTexas in which you conduct business

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Hourly ContractHourly Contract Flows into family same as salary didFlows into family same as salary did

– 1099 or W21099 or W2 Some deductions, I thinkSome deductions, I think

– Mileage?Mileage?– Supplies?Supplies?

Safest to set up separate bank accountSafest to set up separate bank account Remember previously mentioned firms that Remember previously mentioned firms that

provide benefits, withholding, etc.provide benefits, withholding, etc. Liability stays with you, even if all you did Liability stays with you, even if all you did

every day is what they told you to doevery day is what they told you to do– Clearly less risk in this caseClearly less risk in this case

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Sole ProprietorSole Proprietor Treating as consulting under our definitionTreating as consulting under our definition May look better on resume: one company rather than May look better on resume: one company rather than

manymany Believe profit flows right to you and gets worked into Believe profit flows right to you and gets worked into

your Form 1040your Form 1040 Pay self-employment tax to cover Social Security and Pay self-employment tax to cover Social Security and

Medicare (Schedule SE)Medicare (Schedule SE)– More complicated as there are limits on how much you have More complicated as there are limits on how much you have

to pay and some adjustment to gross incometo pay and some adjustment to gross income Liability also flows through to youLiability also flows through to you

– Even if they cannot get house, can get everything elseEven if they cannot get house, can get everything else

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Limited Liability Company Limited Liability Company Protection against liabilityProtection against liability Additional record keepingAdditional record keeping

– Basically a partnership if more than one “member”, Basically a partnership if more than one “member”, and files like oneand files like one

– Disregarded if one memberDisregarded if one member– May be required to pay taxes quarterlyMay be required to pay taxes quarterly

Employees get W2s or 1099sEmployees get W2s or 1099s** Consult accountant on the tax implications **** Consult accountant on the tax implications **

Understand they are easy and cheap to Understand they are easy and cheap to createcreate

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““C” CorporationC” Corporation Is a separate entity and you become officer and employeeIs a separate entity and you become officer and employee Issues you a W2, as an employeeIssues you a W2, as an employee

– Same deductions from the paycheck as with a big Same deductions from the paycheck as with a big companycompany

Files a separate tax return and pays own tax if there is a Files a separate tax return and pays own tax if there is a profitprofit

Withholds and deposits FIT, SS, and Medicare from Withholds and deposits FIT, SS, and Medicare from employeeemployee– Must file employee tax Form 941 each quarter and Must file employee tax Form 941 each quarter and

Form 940 at the end of the yearForm 940 at the end of the year Pays own SS, Medicare, Texas Unemployment and Pays own SS, Medicare, Texas Unemployment and

Federal UnemploymentFederal Unemployment May be required to pay quarterly May be required to pay quarterly

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““C” (Cont.)C” (Cont.) Must be created with state filingMust be created with state filing

– Some people do it themselves, others use Some people do it themselves, others use attorneysattorneys

– More expensive to create either wayMore expensive to create either way Better have a good set of books for your Better have a good set of books for your

accountantaccountant There can be some tax advantagesThere can be some tax advantages Liability goes to corporation, not youLiability goes to corporation, not you Must be careful not to “pierce the veil”Must be careful not to “pierce the veil”

– Much more record keepingMuch more record keeping

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PricingPricingPrice You Charge in GeneralPrice You Charge in GeneralLess Operating expensesLess Operating expenses- Internet, Phone, Web Site ChargesInternet, Phone, Web Site Charges- Supplies, from computers to pencils plus collateralSupplies, from computers to pencils plus collateral- Networking Expense (charges to join and attend)Networking Expense (charges to join and attend)- Insurance – individual health, liability, etc.Insurance – individual health, liability, etc.- Professional Services: marketingProfessional Services: marketing- Allowance for vacation and/or sick timeAllowance for vacation and/or sick time- Savings (reserve, IRA, etc.)Savings (reserve, IRA, etc.)Less All TaxesLess All Taxes

- FIT, Self Employment or separate SS, Medicare and FIT, Self Employment or separate SS, Medicare and unemploymentunemployment

= What you have on which to live: “take home net”= What you have on which to live: “take home net”

