Brip Blap has an interesting post today, “Job Junkie.” It’s quite nuanced—a lot is going on in it. Overall, he’s talking about working so steadily and so faithfully that you become “addicted” to work. And he’s got something there. I once had a boss who told me how it felt when he was laid off a previous job. He said, “If you don’t have a job, you’re nothing.”
Job junkie.
One thing Brip Blap observed in passing, though, caught my attention in a slightly off-topic way:
I offer my services to giant corporations for whom my fee is a footnote to a footnote to a rounding error. They don’t mind flinging some cash in my direction to avoid the hassle of hiring a permanent employee to finish their projects; they don’t have to train me, give me benefits and then file endless mounds of paperwork before they let me go. I can come in, do the work with a minimum of supervision, and leave with no fuss. So I get paid at a premium.
I was chatting recently with another freelance contractor who also feels well paid. But what looks like good pay to the freelancer, I remarked (perhaps unkindly) looks like something altogether different to the employer.
It doesn’t much matter how much an employer pays a freelance contractor, although of course they’d like to get the person to work for a fraction of the hourly rate a full-time employee would earn. Even if the employer pays you the full equivalent of what might be considered a good salary, he (or she…for brevity’s sake, let’s get politically incorrect here) is getting a bargain. He doesn’t have to pay anything for your FICA, he doesn’t have to cover your health insurance, he doesn’t have to chip in for your dental or vision insurance.
Nor does he have to provide you a decent office. If you work on the premises during your contract, a broom closet equipped with a light plug and an Ethernet connection will do. Far to be preferred, of course, is the opportunity to offer you the inestimable privilege of working remotely: i.e., you pay for your own roof, your own desk and chair, your own lamp, your own heat and air conditioning, your own water, your own computer, your own software, your own DSL, your own pens, your own pencils, your own paper, your own business cards, your own letterhead, your own parking.
It is, in short, such an amazing bargain that “a footnote to a footnote to a rounding error” hardly does it justice.
Consider, for example, what would happen if the Great Desert University decided to call me out of Bumhood and put me back to work on a freelance basis, offering to pay my previous gross salary. What would the university not have to pay?
• $600 a month* for health insurance, the full tab charged by Cigna for a policy that used to cost me just $36 a month. Total savings for a one-year contract: $7,200
• $36 a month for dental insurance; $432/year
• 7.65 percent of my pay, for the employer’s half of FICA and OASDI: $4,972.50 for the year
• Employer’s match for my 403(b) contribution: $4,550
• 1 Dell computer, bells and whistles attached: $1,000, approx.
• Acrobat Professional: $450
• InDesign CS5 Premium: $450
• MS Office: $150
• Steelcase office chair: $200
• Steelcase desk: $1,335
• Phone connection: unknown
• Ethernet connection: unknown
• Office space, air conditioning & heat, water: unknown
Before we even calculate the College of Liberal Arts and Sciences’ share of the phone, Ethernet, air conditioning, and water service, we see the university saves $20,739 on the first year of my services if it hires me on a freelance basis to work out of my home. That’s $20,739 worth of costs that the university passes to me. Before I’ve paid my income taxes.
Subtract 25% for federal taxes and 3% for state taxes; divide by 12 and you come up with a monthly net of $2656—about $400 a month less than I was taking home as a salaried employee. And that’s before I’ve paid the air conditioning, DSL, and phone service for my home office.
So, hiring you to do your job as an independent contractor works out to be a bargain for an employer. For you…not so much. Your gain out of the deal is that you don’t have to commute to work every day.
How do outsourcing employers get away with this? Beats me… But I have one theory: freelance writers and editors (and to a lesser extent, other creative talent) tend to look at their income figures through rose-colored reading glasses. In my experience with freelancers—of which I had a-plenty during my incarnation as a magazine editor—freelance writers and photographers often perceive that their income amounts to more than it really does.
