Turning your job into a 1099 contractor role can provide you with many benefits. You’ll pay lesser taxes, and companies tend to pay a higher rate to 1099 workers than they do for W2 employees. Listen to the full episode to learn why!
Welcome to Degree Free, where we explain what you can do instead of going to college, and how to teach yourself, get work, and make good money.
In this episode, we talk about:
Ryan talks about why a 1099 contractor role will make you MUCH more money than a regular W2 job.
Hannah also talks about why the US contractor economy is growing rapidly.
Enjoy the episode!
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Ryan: Aloha guys. And welcome back to degree free. We are your hosts, Ryan and Hannah Maruyama on this podcast, we share the fundamentals we've discovered and the mistakes we've made while self-educating, getting work, building businesses and making money. We'll tell you how to make it happen. No degree needed.
Hannah: Welcome back to the podcast folks, Ryan and I have a newsletter that we send out every week and you are definitely gonna want to sign up for that. It has all kinds of stuff in it that you're gonna want to see like degree free news. So different companies that are now hiring degree free people, different job opportunities, ideas for degree free work and resources like books and websites that Ryan and I have found to be really helpful on our journey as well. And so you're going to wanna sign up for that. So, go to the website degreefreenetwork.com and sign up. So you don't miss our email.
Ryan: And yeah, guys I'm like and subscribe to so you can stay notified when we post new episodes every week.
And let's get into today's episode. Today, we are going to be talking about how to turn your current W2 job into a 1099 contractor role. And why you would want to do it, who it's for who? It's not for some of the benefits with it as well.
Hannah: Why yeah. Why people might want to be doing that, especially in today's, in today's work environment.
Ryan: Yeah. It's a hand or a card that you could possibly play. Right. And it just takes some thought and some analysis of whether or not, it's right for you. One of the best ways to kind of break it down to make this the most easily digestible for a lot of people is I think we should talk about who this might not be for at first.
Right. Let's talk about that first. Then we can talk about who it's for and why you would do it and the benefits of it. And then we can talk about like how to do it.
Ryan: Right. And so the first thing that we have to talk about and one of the most common things that we see is going to be benefits.
Hannah: Yeah. Your medical, your vision, your dental.
Ryan: Right. Exactly. Things that you normally get through a job. Right. I mean, unfortunately in the US our healthcare is widely tied to our employment. I think that that's really dumb.
Hannah: That's a whole, that's a whole other thing.
Ryan: Yeah but the whole another thing.
Hannah: We won't, we won't tackle that here.
Ryan: Yeah. That being said, unfortunately, that's how it is.
And so if you get your benefits through your employer, health vision, dental supplemental, you name it. This is definitely something that you're gonna want to think about a lot more. It could still make sense for you, but for a lot of people that doesn't.
Hannah: Yeah, because the cost of taking those things on independently would just be too, too great.
Ryan: It's something that you have to do the math on, right? The reason why is, I mean, maybe you would get paid so much more as a contractor and you would be able to take on all of that by yourself. Maybe, maybe not. Right. And so. If this is you, if you are the person that brings in the insurance in your household, you're definitely gonna have to put more thought and do more analysis on it.
Right. Another thing that we have to talk about is taxes.
Hannah: Yeah. That's self-employment taxes are, are a big thing.
Ryan: Yeah. Taxes in general. Not just self-employment taxes, but just even the mechanism of which you get taxed and how you tax.
Hannah: It's way easier to be taxed as a W2 employee.
Ryan: Yes. Much, much easier because, your pay, your tax is already withheld in your paycheck. And so at the end of the year, you get your W2 and it says that you made, you know, X amount of dollars. You made a hundred bucks this year and they kept 30% of it or whatever. And now you've, here's your tax return. Very, very simple. On the flip side of that as a 1099 contractor, they are no longer withholding those taxes.
Hannah: Now you have to do it.
Ryan: Yes. And that usually comes with quarterly taxes that you'd have to file. It's not super complicated. That being said it does add a layer of complexity to the whole or deal just to make a living.
Hannah: Waiting for it. You gotta do it. Also if you're a contractor, oftentimes you're billing. You're billing your a company. So that's another thing too. You are going to be responsible for submitting an invoice. And so you're responsible for running payroll for yourself basically. So that's just another thing that you're going to have to do if you want to get your money and get paid.
Ryan: Yeah, definitely. And so one of the last things I didn't want to say about the benefits is just because, like I said, just because you are the insurance provider in your household doesn't mean that you can't make this happen. Also if you are in a relationship with somebody, like if you're in a household where, you know, your partner has a W2 job and you're married, or if you're in like a domestic partnership, if you're in a state where you can be on your partner's insurance. It might be something where you guys consolidate your insurance and there might be a lot of savings there for you.
