To Corp, or not to Corp

I have no idea if this topic will be of any interest to anyone but me, but it’s Friday afternoon, my brain has turned to lukewarm tapioca, and I have a big decision to make. Time to talk it through.

I’ve been a freelance software developer and consultant since the fall of 1996 — almost sixteen years, more than twice as long as any other job I’ve held. I’ve commented to myself and to others over the years about the advantages of working for myself: though my boss can occasionally be a jerk, he will never, ever, ever fire me, not even if I spend all his money and sleep with his wife. I take vacation any time I feel I don’t need income (which is seldom enough, but it’s the principle, damn it.) Perhaps most important is that my clients ask me to attend meetings, rather than tell me to attend meetings. The little courtesies matter.

Now I’m facing the decision (once again) of whether to become an employee. This comes up periodically with each of my clients. For the first time in sixteen years, I’m considering saying “Yes.”

So what changed?

As it turns out, a lot has changed in the last decade and a half, both personally and professionally.


What precipitated this decision was my principal client’s Human Resources department. They strongly resisted my last contract renewal, and it looks like they’re digging in their heels for the next renewal in July, for reasons that are strictly bureaucratic and even somewhat Kafkaesque: it has to do with the IRS “gray area” rules regarding contractors.

So I’ve been asked if there is any way they could just hire me. It’s the second time they’ve asked, the first being the last time the group fought with HR over my contract. I turned them down that time, and they renewed my contract. This time, I’ve been told HR won’t back down. So I either hire on, or walk away from the project.

Half-finished projects irritate me. There’s a certain mathematical simulation I could not solve back in 1985, and it still comes up in my head from time to time: what the hell did I do wrong? Someday, I may pick it up again, on my own time, just to resolve that irritation. Walking out on this project is going to bug me for years to come, no matter that it wasn’t my idea to walk away.

So I’m inclined to say yes, even if I quietly plan to quit as soon as the project is wrapped. Nothing will change in the workflow — their offices are all over the world, and the group I work with is half a continent away. We already have a smoothly-working telecommute in place. So I get a W-2 instead of a 1099: whoopie. I’ll probably have to attend some weekly staff meeting by teleconference: I can survive that. The project gets finished, I get paid, the HR department feels good, no laws are broken, everyone wins. Creative problem solving applied to gratuitous problems.

But I find myself actually considering this job offer as a long-term prospect: not as a short-term dodge to get the project finished, but as a life-change similar to what I experienced in 1996.

It’s big. For me. That’s why I need to talk this out.


One of the biggest changes is health insurance, though hardly for the reasons most people would think.

Most people never need health insurance, and never bother to understand anything about it. They piss and moan about deductibles and co-payments for minor office visits — as though insurance really has anything to do with routine office visits. I’ve actually needed medical insurance twice: once when my first wife nearly died of an aggressive pneumonia and spent two weeks in the hospital, including a couple of days in the Intensive Care Unit, and a second time when I was diagnosed with and treated for colon cancer. Both of those would have destroyed me, financially, which is why you buy insurance — to prevent being ruined by circumstances beyond your control.

Here’s the basic problem with health insurance, circa 1996: the pre-existing condition.

If you ever got sick enough to really need your health insurance, you couldn’t work — you were too ill — so you lost your job, which meant you lost your income and your medical insurance at the same time. The insurance company would then tell you — reluctantly, if you were persistent about asking — that you were allowed by law (meaning they were forced by law) to extend your insurance for up to eighteen months through COBRA: all you had to do was to keep paying the premiums that the company had been paying for you, though they would be a little higher, mind you, since you were no longer getting a “group discount.” Then they’d tell you what the premiums would be, and on top of whatever medical crisis you were already facing, you’d receive a near-fatal shock to your heart. Chances were, you’d never even heard of COBRA, and you certainly hadn’t set aside money for a health catastrophe, since you were insured, dammit.

So you would do the sensible thing, the only possible thing, and drop your health care coverage as unaffordable.

Bad choice. Your only choice, but still a bad one.

Assuming you somehow survived your medical crisis, the next time you tried to get health insurance, you would discover that since you did not maintain “continuous coverage,” you now had a “pre-existing condition” — your previous illness. This pre-existing condition would then follow you for the rest of your life. In many cases, you would be forced to sign a rider that excluded any and all health problem that could be even remotely linked to your first illness. Or you could be denied coverage outright, at the whim of the insurance company.

