The Perils of Working as a Consultant

     Apologies as this is not a post about energy but more a post about personal pain. Working as a consultant is great if there is a lot of work and/or high pay. However, if the work is slow and/or the pay drops there are great perils, two main ones. The first one is self-employment tax. Basically, as a 1099 contractor or consultant with one’s own business, one pays twice as much social security and Medicare tax as someone who works for a company that sends out W2’s. Such a company typically pays half the social security and Medicare taxes. The full rate is 15.3%. This is in addition to federal taxes and state taxes. This is bearable if one’s income is high but is painful if one’s income is low. I have suffered layoffs in recent years. I was also forced to lower my rates and lost some work due to not lowering them enough. My part-year pay has amounted to a little over full-time minimum wage pay (assuming $15 per hour) but I must pay twice the taxes than a full-time minimum wage worker. In addition to this I must keep general liability business insurance and pay significant software licensing fees. Again, this is not a major issue if the pay is high and there is significant work. 

     The second peril is health insurance which we all know is not cheap. A consultant must pay 100% of it. In fact, I had to cancel mine. I simply can’t afford it. I’m in my late 50’s but in general good health so my fingers are crossed. Lucky for me my wife is old enough to get Medicare. She needs it. However, you must pay for that too. 

     I have a Bachelor of Science degree and 31 years working in my field in the energy sector. I have paid my dues in my field (and I have the tales and accomplishments to prove it) although I had to cease paying dues to professional organizations of which I was a long-time member. I recently lost my only work contract quite unexpectedly after hiring a subcontractor for the upcoming work, waiting more than a month due to delays, and paying my annual license and insurance fees. I feel bad for the subcontractor since I pride myself in treating my subcontractors well. It is the 2nd time I have a lost a contract with no reasonable explanation. Thus, a third peril of consulting is perhaps the ease of which consultants can be terminated. As I have learned, a simple email or phone call will do it. 

     When I started out as a small business owner, I had to pay annual state fees to register my company but luckily my state stopped requiring this. I have worked as a consultant since 2008 but am looking to work as an employee for a company as this is literally painful. Inflation and the threat of a recession add to the anxiety. Employers also offer things like 401Ks, paid time off, healthcare spending accounts, regular hours, cheap life insurance, stock options, employee ownership, and many other perks which consultants don’t get. Consultants don’t get unemployment if they are laid off. If you hear people complain about the high rates of consultants maybe tell them why. From my perspective I would say the “system” is certainly rigged, especially against low paid consultants.