Hannah: Cause a lot of, a lot of people without thinking about it, pay to health insurance premiums, and they're double insurance. They don't really need to be doing that, but it's just the way the insurance works. Like you said, it's tied to your job. And if two people in a household have a job, then you've got two different insurances.
Ryan: It's also a big commitment. I will say that, I mean, it's not a relationship show, but you know, like
Hannah: You gotta really trust that person to not to so that, you know, cause now they're in charge of your healthcare benefits.
Ryan: Yeah. It's, it's difficult. And so there is that layer of complexity as well in the relationship. But I mean, if you're married that shouldn't be a problem.
Hannah: Pretty safe.
Ryan: Right. And, and a lot of times to healthcare especially, health insurance it is cheaper to become a spouse on a plan than it is for you to go out and get an individual plan.
Even if it is through your W2 employer, it's still cheaper to tack on to their plan than it is to, for you to establish your own individual plan.
Hannah: Yeah, just being in addition to someone's plan, as opposed to being a single additional plan.
Ryan: Yeah, exactly. And then also if you have dependents, you know, definitely this is going to be one of the areas that you're going to have to do a lot of thinking and math about and see if it's worth it.
Hannah: Does help with simplicity though. If you only have one health insurance, I will say that much.
Ryan: It does.
Ryan: Okay. So that being said, the next thing that I wanted to talk about, about who this isn't for is if you wanted, if you need job security or if you want job security, Being a 1099 contractor may not be for you.
Hannah: Yeah. Cause you have to like basically go out and hunt and get your contracts and bring them back. And then because of the way contracting works you can be terminated at will at anytime. The upside benefit of that is you can also quit at any time, for whatever reason that you choose depending on the contract, but most contract, most contractors are at will.
So you just, you're working for them as long as they want you to. And they're working, you know, they're working with you as long as you want them to. So it's, it's kind of a, it's, it's a lot more responsibility for sure.
Ryan: Yeah. There's gonna be a lot more, a lot of times with contractors is a little bit more flexibility in scheduling and things like that.
Hannah: You do have a lot more control over your time,
Ryan: But the price you pay is that job security aspect of it. Right? And if you, a lot of people would rather just, you know, have a job and kind of know that that job is always going to be there for them. You ready come to work and okay. You stay there for 40 years and you just, that's where that's where you, that's where we work and it's stable and that's good.
You don't have to worry about where, where it is you're going to find your next paycheck. With contracting that is definitely something that is always in the back of your head. So pros and cons pros and cons.
Hannah: Yeah. It's largely individual. I think there's just a lot of people that don't know that it's an option for them, that they would take it if they could, because it just gives them more control over their work situation.
One thing that I've observed it with it too, is that my time was much less abuse. So, if somebody is feeling overworked, it is good way to keep a company accountable for what they're using your time for. Because if they use, if they need you to do work, they get billed for it. And so there, there is an advantage to that too.
There's downsides to that as well, right? Because if they don't give you enough hours, but if you have an agreement and you, you know, you're an efficient worker, most of the time, you can, you bill as needed. And so if you're working a lot of overtime, you get compensated for it.
Ryan: Right. Definitely. That's true.
Ryan: It depends. If this all depends on how you structure your contract.
Hannah: Right. And then just to the quality of the people you're contracting to. So,
Ryan: But I mean, like, it could be that you're, depending on your industry, you might contract per project, instead of per hour.
Hannah: That is true. That is true.
Hannah: So, you sell them like a chunk of time for a specific thing that needs to be accomplished. That's true.
Ryan: Yeah. So it just depends on how you structure your contract. One of the easiest sells to a company though is going to be hourly.
Ryan: Just because it's not a stretch of the imagination for a lot of people.
Hannah: And it's cheap for them relatively.
Ryan: Yeah. And especially if they don't have a contractor like situations set up already, it's just an easier sell.
The last thing that I want to talk about as far as who this may not be for is going to be for people that are concerned with their retirement plans while they're a W2 employee.
Hannah: Yeah. Like if you want your 401k, and wanna get the match. You want to get options, stock options. This is not for you. You're only going to get cash out of this exchange.
Ryan: And so that's one of the things that like, I'm not saying that everybody shouldn't be concerned with their retirement period. I'm just saying, talking about the opportunity of their retirement plan that they have at that company as a W2 employee. So exactly what you said, the things that you're going to want to think about is pension.
Those are dying. Right. I mean, if not all
Hannah: Often, you're gonna be, that's gonna be for like more public like union
Ryan: Union jobs.
Hannah: You cannot really be a contractor.
Ryan: Right. But not all, not all unions are public though. Right.
Hannah: That's true.
