Don’t Count on Your Clients to Look out for You - Opher Ganel
Don’t Count on Your Clients to Look out for You


Contractors and freelancers aren’t employees, so if you’re one of us, don’t count on your clients to look out for you — it isn’t their job, even if they’re honest (and not all of them are)

She wrote with exquisite, even painful, candor and vulnerability of how she was betrayed, when her direct client failed to pay what she was owed.

…all came crashing to a halt when the money I was promised never came. It was coming on Monday, Tuesday, possibly next week, and I’d sit in my home, seized with anxiety. Watching the contents of my fridge dwindle. Counting the pills I had left to take…” — Felicia C. Sullivan

Then there was this, by someone who apparently should have been classified as an employee, but was denied the benefits and protections of an employee by the “client” company.

“… as an independent contractor for … seven years as a salesperson for a large national flooring company… I averaged sixty-hour work-weeks. Yet, since I wasn’t an employee, I was denied benefits. … The company… requir[ed] us to register as LLC’s. This way, they could say we weren’t employees, we were business owners… we were required to drive our own vehicles to sales appointments without reimbursement for mileage, maintenance or gas. The wear and tear on our cars meant we constantly needed to replace our brakes, tires, and even the vehicles themselves. These expenses, although incurred on behalf of the company, had a way of coming at the worst time and depleting a person’s savings account.” — Tamara Gane

If you think being a contractor or freelancer is a walk in the park, realize that the park is full of predators, snakes in the grass, and hidden pitfalls.

Think your clients will look out for you?

Think again. In many cases, they are those predators or snakes, as Ms. Sullivan found out; they are the ones who dug those pitfalls and covered them with branches, so you wouldn’t see them until after you were trapped.

If you believe Upwork and the Freelancers Union, there are as many as 55 million freelancers in the US, about 35% of the workforce. The Bureau of Labor Statistics (BLS) says it’s only about 10% of the workforce, or about 15-16 million. Each estimate suffers its own shortcomings. As Inc.com states, the answer is likely somewhere in the middle.

What’s important is that whether 16 million or 55 million, there are a lot of Americans who work without the protection of the laws written to prevent the worst excesses of employers.

As a self-employed consultant for the past decade, I know full well that contractors and freelancers don’t get the benefits that full-time employees get (as Ms. Gane learned).

Benefits that may include:

  • Paid annual leave, holidays, and sick leave

For us non-employees, the rules of the road are simple:

  1. If you don’t work, you don’t get paid

As a contractor or freelancer, the rules of the road are simple. If you don’t work, you don’t get paid. If you need anything to do the work, the cost is on you.

What do you think would happen if farmers increased the cost of eggs and milk by 50%? Grocery stores would simply turn around and raise their own prices on those items, shifting the burden to the consumer.

That’s well and good for milk and eggs, where people almost have to pay whatever they’re charged. However, there are lots of other items where consumers won’t accept a 50% price hike. When supplier prices on those get hiked by a lot, stores stop stocking them, or they raise their prices in several smaller steps, meanwhile increasing prices on other items and/or reducing costs elsewhere, to make up the shortfall.

If you want to succeed as a contractor or freelancer, you have to think like a business owner:

  • Are your costs higher? Increase your rates

If you want to succeed as a contractor or freelancer, you have to think like a business owner

To be successful, you have to know what you need to charge, before you even start talking with a prospective client. Here are the 5 steps for doing that.

1. Your Supply Situation

First, you need to know your “supply” situation. How many hours can you work?

There are 52 weeks in a year, so at 40 hours/week, you nominally have 2080 hours, but…

Life happens. You get sick. You want to spend the holidays with the family. You have to take time off to recharge and avoid burnout.

That’s why I suggest planning on 48 work weeks per year. Multiply that by 40 hours a week and your “supply” is just 1920 hours.

If you have to do your own marketing, drive to and from clients’ locations, go shop for work supplies, all these take away from those 1920 hours.

However, for this exercise, let’s assume that you can do client work all 1920 hours, and that you have enough willing clients for those.

Next, let’s assume that you plan to charge $50/hour.

Multiply that by 1920 hours and you get a $96,000 annual revenue.

2. Determine Your Expenses

Note that I said revenue, not income. That’s because now you have to subtract your business expenses. Say you have to drive 860 miles a month for your client. At the current mileage rate (which is estimated to cover gas, maintenance, insurance, depreciation, etc.), that’s worth just over $500 per month, or $6000 for the year. If that’s your only expense, your profit is the remaining $90,000. If you have more or different expenses, use those instead.

3. Determine Your Self-Employment Taxes

Next up are self-employment taxes. Since you’re self employed, you have to pay both employer and employee side of those, or 15.3%, taking you down to $76,230.

4. Determine Your Savings Set-Aside

Want to ever be able to retire? You need to set aside money for retirement. If you want to be able to take care of emergency costs such as a hospital stay or replacing your car, you should also set aside money in an emergency fund. Let’s say that’s a total of $16,230 (just over 20%), to make the math easier… and now you’re down to $60,000.

5. Determine Your Income Taxes

Next step is to figure out your income taxes. This depends on many things including:

  • Where do you live? California has the nation’s highest state income tax, while Texas charges no state income tax, so this is important!

Between these and other potential factors, you need to consult with an accountant or use tax-prep software to estimate your income taxes. For our purposes here, let’s assume your taxes total $12,000, leaving you $48,000 to cover a year’s worth of expenses (or $4000/month).

If your rent or mortgage payment is $2000/month, that $4000/month will be a really tight squeeze, so you’ll need to charge more than the $50/hour we started with. With a housing cost of $1000/month or even $1300/month, the $4000/month might just do it.

Clearly, the $50 hourly rate we started with was made up. If you’re paid $15/hour, the above numbers worsen dramatically. Charge $150/hour and things look a lot prettier.

If you want to start figuring out what you need to charge, have a look at a formula I wrote down to help you figure out the rate you should charge.

The point of this article isn’t any specific number I make up. The intention is to show you what you need to consider.

Before you start discussing any freelancing or contract jobs, you have to calculate what hourly rate is a livable wage for you given the details of your situation, including your work-related expenses and your personal budget and financial goals.

Ask for what you’re worth, what you need for this to be sustainable.

If you’re offered less, demand more.

The prospective client refuses? Walk away and find a better client.

If you don’t have any better options, you may have to take the gig temporarily, but then find a side gig to make up the shortfall.

I know, working more than 40 hours a week can get old, but sometimes we don’t have good options so we go with the least bad one.

Alternatively, economize on your expenses, then start looking for better clients, services for which you can charge more, or both.

Remember that even if your client is a nice guy who won’t scam or abuse you, nobody will look out for you as well as you will.

Are you doing a good job looking out for yourself?

Opher Ganel has set up several successful small businesses, including a consulting practice supporting NASA and government contractors. His most recent venture is a financial strategy service for professionals, especially mental health providers.

This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.



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