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Independent Programmers' No-Win Scenario 552

Posted by timothy
from the barriers-to-entry dept.
snydeq writes "Fatal Exception's Neil McAllister writes about the no-win scenario facing today's independent programmers: 'In a knowledge economy, programmers rank among our most valuable workers, yet the current legal and regulatory climate makes a career as an independent software developer virtually a dead-end prospect.' Section 1706 of the 1986 Tax Reform Act, the hurdles and costs of obtaining health care for one's own family, a hostile legal climate in search of accountability for any defects in code — these harsh realities make it 'easy to see why software developers would give up on entrepreneurship. For many, the risks simply don't match the potential rewards. Better to keep their heads down, not rock the boat, and hope they can hang onto their jobs until retirement.' Great news for big software vendors, which will be 'ensured an endless supply of programmers desperate for the safe haven of a steady paycheck, predictable taxation, health benefits, and a shield from civil prosecution when their code turns up buggy. But where will the next Microsoft come from? A field that discourages self-reliance sends the message that the status quo is the highest goal.'"
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Independent Programmers' No-Win Scenario

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  • by commodore64_love (1445365) on Thursday February 25, 2010 @04:26PM (#31277100) Journal

    >>>Most all other occupations face the same challenges and pitfalls.

    No. The U.S. Congress passed a law that specifically targets programmers. Quoting a previous slashdot article: "Section 1706 of the 1986 Tax Reform Act. Under the law, certain classes of workers, including anyone who engages as a "computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work," are considered de facto employees for tax purposes, regardless of whether they claim to operate their own businesses as independent contractors. The IRS can impose significant tax penalties on companies who hire such workers as contractors rather than full employees, a fact that can make it extremely difficult for self-employed programmers to find work."

    An engineer can be independent designer, and yet still find work with someone like Lockheed.
    A programmer who is an independent will not be hired, due to Lockheed being afraid of the IRS punishment.

  • by Anonymous Coward on Thursday February 25, 2010 @04:37PM (#31277238)

    As a Type I diabetic - big corporate is basically the only option for me.

    Startups and self-employment are not options, yay for preexisting conditions!

    Good news is that I'm an EE, not a software guy. EEs get shit on somewhat less by big companies.

  • by Chris Mattern (191822) on Thursday February 25, 2010 @05:04PM (#31277596)

    Oh, Lord. A tax attorney would laugh himself into a seizure over this. Write off going to theme parks because reviewing them is your business? Not unless you can show the taxman you made a profit at it in the recent past or have a reasonable expectation of doing so in the future. Incorporate yourself to allow you to calculate taxes on that basis? Yep, and be sued by the IRS for maintaining a phony corporation as a tax dodge, particularly if you have only one client, in which case they will claim you are an employee and must be taxed like one (they've done it before).

  • Re:Ask Joe Stack (Score:4, Informative)

    by h4rr4r (612664) on Thursday February 25, 2010 @05:07PM (#31277640)

    He was a fucking tax cheat not an independent programmer.

  • by rjstanford (69735) on Thursday February 25, 2010 @05:21PM (#31277836) Homepage Journal

    Check out Administaff. You need at least 5 people in the company (could be an affiliation of otherwise self-employed people), but you can get in on their corporate health plans at "normal" exorbitant pricing. Professional organizations (IEEE et al) can also be great sources of health plans.

  • Re:Deploy offshore (Score:1, Informative)

    by Anonymous Coward on Thursday February 25, 2010 @05:23PM (#31277860)

    We complain about long wait-times at hospitals, and waiting a year for hip replacement. But in essence, if you are supposed to be here (citizen, landed immigrant, etc.) you will be taken care of, even if you're homeless. And if you don't like the wait times and have the money - then you just go to the US to get the procedure done(just like one of our politician did recently).

  • Nope. (Score:2, Informative)

    by mpapet (761907) on Thursday February 25, 2010 @05:32PM (#31277998) Homepage

    Insurance is for EMERGENCY and RARE EXPENSIVE claims.

    Humans get these things called diseases. You may not have heard of them. But they are out there.

    If instead, you worked from a world view something like, 'health insurance is for keeping workers productive and healthy.' I think you would begin to see things differently.

    Until then, you should check into those human diseases and move out of your parent's basement.

  • by rjstanford (69735) on Thursday February 25, 2010 @05:44PM (#31278194) Homepage Journal

    Not the case, actually, which is why very few companies will actually contract with INDIVIDUALS any more. Any company working with an LLC or a C/S class corporation is automatically covered. Its impossible to hire a corporation, therefore they can't possibly treat you as an employee, so this situation never comes up.