Ryan: And so, yeah, union jobs usually are the ones that provide pensions. Okay. So assuming that you aren't union. Then, you know, now we're talking, now we're talking to you. If I'm assuming that you are union as well, majority of companies that work with unions, you're probably not gonna be able to wiggle out of your union dues and out of the union and then become a contractor in the same role. There are probably a lot of union mandates and it's probably laid out in your collective bargaining agreement
Hannah: That you can't do that.
Ryan: That you can't do that. Right. Or that the company that they're working with, that you're working for, that the union is working with. They have some stipulations on scalpers and you know what they consider that to be. So assuming that you're not in a union now, we're talking about just the retirement plan as it is facilitated at the company.
So we're talking about exactly what you said, your 401k having a match. Right. And so we haven't really talked about it yet. You know, we're probably gonna be talking about as soon, we're probably gonna get deeper into the money aspect of our lives, you know, in an upcoming episodes, but you know, just quickly, you know, a lot of companies in order to encourage you to save money for retirement, they'll offer a percentage match on the amount that you contribute to your retirement plan and widely speaking, generally speaking, that's free money.
Hannah: Yeah. They're just giving it to you.
Ryan: So if I put a hundred dollars a year and it's a 6% match they're going to put in six bucks on top of it. And that's just free money. You're not going to get that type of access
Hannah: As a contractor.
Ryan: As a contractor.
Ryan: Right. You're not going to get that free $6
Ryan: Or whatever it is, your matches. And so, widely, if you're a set it and forget it type of person, maybe being a contractor is not really for you.
Hannah: Yeah. You have to be a lot more active in your decision making and you have to like, you have to make a lot more decisions more often for sure.
Ryan: Where in this realm where things kind of open up for you is that if you're a contractor and then you start opening up your own business, right at LLC, now you start getting into deeper territories with like, you can set up certain solo 401ks or, you know, SEP IRAs, things that are outside of the scope of this. Podcasts or the show today.
Ryan: But you know, just, just,
Hannah: We'll talk about that eventually.
Ryan: Yeah. Just know that there are other options for you going forward. If you did want to be a contractor, it's not like you can't save for retirement still. It's just going to be, it's going to look different and it's gonna require more effort by you and it all might make it worth it. If you got paid more money.
Hannah: Which is part of the, which is part of the value proposition you were going to give when you, when you're asking for it. Because a lot of times what companies do, people don't realize often how expensive employment is. So W2 employees are expensive. They may be paying you $60,000, but they're paying a lot for you because they pay into systems that you benefit from your benefits package.
Like the things we do. The healthcare, retirement, like those little things where you get certain percentages off at whatever certain shops like anything that your company provides for you is one of those things. And if you think that you can better use that money to, to grow investments that you have or on a business or something and you want the cash, that's a card that you can play, which is saying, I want more money because I'm going to cost you less money. Which is a pretty compelling value proposition for a company.
Ryan: Yeah, definitely. One of those, one of those other things is going to be like, they're going to save money on unemployment insurance as well.
Hannah: Yeah. That's a huge thing. That's a huge cost and employers shoulder that employees don't see.
Ryan: Right. And so,
Hannah: What would you say that the average cost for like a $50,000 employee is,
Ryan: You know, I'm not sure. Honestly I have
Hannah: 10 to 20 grand?
Ryan: I have no clue. Any, at a different point in my life, I would have been able to have a more educated number for you because that was my job to know any number that I give right now would be irresponsible. Because it's not just not accurate because I'm not sure it's been it's been years since I've known that kind of stuff. Just suffice it to say five plus figures.
Hannah: Like it's, it's usually quite significant and people, people just don't realize how much it actually is.
Ryan: That's the perfect segue into the next thing that I wanted to talk about, which is after hearing all of the reasons why you shouldn't like, why the heck should you? Right. Really the biggest benefit is exactly what you said, which is more money,
Hannah: Yeah, more cash. Cash on the barrel.
Ryan: And if you are going to your employer and you're currently a W2 worker and you're making 50 grand a year and you're going to them and trying to get a W2 arrangement with them, you need to be asking for more money or if they come to you,
Ryan: And they said, Hey, you know what? We have to make you W2 now. You'd be instead of, instead of just saying, okay, I'll take my same compensation. No, no, no. You have to ask for more money.
Hannah: You have to, because you will not be making the same amount.
Ryan: Right. Not even in a real real terms, you will not be making the same amount.
Ryan: Not even close.
Hannah: Yeah. To the point where it's enough money, that it will make a difference in your, it will make a dent in your lifestyle. It's a significant amount
Hannah: For most people.