**Consult With Accountant on What to Charge****Consult With Accountant on What to Charge**

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Take AwayTake Away If you forget everything else you heard here, If you forget everything else you heard here,

please remember this slideplease remember this slide If you do not want to find yourself having to If you do not want to find yourself having to

come up with a large payment to the IRS: come up with a large payment to the IRS: – Put the FIT and Self Employment Tax safely Put the FIT and Self Employment Tax safely

aside, preferably in a separate account, every time aside, preferably in a separate account, every time money comes in or you pay yourself money comes in or you pay yourself

As “C” Corporation, I pay As “C” Corporation, I pay allall employer taxes, employer taxes, and deposit all employee deductions, to/with and deposit all employee deductions, to/with the IRS and the state every time I issue the IRS and the state every time I issue myself a paycheck - myself a paycheck - immediatelyimmediately

Everything can be done on line easilyEverything can be done on line easily

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Reading MaterialsReading Materials IRS actually has tons of information on the tax IRS actually has tons of information on the tax

matters around starting a businessmatters around starting a business

– It is non threatening and pretty user friendlyIt is non threatening and pretty user friendly Same for Texas, on the Secretary of State web Same for Texas, on the Secretary of State web

pagepage Will find many books on Amazon, but also at Half Will find many books on Amazon, but also at Half

Price Books and the public libraryPrice Books and the public library I used I used Going SoloGoing Solo by William Bond and by William Bond and

Marketing Your ServicesMarketing Your Services by Anthony Putman by Anthony Putman

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Sample AgreementsSample Agreements Many of the books on consulting may have Many of the books on consulting may have

drafts that need to be checked by counseldrafts that need to be checked by counsel Use an attorneyUse an attorney The attorneys are particularly important with The attorneys are particularly important with

issues such as: issues such as: – Creation of Intellectual PropertyCreation of Intellectual Property– Accepting equity as any portion of the paymentAccepting equity as any portion of the payment– Indemnification Indemnification

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If You Have QuestionsIf You Have Questions

Tom PhillipsTom Phillips

Effective AgreementsEffective Agreements

972-235-7656 – Office972-235-7656 – Office

214-549-1770 – Cell214-549-1770 – Cell

[email protected]@effectiveagreements.com

www.linkedin.com/in/tomphillwww.linkedin.com/in/tomphill

Back Up InformationBack Up Information

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Non-Employee Work


URLSURLS IRS Business Information: www.irs.gov, and click on IRS Business Information: www.irs.gov, and click on

“Businesses” tab“Businesses” tab Quarterly employee tax forms and payments: Quarterly employee tax forms and payments:

www.eftps.govwww.eftps.gov– Must enroll, but directions are on the site Must enroll, but directions are on the site

Texas Unemployment filing and payment: Texas Unemployment filing and payment: www.texasworkforce.org/customers/bemp/bempsub3www.texasworkforce.org/customers/bemp/bempsub3.html.html

Both Federal and State will allow tying to checking Both Federal and State will allow tying to checking accountaccount

Small Business Administration: http://www.sba.gov/Small Business Administration: http://www.sba.gov/

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URLSURLS www.mengonline.comwww.mengonline.com www.thefeng.orgwww.thefeng.org www.financialexecutives.org www.financialexecutives.org www.acg.org/Dallaswww.acg.org/Dallas www.texchange.orgwww.texchange.org www.turnaround.orgwww.turnaround.org www.swvf.orgwww.swvf.org www.pmi.orgwww.pmi.org www.ceonetweavers.comwww.ceonetweavers.com

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LLC AND Sole ProprietorsLLC AND Sole ProprietorsEmployer/Client

LLC

Family

Sole Proprietor

LiabilityLiability

Fee

IRS/Social Security Administration

Fee

Fee

Income Tax Self-Employment Tax

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““C” CorporationsC” CorporationsClient

“C” Corporation

Fee

Family

IRS/Social Security Administration

Salary+

Income Tax

WithheldFIT*

SS* Medicare*

Liability

Corp.Income

Tax

+ Net of employee FIT, Medicare, and Social Security* Both corporate and employee portions (deducted from Salary)

Texas

Unemployment

FUTA

Documents

Non-Employee Work Consulting/ Contract Labor Tom Phillips - Effective Agreements DFW Sales/Bus. Dev. Networking Group July 21, 2009