I’ve lost track of the number of people who’ve proudly told me they earned umpty-umpteen tens of thousands of bucks in a given year—usually some munificent figure like 20 grand. But what you gross is not really what you earn. The figure that matters is the amount you have to live on. When someone crows about earning an amazing $20,000 or $25,000, they haven’t subtracted the many costs of doing business, nor are they connecting the cost of health insurance with their wage, in the way that a salaried earner thinks of healthcare premiums. The money that stays in the freelancer’s pocket, the amount available to pay for groceries and the roof, is much, much less than what she or he grosses—specifically because of the much higher costs of taxes and insurance.
While some people undoubtedly do make a decent income (at least now and again) at freelance contracting, the average Author’s Guild member earns less than $25,000. That figure is high, because Author’s Guild membership comprises well-paid television and movie writers and best-selling book authors, along with all the wretches with a laptop on the kitchen table. Another commonly cited figure is $10,000 a year: a number that hasn’t changed in three or four decades. Digital skills don’t help: Darren Rouse at Problogger did a 2007 survey that showed 26% of 857 bloggers earned under $10 that year. Nine percent earned $15,000 or more; 1% earned $10,000 to $14,999; all the rest earned less than $10,000.
Most people who get by as independent contractors in creative fields manage it because they have a spouse or partner who brings home a living wage. If you want to try to make it on your own, you need some demonstrable skills plus a good track record of employment in newspaper, magazine, or book publishing—preferably with a few major awards to show. And even then, you’ll have to make a lot of trade-offs, particularly in the lifestyle department.
Pay is low and workdays are long. Yesterday, for example, I started at 2:00 a.m. At 5:00 I stopped long enough to feed the dog and bolt down a small breakfast; then it was back to the keyboard. Forgot to eat lunch. Paused again for cheese and crackers around 5:00 p.m. Then worked through until 10:00 p.m.
One of my editors, who made a living in Long Island as a music critic for many years, once remarked that freelance writing is great because it lets you schedule your own work hours: any 18 hours of the day you choose.
He knew whereof he spoke.
* Figures from Great Desert University’s 2009 benefits handout
Man, that is depressing. Great post, and spot on, but man, it is depressing.
We’re paying more in RENT this year than 20K… I think back in graduate school when I was making less than 20K we were paying more in rent than 20K, and that was for a teeny falling apart apartment.
I am so glad that I have always liked math and that I’ve got no great talent for art or music. It seems like I make more in freelance work doing things related to my job than I would being a novelist. It would be really hard to live like we lived in graduate school for the rest of our lives. If we moved out to the middle of nowhere I would really miss ethnic food.
I guess I’m trying to say, thank goodness I have a job with benes, and that my chosen career path isn’t one that multitudes of much more talented people consider to be their life’s vocation. It may not be as fun as writing, but it lets me buy $8 cheese.
Being one of those who broke out of corporate cube land to be an independent, the first year definitely caught me by surprise when I forgot to factor in an extra 15.3% for self-employment taxes on top of what I had smartly set aside for my personal income tax calculation. But I do have to admit that the un-commute is my favorite wonderful perk and, during the non-summer months in Arizona, I love having the flexibility of taking my mobile office on the road to grassy areas, lakeside or various coffee shops around town 🙂
First of all, thanks for the extremely interesting expansion on my post – I love what you wrote here.
It’s all quite true, although in my particular case it’s not quite as draconian – the corporate client I have did provide me with a laptop (for security reasons – they don’t want me hooking up to their network with a non-corporate computer) and a parking pass. They do let me take bottled water out of their fridge. BUT in all other cases you were dead on. No benefits, no office, no cubicle, no phone, etc. etc. Day to day I have to find someone who’s out for the day and use their desk, for example.
And the other caveat is that I’m in an industry and specialization where I make a lot more money than I would as an employee. As a contractor in accounting and auditing I make about 40% more than I would as an employee. There are a lot of complex reasons for this – primarily, in my opinion, the fact that accountants and auditors tend to be skittish and scared of non-traditional employment. But I’ve done spreadsheet after spreadsheet calculating the cost of self-employment and almost always come out marginally ahead of full employment. Marginally. But the control over my life – no working weekends, overtime rates which cause the client to send me home once I hit 40 hours while their staff works 60 – is the kicker. So I’m lucky in that sense.