Ryan: So, I guess the question is how much more money would we, would we be going to the table with, I mean, we're going to be kind of talking about how later, but it can just kind of give people an idea the way that I think about it and the way that we've thought about it in the past, because you've done this right.
Hannah: A couple of times now.
Ryan: Yeah, you've because you were a W2 employee and you changed over to a 1099 role. Right. And. It was, huge for the company. Right because they saved a ton of money.
Hannah: They really did. Especially because I was taking advantage of their 401k program of their 401k match and yeah, they definitely, they definitely were paying quite a bit into, into that savings plan. So they were jazzed to have me become a contractor.
Ryan: Yeah, definitely. But yeah, that was definitely one of the benefits is that for the company, they save a lot of money. Cause you were, you were taking advantage of a lot of their fringe benefits and
Hannah: Maximum advantage.
Ryan: Yeah. And they didn't have to didn't have to pay for that anymore.
Hannah: Yeah. They were there. They were a little party.
Ryan: Yeah. But generally speaking. Good, good rule of thumb. If you're getting, if you're getting paid X amount of dollars, easy math, if you're getting paid a hundred thousand dollars, you know, I, I think we've
Hannah: 15 to 20,000?
Ryan: Yeah, it's it's it's in the
Hannah: Or more?
Ryan: It's in the 20 to 30% range
Ryan: That you should at least be asking.
Hannah: So let's say you're making $50,000. How much do you ask as a contractor?
Ryan: If you're making $50,000. And you're going to be about 10 to $15,000 or more.
Hannah: Okay. Yeah.
Hannah: 65 to 75K there.
Ryan: Yeah, well, it's 60 to 65.
Hannah: 60, 65.
Hannah: Nothing public.
Ryan: Yeah. 60 to 65.
Hannah: Yeah. Reasonably or you can ask for more
Ryan: Bringing a hundred, 120 to 130. And that's just a, that's just to give people a ballpark, right?
The way that you're going to go about doing the research on this. Is do exactly what we normally say for a long time listeners, you're already fully aware of what we're going to tell you to do. We're going to tell you to go to the Google.
Ryan: We're going to say, put in your job contractor
Hannah: And see what the number is.
Ryan: And see what the number is. That being said, there are a lot of calculators out there that help you compare contractor versus W2.
Hannah: It'll actually tell you down to the number exactly how much you need with taxes in your state and all that, all that jazz,
Hannah: And they're free calculators you just plug your stuff in, and it's a little, it's basically an automated Excel sheet and it just does the calculation for you.
Ryan: It's a little difficult because you're going to have to do some thinking about it. Right? So one of the things that we didn't talk about as far as. For who this wouldn't be for. And when I talk about it now is you don't get all the vacation leave.
Hannah: You have to plan it.
Ryan: Right? So you don't have vacation leave. You don't have maternity leave.
Hannah: Sick leave.
Ryan: You don't have sick leave. You don't have any of that. And so that's why using one of these calculators is really going to help because if you're used one of the good ones and we'll put some in the show notes below if you go to degreefreenetwork.com. You'll be able to find the resources that we're going to point to, but it's going to ask you in the calculator, like how many days a year are you planning on taking off?
Right. And the reason why it's asking you that is because as a contractor, if you're not working, you're not getting paid.
Hannah: If you're not there. You're not earning money.
Ryan: Right. And so,
Hannah: It's just like working at a restaurant, actually.
Hannah: You're not there. If you're not on shift, you don't get paid.
Ryan: Exactly. And so what's really good about them with these, with these calculators is you can go in and you can put in your current pay as a W2 employee and it usually is able to spit out what that looks like as a contractor, and now you have a good and a good gauge of what is the minimum that you should be asking. If we are of the mind that we, that's just the number where you start but,
Hannah: Yeah, add more.
Hannah: Always overestimate how much time you think you'll need off because you know, you just never know cause life.
Ryan: Not needing off, but just how much you want to get paid.
Hannah: Oh, yeah, yeah,
Ryan: Yeah. You
Hannah: Always ask more cause you can go down.
Hannah: Yeah. Cause if they say yes, then good for you.
Ryan: And then if you're going to, I believe that every time that you come to the bargaining table about your payment, you should be asking for more money.
Hannah: Yeah. That should be an upward progression for sure.
Hannah: It shouldn't be something that stays the same or goes down.
Ryan: So we'll link the calculators below, but just for a general rule of thumb 20 to 30% more at minimum that's what you gonna,
Hannah: Because you're going to pay, going to pay taxes.
Ryan: That's what you're gonna start asking for.
Ryan: Right, and
Hannah: Taxes benefits.
Ryan: Ideally, ideally it's 50% more, 70% more.
Hannah: Yeah, shoot for the moon.
