During this long recession, getting paid can be tricky, especially if you are an outsider, or if you have lost your status as an employee, and have been hired back as a contractor (part time or full time).
Established consultants understand about getting paid (or not), but those new to the game, or employees currently being paid “off-payroll” may find their payments unexpectedly reduced or delayed, with little recourse.
Getting work the employee loses
The advantage of being “off-payroll” is that you may get work that would go to a full time employee, because the “professional services” or “contractors” budget has funds, but there is a freeze on hiring.
Employers carry the financial responsibility of their employees. In tight economic times, hiring freezes can result because employers pay up to a 25% “load” (extra costs) over and above your salary if you are an employee (this is an approximate figure). Also, employees have certain rights controlled by State laws, including receiving their benefits (such as health insurance) and timely reimbursement of out-of-pocket expenses. Laws also require that employers pay taxes on employee wages and salaries in a timely manner to the State and Federal governments. Defaulting on these taxes can result in employers being assessed significant penalties and interest.
Enter the consultant
So, there may be consulting funds for your role in the company, but not for your position as an employee. So you may be laid off and someone else hired in to fulfill your role. Or, that someone could be you, paid a fee and not a salary. Or, having been laid off, you may turn to being an “independent” to get paid for your skills anywhere you can.
Being paid a consulting fee (or contractor’s wages as a freelancer) leaves the responsibility for benefits (such a health insurance, travel/car expenses, and so on) and taxes on your shoulders. And as an “independent” you actually pay more tax than your employer!
These are rather obvious results of working “off-payroll” and you can plan for these by speaking with any established consultant or accountant. It is not easy to set aside 30% of your fee income to handle your self-employment taxes, and to pay your full health insurance on your own, but at least you know you have to do it.
The more subtle effects of being off-payroll in a recession need to be anticipated as well. If there is a core group of employees still on board at your company or at your client-company, but you are off-payroll, the employees will be protected by the law, and paid regularly, usually through the accounting division or through a payroll service. There is not much room to change this compensation without some formal action on the part of the employer.
But as an independent, your fees are more vulnerable than your colleagues’ paychecks. When the cash squeeze comes (and you won’t know when it is on or off), your check will be delayed. Or paid on time but arbitrarily reduced. There may be some explanation (“keeping the company alive” or “catch you up next time”). Even if you have protected yourself in your written agreement, you have little recourse to demand timely payment, a catch up on arrears, or a check for out of pocket reimbursement. The best protection, of course, is to be paid up front for your entire scope of work, or to be paid monthly in advance of work to be done. These are good ideas at all times, if you can do it.
This position of advanced payment at least allows you the option of a “work stoppage” if the check does not arrive.
Choices to make
Of course, how you play your hand at these times will be a decision you will have to weigh carefully. It may be wise to wait out the arrears, if you believe you will be paid in full. This consideration involves how much you know about the company’s finances and how much you trust the integrity of the decision maker who writes the checks, who may not be your direct client. It might be wise to be clear with your client and the decision maker about your expectations for any deferred compensation, and what actions you might take in the face of deferrals in accomplishing your work.
Do not threaten to quit unless you mean to do it. In fact, never threaten to quit. If you are going to quit, tell your client quietly and respectfully that you will stop working now until payment is made, or that you will remain available for a few days while payment is arranged, and will be unavailable if it is not forthcoming.
In all cases, you must carefully consider how much effort (especially extra excellent effort) should be committed to a client which is falling into arrears on your fees. You must protect yourself. You must balance your work responsibility with how much energy you will commit to finding another consulting gig or a position in a more stable company. This is especially difficult for consultants whose identities are connected to excellence in their work and loyalty to their clients. I do not mean you should be less than excellent. I mean you should be loyal to your own (consulting) company and protect it, while you are continuing to support your client. If you are working for a client, give your best, but give that same best to your own company as well. Find the balance.
As I have said too many times to remember, you must be constantly marketing for more work, even if you are overbooked with current client work. You must keep your options for work and revenue constantly open and in play.
Especially in these uncertain times.