    Working as an independent on a 1099 basis is almost impossible. Hence step one, forming an LLC.

  • Re:Deploy offshore (Score:3, Informative)

    by agbinfo (186523) on Thursday February 25, 2010 @05:51PM (#31278314) Journal

    Although, from what I know of US healthcase, I prefer Canada's quite a bit, we do pay for healthcare through our "higher" taxes. Also, you get healthcare even if you don't pay taxes :-)
    In Quebec, there's also a medication coverage that is mandatory. You can get one personally or through the government but you need to have one.

  • by rochberg (1444791) on Thursday February 25, 2010 @05:54PM (#31278350)

    That's the approach we take for food, which unlike medical care is a constant necessity for everyone. Poor people get subsidies, but the government doesn't own or micromanage farms or grocery stores.

    You've obviously never heard of agricultural subsidies [wikipedia.org]. The U.S. government pays $16 billion per year (a large chunk goes to corporations like Monsanto) to make food cheaper. So, no, the government's approach to food is not capitalist. They are helping you pay for it...just without your knowledge.

  • by mt1955 (698912) <mt1955@nOSpaM.gmail.com> on Thursday February 25, 2010 @05:57PM (#31278392) Homepage Journal

    About this time last year I was working as the IT manager for a multinational manufacturer. The IT group was targeted for yet another round of cost-cutting; they gave me an hour to decide who would get a buy-out package and a shove out the door. I talked them into letting it be me, put the buy-out money in a rainy day account and started my own software company. I told my wife that if we weren't cash positive within 6 months I would give it up and start looking for a real job. Over the last 12 months we've made more than they were paying me in the "real job" and we've never actually had to fall back on the rainy-day account, in fact we've almost doubled it.

    Starting my own company was not easy. I have to sell, communicate well, be easily accessible 7/24 and give my clients plenty of sound business reasons to keep coming back in between turning in top quality work on time. I'd have to work my a** off and most days are 12~16 hours long. I have still managed to take two vacation weeks since I started and we have a third week schedule for May... on vacations I do have to keep one eye on my email and be willing to get up a few hours early to handle anything that can't wait until we get back.

    There are no sick days or personal days. Working for yourself means you both have all the time in the world and no time. Before when a stupid boss would make unreasonable demands or mistakes I just had to deal with it. When a client makes unreasonable demands I just charge more. They can be as unreasonable as they want $$$

    To start your own company, software or otherwise;

    - be prepared for long hours, don't let a client down even if it means pulling all-nighters until your not sure what day it is
    - force yourself to learn the new things consistently, figure out where your clients need to be 6 months from now and learn or do whatever it takes to be there waiting for them
    - find an accountant you trust to handle the tax laws
    - find an attorney you trust to handle the legalese

    I've never been happier in my career.

  • by cptdondo (59460) on Thursday February 25, 2010 @06:00PM (#31278448) Journal

    The anastheseologist will cost you $2,500. So will the OR itself. And the OR doc. And the X-Ray tech. And don't forget the guy who actually applies the cast. Each of whom is a separate entity, and bill you separately.

    My kid's broken arm cost $7,500 for the ER visit, and another couple of grand for the cast work.

    Almost $10K for something that should cost about $500 - the whole shebang took about an hour, so 5 professionals at $125/hr should work out to about $600.

  • by nschubach (922175) on Thursday February 25, 2010 @06:22PM (#31278804) Journal

    You got ripped off... I take it this was on insurance (higher cost) and not out of pocket (MUCH cheaper)? For a simple fracture, the cost, including X-Rays, etc. can be as low as $700-1000. For very complex breaks that need special bracing, return visits, and the like... you'd be paying as much as you did.

    Don't use your Insurance paperwork for your pricing. Those numbers are not actual out of pocket cost. Next time you are at your doctor, ask him/her how much the visit will cost if you pay it out of pocket. Most will be a lot cheaper... you may even reconsider having insurance pay for it. Every claim you make increases the cost for everybody.

  • Re:Deploy offshore (Score:3, Informative)

    by Grishnakh (216268) on Thursday February 25, 2010 @06:34PM (#31278950)

    Again, I don't see how you would pay more money in Canada than in the USA. Have you looked into the self-employment tax rates here? They're obscenely expensive. There's probably little difference between your IRS taxes in the USA (as a self-employed consultant) and your taxes in Canada. Then, when you throw in just how much health insurance costs for an individual in the USA, and the apparent fact that it's free in Canada, I don't see how you'd do anything but save money by moving to Canada.