Ryan: And a lot of people are going to balk at those numbers and be like, really that much more. Yes. That much more because they're saving a lot of money.
Hannah: They're still saving money, paying you way more.
Ryan: Well, they're saving a lot of money, but then also you're baking in a pay raise and that as well, right that's what you should be doing, I believe you should be doing. And so the next thing, as far as the benefits go about being a contractor, generally speaking. Obviously it depends on the industry, but generally speaking, you gain more flexibility in your schedule.
Hannah: Yes. That's one thing that was one of the biggest advantages with the contracting that I found was asking for a four-day work week and that is some life-changing stuff. Other countries are, are a little bit more forward-thinking with their scheduling. But right now in the US I'd say that probably the easiest way to kit a four day work week is to become a contractor. Just build it into your contract, like I'm available. Also, because if you're working with a company, let's say you're, you're deciding to become a contractor at the same company.
It's way easier for managers and other coworkers to get used to you having a four-day work week than it is for them to get used to you having a different hourly schedule five days a week, you know, like you're working five hours a day. That's harder for them to get used to often then Tuesday to Friday and Monday to, I'm always available Monday to Thursday. Also something I found was that during the entire year that I worked that way, I only called off sick once. So I, my attendance rate at work was very high because I had so much time. So, so that's another benefit. And I don't know, I, I think that that's been, that's been found that people that work four days a week don't call in as much because there's less time they're actually at work. But I also found that to be true in my own experience.
Ryan: Yeah. And I think another factor with that is not only the flexibility of schedule, but flexibility in general with your work situation. Because now if you work physically, a lot of contractors work from home. This might not be. You might not be able to do this in your industry, right?
Hannah: It depends.
Ryan: It depends, but this is a perfect opportunity to go to the table and negotiate this.
Hannah: See if you can.
Ryan: Let's see if you can. Right. Working from home is definitely one of the options or a hybrid schedule. Right. And I think well, you were talking about, about the not calling in sick. I think that has to do with working from home too.
Ryan: I think he's working from home.
Ryan: Maybe a four day work week too.
Hannah: Maybe both.
Ryan: But I think he's generally speaking as a work from home because you don't call in sick when you're at home.
Hannah: Well you can be sick and still work.
Hannah: Most, most adults can. It's like adult tick is a little different than kids sick, right? Like you can, you can still work at a computer if you're sick
Ryan: One of the next benefits is going to be being able to work multiple contracts at a time. And by this depends largely on your industry and your contract. So this one is kind of like a has
Hannah: Real specific.
Ryan: Has an asterisk next to it. Not necessarily specific, but it just depends.
I think in more, be more specific all at the industries that have non-competes actually. And so, generally speaking though, especially if you're working from home now, you've, you've negotiated a flexible work schedule. You've negotiated work from home and go shoot a 1099 now you can take on multiple contracts,
Ryan: Especially if they have a lower time commitment, just like what you've just set up with your current employer. And now if you're making double the amount of money. Right? So say you were making a hundred thousand and you've asked for 120 and you got it. Okay. Now let's say that's apples to apples, which you were making after taxes and everything like that with insurance. And now you were to take on another contract that gets paid the same amount.
Hannah: Or even if it was part-time, let's say it's half.
Ryan: And half. Now. You're making way more, even though you're paying for insurance. Right. Even though you're paying for insurance out of pocket, even though you're in charge of your own retirement, even though you have to pay a tax professional to help you do your taxes every quarter,
Hannah: You jump a line in earnings, in actual money that you're getting in the door every month, you are significantly higher than you were before significantly.
Ryan: And this is really where it starts to move the needle.
Hannah: Yeah. Money in the door matters.
Ryan: And. Like I said, it depends on your company and you have to read the contract. So that's one of the things about the execution of this. Before you go to being a contractor, they're going to put a contract in front of you. And you need to read that thing.
Hannah: And you need to ask for things to be taken out of it. That was, that was the thing. The first, the first time I signed a contract, I didn't, and the second time I signed a contract, I said, I don't like this, this and this, take it out. And guess what? They just do. It doesn't matter that much.
Ryan: And they do.
Hannah: Yeah. It really only affects you.
Hannah: Because most of the time the company is fine,
Ryan: Unless, it's a major thing in their contract that they don't want to get taken out of it. Then they're not gonna take it out.
Ryan: And then your shatter luck
Ryan: And you're in the same position that you were in the beginning.
Hannah: Yeah, just take full advantage of the fact that you are in charge of your own labor now. It's a two, it's a double-edged sword, but if you're going to do it make sure you maximize the benefit of having full control over your time and how you spend it.
Ryan: Yeah. Definitely is one of those things where it's going to take a lot more thought, and it's going to take a lot more analysis
Hannah: And planning.