I’d love to support myself blogging/writing, but it seems impossible. My moderately successful blog generates a couple of thousand per year, but that’s it. I have paid writers using various online freelance sites as little as $13 for 500 word articles, which makes me feel guilty. Once the site takes their cut, writers are making maybe $10 for an hour’s work – and then paying for health insurance, self-employment taxes, etc. I just can’t see how that works. I do know some bloggers who make a living just blogging, but I’d roughly estimate that, oh, 100% of them have working spouses with health insurance, etc.
Lot of food for thought! Thanks again 🙂
Oh, and one more thought – how do employers get away with this? Because they can. I see a LOT of contractors who contract out of desperation. They got laid off and frantically grab at the first horrible contractor rate they can get, because they live paycheck to paycheck. I keep cash – not stocks, not investments, etc., but cash – for at least six months of expenses on hand. When I have to dip into it between clients, I immediately build it back up as soon as I get a new client. This gives me the ability to do 2 things: 1, stay calm when unemployed for a while and 2, take very hard lines on my rates and contracts. I can stick to my rate even if it means losing some work. I can demand things like pay for travel time (so if I get sent out of town I can charge for time spent on a plane, etc.).
But I do see people all the time who take horrible rates and then stick to them out of fear. Corporations cause it all – they refuse to hire employees but then freely throw out contract money because they know it will benefit them in the long run. I tell everyone that I predict 50% of people working for corporations in FIVE YEARS will be contractors. Corporations aren’t stupid – they know they can force people to accept it. It’s the future, and it doesn’t look bright…
@ Steve: Thanks for the interesting responses!
There certainly are some huge advantages to contracting over trudging to an office every day. But the trick is to be able to command enough pay to make a living; I think you’re among the few who can do so. It probably depends on what you do.
Accountants, for example, earn good money working on an independent basis — my tax lawyer, who basically does accounting during the tax season, charged $450 for doing my personal taxes, which are incredibly complicated, and then another $450 for preparing the taxes on the S-corporation, a pretty easy job. Because she’s done the personal taxes for the past 15 or 20 years, even that task couldn’t have taken her long: she’s running all that stuff through a computer program. Because accountants can earn enough from individuals and small businesses to make a living, corporations are forced to pay contractors a decent rate for larger, more complex jobs.
Writers, however, are competing with people who would sell their souls just to see their bylines in print. Editors suffer from the slopover from that, partly because some are writers and are used to being paid $10 (if that much) for an hour’s work and partly because many of the barely literate products of our public schools are so ignorant they don’t know they’re writing awful stuff — they think Microsoft’s grammar- and spell-checkers are all they need and so wouldn’t dream of hiring an editor.
Some industries have long known they can get away with paying very little. Publishing and education are among those. When I was freelancing for magazines and newspapers, I set a threshold below which I would not work. This did keep my rates up; however, it meant I got a LOT less work. In part-time teaching, there’s no room for negotiation: you either accept the pittance the college offers or you get out of the line of people begging for work, any work.
However, I could take the same skills into the nonpublishing corporate world and get many times the pay. Public relations and advertising, which use the same skills a good journalist has, are both well paid endeavors. And a friend quit a tenured (!) job at GDU to found a business in which she converted what she taught in the classroom — communication — into in-house training modules for large corporations. Last time I went to lunch with her, she was wearing more than my net worth on her back.
You’re undoubtedly right that the fall-out from the current recession will be many fewer regular employees and many more freelance contractors. This is why we MUST see a decent public option for health care. Only the opportunity to buy acceptable health coverage at affordable rates will keep most Americans out of poverty. When people are scared, as most unemployed workers are, they’ll accept whatever crumbs they can get, and that will push down rates for everyone, even those of us who have six months or a year’s worth of cash as a cushion.
As for blogging: I’ve had the same thought — I don’t know any full-time bloggers who don’t have a spouse. FaM, which is growing fast, earns at best the same as Brip Blap. It’s a bare supplement; between the blogging and the editing, the S-corp now holds enough to support me in the fall if both scheduled junior-college courses fail to make. But it’s far from enough to live on. With the independent income of Social Security and investment drawdowns (which combined also are not enough to live on), I probably could crank enough from FaM and maybe one or two more sites to get by. But not with any comfort.
