From the employer's perspective, there are many reasons they would prefer to hire a contractor rather than add a FT or PT employee. Contractors hit the books as an operating expense rather than as a part of G&A. The company saves a lot of money in benefits, employment taxes, etc. It is also significantly easier to fire a contractor than it is an employee. There could also be internal policies they have to deal with through their HR department. A contractor is a temporary position and may not count against the department's head count during a hiring freeze.

To the individual worker, working under the umbrella of a temp or contract firm comes with both benefits and drawbacks. First off, the agency will receive between 20-30% of your hourly rate. If you bill out to the company at $50/hour, you will end up taking home $30/hour. In turn, you would generally receive legal indemnification and possibly a health insurance plan from the agency.

If you choose not to go through the agency, you definitely need to set up an LLC. If your spouse works for a company with a health insurance plan, this may be the best option.

Regardless of whether you go through an agency or through your own LLC, you will be responsible for both sides of the payroll taxes, your quarterly income tax payments, and you will need to track all of your expenses. It would be a very good idea to employ a seasoned CPA and/or lawyer for this.

Yup I'm aware that federal taxes are not taken out and benefits of any kind are not provided. I've already cared for that.

That is good information about the retirement savings. I was unaware of that.

However how does one go up setting themselves up as an individual/ independent contractor on their own?

When I did it in the past the company handled all of that for me. That was a PT gig. Can an individual set themselves up as an independent contractor and what would be required to do that?

From the employer's perspective, there are many reasons they would prefer to hire a contractor rather than add a FT or PT employee. Contractors hit the books as an operating expense rather than as a part of G&A. The company saves a lot of money in benefits, employment taxes, etc. It is also significantly easier to fire a contractor than it is an employee. There could also be internal policies they have to deal with through their HR department. A contractor is a temporary position and may not count against the department's head count during a hiring freeze.

To the individual worker, working under the umbrella of a temp or contract firm comes with both benefits and drawbacks. First off, the agency will receive between 20-30% of your hourly rate. If you bill out to the company at $50/hour, you will end up taking home $30/hour. In turn, you would generally receive legal indemnification and possibly a health insurance plan from the agency.

If you choose not to go through the agency, you definitely need to set up an LLC. If your spouse works for a company with a health insurance plan, this may be the best option.

Regardless of whether you go through an agency or through your own LLC, you will be responsible for both sides of the payroll taxes, your quarterly income tax payments, and you will need to track all of your expenses. It would be a very good idea to employ a seasoned CPA and/or lawyer for this.

Can you form your own Sole proprietor/single owner LLC? You elect the LLC to be treated as an S-Corp or a single member LLC in your articles of incorporation
Have the employer contract with your LLC
Then you “pay” yourself quarterly distributions
You would then pay taxes on the distributions as personal income


You can set up and register an LLC in 20 minutes. Be sure to choose/register a name that isn’t similar to a preexisting federally taxed entity

$300 to file the paperwork with the state

EIN/Tax-ID within minutes from the federal website

Takes 1-2 weeks for an online corporate checking account.
The online only banks have better interest rates.

If this is an option, very easy to do by yourself.

I do this everyday for a living. I'm in IT staffing and much of what Coff says is true. However, you determine what your pay rate is per hour and contractors usually make more than salaried positions because you are responsible for your own benefits and taxes. The firm will take your hourly rate and add what they call "burden" to it. This only applies if you are W2 to the firm. Burden consists of all payroll taxes, benefits, and workman's comp. then they will add margin or profit to that to get your hourly "Bill" rate. That is where the 20-30% comes in. If you are "corp to corp" then that burden drops down from about 19% to 4% so it is much more cost effective for the client.

There is a way around it though. You can tell your boss to have his firm "payroll" you. you will be W2 to the firm, they will apply a small payrolling fee to your rate and that is what they bill your boss. It costs far less than traditional contracting rates, but saves you having to set up your own LLC.

If you go as an independent contractor you will need an LLC, insurance policies ( that can range as high as 4 million in liability depending on what the client requires) and you will cover all of your taxes, workman comp, benefits, etc. and yes, you will need a good CPA.

I am an IC as an International Hitman. I can teach you everything I have learned but will have to kill you at some point.

Do you file your own taxes, or use a CPA?