Ryan: And planning, right? And this might be something that, especially if you're in a committed relationship, that this is a big decision that you probably want to talk over with. You know, your significant other and your partner, especially if you guys are currently on individual insurance plans and you need to switch over.
Hannah: So for, just to clarify, too, when we made this one, our household made this switch, it was very much a group decision. It was a team decision that we, that we did and Ryan helps me do all the math and we sat down and looked at okay, like, how does this benefit us? How can we leverage the situation to increase like one, how much our household is bringing in every month, but also to maximize like our ability to do other work and just live in general and it does, it does matter. And it, and making that decision together, if you're in a committed relationship, definitely, definitely would advise doing that if you trust that person.
Ryan: Yeah, definitely. I think this is getting a little bit in the weeds, but one thing that I would definitely look into, if you're thinking about doing this is look, if you guys are currently on individual plans and I'm just gonna specifically talk about healthcare right now, health insurance, and the way that it works in the US if you guys are at on two individual plans and or you know I am on one plan and you're on another plan with the kids. You guys have to look at the qualifying events in your insurance of what allows you to jump on the other person's plan.
Ryan: And you need to look at when the open enrollment dates are because, losing your job usually is a qualifying event. I'm pretty sure, but
Hannah: Becoming self-employed is not.
Ryan: Yeah, it may or may not be.
Ryan: And so you're gonna want to look into that and this might be something that gets piled into the future and say, say your open enrollment is January and or November because it goes into effect on January. And it's now July, when you're thinking about it, you might want to wait all the way until November.
Hannah: To make this jump.
Ryan: Yeah. Right. Exactly. And then, then your partner can select, okay. Spouse plus dependence.
Hannah: So you're not lapsing in health care coverage.
Hannah: That would be not good.
Hannah: Cause you just don't want to do that for no reason.
Ryan: Yeah. Well, and then you got to pay Cobra or, or you gotta find, you gonna find interruption.
Hannah: Which is a pain.
Ryan: One of the good things about the last thing I want to talk about, about the benefits of it before we kind of talk about the execution and how this looked when you did it. Is one of the best things is that this situation isn't permanent, right?
Hannah: It's very reversible.
Ryan: It's very reversible. It may not be reversible in your company. I'll be honest there, it may be that they say, okay, we're going to put you on as a contractor. You hate it. You are not making as much money. Something happens, you get divorced, you know, whatever life happens and you go to your boss and you say, Hey, can I become a W2 again? And they're like, you know what? It's just not in the cards right now.
Hannah: Well, now it's a hard sell because you need them to pay more money,
Hannah: To you.
Ryan: But you can do, you can still be a W2 employee at another company. You just start applying for jobs again.
Hannah: Yeah. And fixed.
Ryan: Yep. Exactly.
Hannah: Problem solved or you get another contract.
Ryan: Exactly. And one of the ways that you can bake this in to making this an arrangement is at the beginning at the negotiating table, you can say, how about we try it for three months?
Let's let's try it for a month. They tried it for six months and see what happens. See if your boss will say yes.
Hannah: Yep. That's the best way to get people to say yes to you is just say, can we try it for this amount of time? It also shows that you've given it some thought and some planning, and most often, if you've thought something out pretty well and you explain it well enough.
You know, especially cause it's, it really just lowers the company's risk. So it's not as hard of a sell.
Ryan: Yeah, definitely. And I think now how do we do it? Like, I guess, how are we going to get our boss to do it, to get we're currently W2 employee and we want to be 1099, we've done the risk analysis. It makes sense for us. I guess, how did we do, how did you do it?
Hannah: Okay. So the first, the first thing that you need to think about is whether or not you've been performing well at your job, if you haven't, they're much less likely to say yes to you, because if you've not been performing well, then why would they want to give you anything that you want, right?
Ryan: That seems reasonable.
Hannah: Yeah, so if you're a good employee, if you're a decent employee, most people think most people are. So if you're a decent employee, that's number one. Now, then you want to think about if you have somebody around you like a boss or supervisor who is sort of in your corner or at least would be willing to hear you out. And I've found also that the best time to do this is when something is shifting. So if there's a new project at work or an old project is closing, or it's a seasonal change, like it's an end of a quarter or it's a, or is the it's a new year and people are more susceptible, I think to change when the other things are changing.
And so I think that that's probably a good rule of thumb that's when I made the switch was end of year. And I just said, you know, transition in January, this looks different now. And that went over well. And I think that it does have to do with people are used to change in the new year. Humans are just like that, especially in the US right? Because think people tend to do big changes in the new year. The biggest reason a company has to say yes to you here is that it saves them money and it reduces their risk. Companies almost always will save money and reduce risk if they can. And the reason it reduces risk is because they can fire you. If you're bad at your job really easily. And that risk for you is that you can also quit really easily if you know, if they're not serving, if they're not serving you. So, but also as far as the money, like I said, like, we've talked about the chances of them saving a lot of money by, by moving you into a contract role are pretty, are pretty high for most people.