    I don't have any hard numbers to back up my claim, but if anyone else here who knows more about this would like to chime in, feel free.

  • by Khyber (864651) <techkitsune@gmail.com> on Thursday February 25, 2010 @06:54PM (#31279174) Homepage Journal

    "A broken arm will cost you around $2500.'

    Depends on the break.

    My broken leg required me to be turned into a half-terminator (a fair bit of my leg is now titanium) at the cost of nearly 110,000.

  • Re:Nope. (Score:2, Informative)

    by Estanislao Martínez (203477) on Thursday February 25, 2010 @07:53PM (#31279686) Homepage

    But you're apparently still misunderstanding "insurance". Insurance should not cover such expenses. Insurance should cover the unusual expense of say, being hit by a car, or contracting an particularly difficult-to-treat disease, or contracting significantly more diseases than your peers. But for normal health maintenance and occasional, normal diseases, "insurance" is not possible, because you're not paying for protection against possible risks, you're just setting up a lifelong payment plan for your normal medical expenses.

    I pointed this out in another post [slashdot.org]: that's just a claim people pull out of where the sun don't shine. Insurance is just paying a premium for risk transfer, period.

    When health insurance covers your routine care, it's not just a "payment plan" for the actual cost of your care. It actually consists of overpaying for your routine care in exchange for protection against the healthcare costs of getting seriously sick. So a simple universal insurance scheme would be to simply charge everybody the average per-capita health care cost, so that healthy people pay the same in health care as the sick ones. It's a perfectly well structured form of insurance.

  • by markov23 (1187885) on Thursday February 25, 2010 @09:37PM (#31280516)
    if you are an s-corp you need to have more than one client -- or the irs will eventually get annoyed. thats not that hard to do though - and this is what accountants are for -- to make sure you dont have issues like that. As someone who worked corporate and is independent now -- all of these reasons not to go independent are just fear talking. And the feeling that its safer inside of a corporation -- that is to put it bluntly - a lie you are telling yourself so you can sleep at night. the only barrier to working for yourself is getting over your fear, and getting your first client.
  • by bzipitidoo (647217) <bzipitidoo@yahoo.com> on Thursday February 25, 2010 @11:43PM (#31281252) Journal
    Did the Pirate Party [pirate-party.us] exist when you last updated your list?
  • Re:Why now? (Score:1, Informative)

    by Anonymous Coward on Thursday February 25, 2010 @11:59PM (#31281340)

    Agreed. The law was created in part to address the fact that at the time, Microsoft was hiring so many "consultants" that nobody was paying any taxes.

    Far from being onerous, I'm inclined to believe that Section 1706 is more of a good thing than a bad thing. How can someone NOT be an employee, when the entity they work for years on end sets their work hours, location, work products, and so on? If a "consultant" finds themselves in a situation like that, the only "destiny" they're controlling is whether or not they are going to pay for taxes and insurance. And history shows that when given a choice, people won't pay them. Hence the mandatory withholding that is required of employers.

    I've worked 1099 for a decade, as a software consultant, and have been audited for a few things but never for my employment situation. There's no "trick" to making this possible, other than simply not looking like an employee: don't spend weeks at a time onsite, always be actively serving more than one client, have an identity outside of your role for the client, and so on.

    That's all that Section 1706 is asking you to do: call yourself an employee when you really are one.

    Joe Stack was a whiner, and his tantrums ultimately cost his own life plus the life of an innocent bystander. Let's not lose sight of the fact after he set fire to HIS house, he crashed HIS airplane into the IRS building. Yea, sounds like The Man was really keeping him down. Move along, nothing more to see here.

  • by Anonymous Coward on Friday February 26, 2010 @12:43AM (#31281554)

    There are obvious limitations to doing things the "old way" and computer has been developed out of necessity, not just to increase productivity. Do you really think it is possible to launch a spacecraft out to space without computers? Maybe with millions of mathematicians calculating answers for complex equations simultaneously in complete harmony - one mis-calculation or a calculation too late could result in a complete disaster.

    Our civilization has only been able to progress this far (and progressed quite explosively in the last few decades) because we have computers and the software to run them.

    Other professions DO depend on software NOW. Unless you are saying that our civilization has not progressed in the past 30~40 years, claiming that "other professions did okay before without software so software is not essential" is nonsense.

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