When I went independent in 1996, I had to arrange for my own medical insurance. It used to be expensive, but it’s bloated beyond belief in the last few years: I pay $1000/month for my wife and myself, and that’s with a $10,000 annual deductible. Brutal as it has been, however, the monthly premium has been a bill, just like groceries or mortgage, so I’ve known exactly how much it cost: it’s part of my normal budget. As my own boss, I wouldn’t be fired no matter how sick I got, and as long as I kept paying the premiums I could keep continuous coverage. Forever. Therefore, assuming I could beg, borrow, or steal enough money, I was protected from the “pre-existing condition.” Forever.

This isn’t a theoretical concern. I’ve known people denied insurance, and others who were forced to sign riders, because they got sick and were fired. I had an acquaintance who went through chemo at the same time I did in 2003, and his employer required that he come in to work every single day. He had no choice but to comply, or lose his job and his health insurance: he brought a cot into his cubicle so he could get through the day. Others have been driven into medical bankruptcy because their “fantastic health benefits package” at work dropped them cold when they were fired for “excessive illness.”

As a result, any employer-paid health insurance plan has always scared the crap out of me. The problem is that it’s not insurance. It isn’t there when you need it. It’s like having a spare tire in the trunk of your car made out of cheese, or a parachute made out of crepe paper.

One of the most important things that Obamacare did — and he gets all the credit for it, since the Republican and Blue Dog Democrat cretins in Congress were opposed to this every step of the way — was to abolish the “pre-existing condition.”

As a result, I think it’s a little safer to accept a corporate health plan. Though it’s really only for my wife. If I ever need it, I’ll still lose my job and that insurance will go away — that hasn’t changed. But with current laws, I should be able to simply go back to contract work and pick up my own coverage without being denied coverage or punitively charged for a pre-existing condition. I’m not any worse off for having taken the corporate insurance.


Another big concern in the past was the “dog in the manger” clause in my employment contract. I haven’t seen their contract yet, but I know it will have one of these. They always do.

This expression comes from one of Aesop’s Fables. A dog wanders into an empty barn with some hay in it. When the horses and cows return and try to enter the barn, the dog snarls at them and drives them back out. They complain that he’s keeping them from the hay, which they need in order to live, and which he can’t eat anyway. So they ask, “Why are you being such a dickhead?” He just growls back, “The hay is mine. I own it. So I get to say what happens to it, and I say that you can’t have it.”

This is typically expressed through the Intellectual Property rights clauses in the employment contract, which basically say, “If you have a wet dream, we own the sperm.” As a contractor, I have cheerfully red-lined any such clauses in my contracts with clients. As an employee, I won’t have that option.

The truth is, though, that I’ve had my million-dollar ideas, and I’ve tried to take them to market, and I’ve discovered some things about the market and about myself.

I’ve not been a successful start-up entrepreneur. More importantly, I think I understand now what makes a successful entrepreneur — at least, I’ve disabused myself of a whole pile of romantic notions about the subject — and I’ve discovered that I don’t actually want to be a start-up entrepreneur, successful or otherwise. Just as I do not want to be a fireman, a ballet dancer, or a congresscritter. The job does not appeal to me.

So although I find these IP rights clauses obnoxious and morally poisonous, I don’t much care any more. If I come up with the best invention since Polaroid photography while working for an employer, they can have the idea. They’re welcome to get rich off it. Or go broke trying to make it marketable. They can even play the dog in the manger and deny the world my great idea out of pure spite, inertia, or stupidity. In 1996, this would have been intolerable to me. Now, I find that I simply don’t care.

In practice, should they decide to pursue my idea, they are most likely going to ask me to be involved, and that is the proper time for pointed renegotiation: not for the idea, but for my continued involvement. Besides, if they do decide to develop it, it means someone other than me thinks it’s a good idea, and is willing to put some money and manpower behind it. Which means it’s much more likely to succeed in the marketplace. I’d rather participate in a commercial success than own a commercial failure. Been there; done that; lost the T-shirt in the bankruptcy.


Another thing I lose as an employee are all the yummy business deductions on my taxes. I use the word “yummy” sarcastically — business deductions are about as yummy as doggie doo on a piece of birthday cake.

Analyzing the full tax situation is complicated. But in the end, all it comes down to is money. As a contractor, I set a contract rate, hire a tax accountant to weave through the Byzantine twists and turns of tax law, and end up with a certain amount in my pocket at year-end. As an employee, I get a salary, pay a simple set of taxes that I can do by myself in an hour, and end up with a certain amount in my pocket at year-end.