Like you could most, for most people you can get a $10,000 raise if you just aren't a W2 employee. And so for them that, they look at that and say, well, that that's cheaper than what we're paying for you now. So if you want to assume the risk, you know, that's kinda on you. And so I think that that those would be the two motivators that would cause a company to want to do that.
Also the third one would be if they like you, and that's the condition under which you'd like to stay, that one's a little bit more subjective, right? Cause you know, people everybody's different or it gets along different. But if, if you're generally a valued, liked employee, most of the time, they're going to be willing to accommodate you, to keep you around.
Ryan: Yeah, I think one of the things too, and this is super company specific, but depending on how your company makes money, they might be not only saving money, but they'd be, might be making more money by making you a contractor. So what do I mean by that? If you are working for a company, let's say you're working for a company that builds software and they are hired to do a project and okay, they have nothing with W2 employees on their right. And they have a couple of contractors here and there. If you become a contractor, They, they can, depending on their contract with that company, they can start to pass on that cost
Hannah: Directly to the other company.
Ryan: Directly to the other company.
Hannah: And that means they keep more money.
Hannah: So, so you don't realize sometimes too how profitable it actually may be for them to make you to give you exactly what you want.
Ryan: This doesn't happen all the time.
Ryan: But it's definitely something that if your company does this, and if you know that they're going to do this.
Hannah: Mention it.
Ryan: Then it'd be like, yeah, look, you can, okay. You're not billing out my time right now, or this is how much you're billing on my time. Now you pay me more. We can build out, we can bill out at this rate, right?
Hannah: You win, I win.
Ryan: Yeah. We can pass it out. We can pass it onto the client. That's how the, that's how the contract struct, structured.
Doesn't happen all the time might not happen at all, but it's just something that if you're aware of, you can use it as a bargaining chip.
Hannah: It's very important that if you're going to ask this question to, you have an understanding of how your company makes money. That's like at the basis of this is understand the motivations for a company, which almost always is to make money.
And if you can find a way to save the money or make them more money than oftentimes they're gonna say yes to you. Yeah. So just to kind of quickly go over all of this. So this is how you're gonna do it. One, you're going to go in with a plan. Two, you're going to make sure that you're a good employee and so you're asking, you're asking from a position of power which is you're doing your job and they'd like you. Three, you're going to make sure you want to ask somebody who's kind of on your side in your corner, at least likes you or respect you. And then keep in mind that when you're asking, so this is for know what the company is going to get out of it. No, if they're going to save money, make money reduce it. If, if this person likes you to a good way to position it is that you also get something that you're excited about, that you're excited for your career growth. Again, most people, most people are inclined to like want to help you. That's my belief. And so I'm just saying, you know, I really I think that having this schedule would really optimize my life and that I would be more productive at work. And that's my main motivation for wanting to become a contractor so that I can have a schedule that fits my life. But also it reduces the risk for you giving it to me, that's pretty compelling.
That's pretty clear. Right. And I think that, that, that's probably the best way to state it. Then make sure that when you're asking if possible, ask at a time when other things are changing it's just kind of packaged in with change in general. And then, and then if they're hesitant, then give them a specific set time that you'd like to test it.
That is risky on your part because it's unlikely, you'll be able to go back to W2, but if you can do that.
Ryan: Yeah, definitely. Or if you bake it in, you can just say, hey, can we check it out? Can we try to do this for three months and this reevaluate it three months, set a meeting now for three months from now, and see how how it goes.
I promise you before that meeting happens, you guys are going to know whether you're going to keep doing it or not.
Ryan: Right. So instead of like, maybe wondering if he'll get the W2 job back, make a deal with your boss where like, you know, if it's not working, I'll come back on at the same rate or whatever, you know what I mean? I'll, I'll, I'll do that and be like, yeah,
Hannah: We reduce risk for them.
Ryan: And so, like we said before, as far as the amount that we're asking for, which is that's what we care about, right. Because the biggest benefit to us doing it from us is the money. Right. That's why we're going to do it because it's way riskier, as far as you, you have to fend for yourself on insurance, taxes, retirement, all that, but you're going to get paid for that risk, right. Or you it's your job to get paid for that risk.
Ryan: And so do the calculation. Go online. You know how to see how much you are currently getting paid and then, okay. That is the, that's the number that it spits out. You're going to want to ask for more, because we're baking in a promotion or a raise on top of it.