There’s a reason we’re not seeing employment improve as the economy supposedly recovers. That reason is obvious: corporations have already figured out that they don’t have to hire workers as employees. We’re already well on the road toward a permanent 50% contracting rate.
At some point as the economy recovers though, corporations will need to offer benefits and stability in order to attract workers. They’ll also go back to having a long-term view and wanting to train their employees to have firm-specific human capital (aka, experience that only helps when they’re at the specific firm, but not at any other job). We’re just not there yet because there’s so much unemployment and so many workers are willing to work in less stable situations.
From a cold-hard economics view, my graduate macro professors would say this is efficient– companies can produce more for less money, and more people are making money rather than fewer people making more money. It’s a way of getting the supply curve to meet the demand curve. If they weren’t contracting, the people with work would make more, but there would be more people without any work. Eventually that demand curve will shift out again and more workers will get more compensation.
There’s also the possibility of state legislation– you’ve probably noticed that some states and some universities won’t let adjuncts teach more than a certain amount before they have to be offered benefits. That carries over to other contracting situations in some places.
Thank You Funny & Brip for a VERY educational lesson .. all of this has been muddling around in the back of my mind for a long time, but never took the time to figure it all out. I’m still employed (this week, anyway) and looking ahead to the future (next week ? )
Thanks again for Saying It Straight !
@ YOY: Thanks. Glad to hear you’ve got a gig for now. Hope things come together well for you!
I don’t like to write for money, but I have a freelance job that works great for me. I proof for spelling and grammar. It’s something I like to do and I make the same or a bit more than I did at a regular job. See, I didn’t have health insurance at my day job because I was a temp. No benefits, but I still had to pay commuting costs, lunches and clothes. Not anymore. Plus, I can control how much I make. That’s not an option you have at a day job. If I want more, I just work more. I don’t have to work full-time either to make great money. I don’t have a day that drags on forever between the getting up, commuting, working, lunch, working, commuting, winding down. I work far less hours and have all the money I need. I get paid twice a week through PayPal. Now what company pays their employees twice a week? None I’ve ever heard of. Maybe for some, the pay and lack of benefits doesn’t add up for freelancing, but for me, it certainly does. No complaints here.
I’m one of the lucky freelancers because I have a regular writing gig — for now. It could last years or suddenly be terminated.
I have no control over that. The only thing I can control is how I use (and save!) the money I earn.
Because I have chosen not to seek full-time employment with benefits — also for now — this is the price I have agreed to pay.
It’s not a coincidence that I have 30 pounds of dry beans in my kitchen cupboards.
Whoa now. I too made a paltry $15k in profit my first year freelance writing, but then I started looking at my gigs less like well… gigs and more like a business. When I realized that I wasn’t just a freelancer, I was a business owner, I choose a specialty (blogging – which led to social media consulting), created a marketing plan, identified and sold myself to clients (rather than just answering ads), and generally acted like a business person.
I’m not going to go into details, but in the first half of this year alone I’ve already netted (yes, profits) more than I ever made in the corporate world and will make many, many times the paltry $15k I brought home in profit in that first year when I thought of myself as just doing gig work.
The moral of this story? Treat it like a business and it will become one. And for pete’s sake, value yourself. If it pays less than $50/hour, don’t do it. Sure you might have to pay your dues, but you don’t have to pay THAT many dues. Just look at the stats throw out in this very article. You are a bargain for employers. Find ’em, let ’em know it, and run that freelancing business like a business.
@ Jennifer Escalona: That is excellent! Excellent news and excellent accomplishment on your part. Would you consider hiring out as a consultant?
I usually aim for $60 an hour, but as a practical matter end up making $40 or $50, if I’m lucky. The problems are twofold:
1) The competition does undervalue itself. I know people who will cheerfully work for $18 or $20 an hour, and I know an Indian entrepreneur who says he can package a book — take it from MS to print, including an index — for less than I charge just to edit the copy.
2. There’s not enough work out there to occupy 40 or even 20 hours a week consistently. If I could bill 20 hours a week at $50/hour, I would net about what I did at GDU. But where on earth do you get that much of that kind of work?
Marketing is hard for many freelancers. If we were good with people, we wouldn’t be craving to sit in our garrets to work.