That amount in my pocket is the only number that matters — the rest is all funny-money, accounting tricks, smoke-and-mirrors. It doesn’t matter to me if I’m paid $10,000 tax-free, or paid $100,000 and taxed at 90%. Either way, $10,000 goes in my pocket, and the rest is some bookkeeping fiction that keeps the federal budget balanced and the highways paved.

With the appropriate salary, and I can put the same amount in my pocket as I currently earn. Minus the tax accountant and the Byzantine dance.

Goddess, it would feel good to drop that stupid, stupid dance. Honestly, every time some Republican hairball-in-Congress comes up with another “tax break,” I want to hit him. Hard enough to break his nose.

So really, it comes down to negotiating a salary I’m happy with, after taxes. Despite the Byzantine Dance, it’s a fairly straightforward calculation, and my survey of going rates for software architects — apparently, that’s the current name for what I do — covers my needs nicely. In fact, I’ll probably take a small step up in after-tax pay as an employee.


Inflation has been another concern. This is more complicated, but what I’ve come to understand is that it doesn’t really matter, one way or the other.

I came of age in the Carter years, just as the financial tidal wave caused by the Vietnam War broke over the country, compounded by Nixon Shock: inflation reached 13% for a year or two while I was in college.

The Reagan administration decided to break the so-called “wage-price inflation spiral” by raising interest rates, destroying jobs, and flat-out lying about the rate of inflation. The lying got dramatically worse under the Clinton Administration. You can see the difference by going to http://www.shadowstats.com, which publishes the Consumer Price Index (CPI) computed using 1980, 1990, and current Bureau of Labor formulas. There is a consistent and large discrepancy: modern numbers are all far too low.

For instance, the Bureau of Labor is currently citing a 2% annual inflation rate. The real inflation rate — calculated by pre-Reagan 1980 methods — is closer to 10%, which better matches my observations in the grocery and liquor stores.

The problem here is that most non-CEO corporate pay increases, as well as fixed-income increases, are indexed to the Bureau of Labor number — but the real cost of living is tied to the actual inflation rate. This means that even with cost-of-living increases, wages in the US are effectively decreasing over time. At the moment, wages are decreasing by 8% each year, the difference between the official inflation rate of 2%, and the real value of 10%.

An 8% annual decrease in salary is a bit frightening: it means that a salary loses half its real buying power every ten years, even after cost-of-living increases. A $50K salary today will be worth only $25K in 2022.

One of the reasons I wanted to get out of the employment rut in 1996 was that salaries were not keeping up with inflation, nor with business opportunities. I was paid $60K/year in 1996 with fifteen years’ experience in the field, and new hires fresh out of college were being offered $90K. I had a solid business model in mind, and I was planning to make lots of good money.

I did well enough through 2003, but even being a successful contractor hasn’t freed me from the overall decay of the American middle class. I can’t charge a million dollars an hour: I can’t charge any more than clients are willing to pay. So in practice, I’m being dragged out to sea along with everyone else.


Everything I’ve mentioned so far are reasons to not be an employee. Reasons that used to be important to me, that no longer apply.

It’s no longer quite so dangerous to get involved with corporate-sponsored health insurance. Corporate IP rights waivers in employment contracts no longer bother me. Tax deductions related to owning my own business don’t really mean anything, and contracting is no hedge against inflation, which is dragging me out to sea with the rest of the 90%.

Are there any positive reasons to move forward with this?

Yes.

The main reason is that I’ll do better, financially. In practice. What I do doesn’t lend itself to short jobs, like my wife’s work does. She’ll go through five complete jobs in a day, and invoice a dozen regular clients every month. I can barely imagine a job in my field lasting less than four months, and most of them run for at least a year or two. You can’t really keep a “client base” when you only become available every two years.

If I had more energy and ambition — as I did in 1996 — I would never take on more than half-time or quarter-time work, and always work at least two or three contracts concurrently. But because each one would last for months, I’d have to keep all those plates spinning at once, and it’s simply too much work. As is sticking with one client and then trying to line up new work every year or two.


Update: I started this entry on April 20, 2012, a few days after getting raped by the IRS, and talked extensively to family members and friends. It was amusing: every last one of them raised their eyebrows and whistled and said, “You? But you’ve always been freelance!”

But then they nodded and told me they thought it would be a good idea.

Today, May 7, I signed all the paperwork and sent it off.

I am now a corporate employee.  Wish me luck.

This entry was posted in General.

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