Right. And it kind of obfuscates it. The fact that you're changing roles as well, it just kind of obfuscates it and makes it a little bit more difficult to see where W2 ends and your raise begins and 1099 starts. Right? So, and generally speaking. You know, the place where we start is we say 20 or 30% minimum.
Ryan: Minimum is what you're going to ask for. And you know, it doesn't mean you kind of ask for more, but you also got to be within reason.
Hannah: And then keep going with a floor, just like a regular negotiation. That's why the math is important. So you'll know I can't go below this number. It's not financially worth for me.
Ryan: Exactly. The very last thing that I wanted to talk about today is eventually depending on your contracts, depending on how you get them written, eventually if you're doing multiple contracts, you might be able to outsource the work that you're doing, right. You might be able to hire people and okay. You've got all these contracts, you got one contract, you got a second contract and you hired some people to do, you know, make flowcharts or
Hannah: Menial tasks.
Ryan: Whatever it is. Right. Or do video editing or whatever the task is now you're running it. Now you're running agency right now you have a business.
I would for warn people that it's highly dependent on your contract.
Hannah: Yeah. Cause there's a lot of contracts where they they're explicitly, you cannot outsource your work.
Ryan: Yes. A lot of conference.
Hannah: It's illegal. It's illegal to do that. You should not do that. If it's in your contract
Ryan: You are in breach on your contract.
Hannah: That you can't. Yes. You are breaking your contract.
Ryan: Generally speaking. If you can sign the contract as your business entity, and that's out of the scope of this conversation right now, but just suffice it to say that if you decide to go contracting, you're probably going to be setting up a business entity, an LLC at the very least.
And if you can get, the reason why is to separate your personal assets and your business assets and protection and all that, you know, LLCs are given a little bit more options for certain financial instruments and materials and stuff like that in the system. Generally speaking, if you can get a contract that hires your LLC to do the work.
It usually covers the people and the subcontractors that you higher as well, because they're not hiring me, Ryan Maruyama to do the work work.
Hannah: They're hiring
Ryan: They're hiring Ryan Maruyama, LLC, or whatever.
Hannah: What have you.
Yeah, so you're con you're contracting could in theory become a business.
Ryan: Yes. Talk to a labor lawyer, definitely talk to your contracts personnel, talk to the person that you're retaining to kind of help you with your contracts, but that's just a high level of the possibilities that are there.
And now you're running a business, as you said. Right. But yeah, that was kind of it for today. Kind of something that you have firsthand experience in that you've done a couple times now.
Hannah: That I never set out to really be doing too.
Ryan: Right? Right.
Hannah: It's just a, the contractor economy, people is growing really rapidly.
And the reason is because, especially in the US it's just become extremely financially risky to hire people as W2 employees, the more expensive it gets to hire W2 employees because of taxes, regulations, et cetera, et cetera, the more companies are going to start outsourcing their labor to contractors because they're just cheaper and they're low risk and you can cut them when you need.
Ryan: Yep, absolutely.
Ryan: And a lot of it has to do with actually the definition of a contractor like, and learn once again, that's outside of the scope of this podcast, but suffice it to say that with the advent of technology, with things becoming more and more digital, It's much easier to fit the role or the definition of a contractor for a lot of employees.
Hannah: That's true.
Ryan: Employers rather.
Hannah: No, that's a good point. That's a good point that you make it's, it's definitely, it's a contractor economy right now. It's it's never been easier to be one than it is right now. Okay. Folks like I said, Ryan and I write a newsletter every week. It has degree free news companies that are hiring degree free requirements that are being rolled back, tides that are changing and then resources that we've used in the past that I use now for my work that Ryan uses for to, to do his work. And then also just a cool ideas for degree free work and and jobs and then boot camps and stuff like that. So you don't wanna miss that, go to the website and it's degreefreenetwork.com and sign up because you want to get that email.
Ryan: Yeah. Definitely. And it's not, as long as you just set it there, it's really short email.
Hannah: Yeah, it's a short and spicy, but you want to get it.
Ryan: Yeah, definitely.
Ryan: If you guys made it this far as always, thank you so much, we really appreciate it. Otherwise we're kind of just talking to the ether sphere, which, that's not super helpful,
Ryan: But if you guys want to say hi, you want to get in touch [email protected] is where,
Hannah: we live.
Ryan: Yeah. Is where we're at. Drop us email [email protected]. Like, and subscribe to the podcast. You know, if this is helpful to you definitely consider sharing it, please. You know, any honest reviews really helped to just help us to get our ideas out there to everybody. Follow us on social media.
I'm @ryankmaruyama on the socials. She's @hannahmaruyama the podcast is @degreefreepod. But yeah, until next time guys, Aloha.
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