Many application software coders prefer taking short term contracts rather than working
as a permanent employee. Application system
developers often can earn much more money as a contractor than as a
permanent employee.
There are different types of IT contracts. A fixed price
contract pays an agreed-upon price for a agreed-upon software product,
regardless of the hours needed to create the software. An hourly
contract, on the other hand, pays the coder according to the length of time
that he
or she spends writing the software.
Unlike employees, IT contractors normally don't receive benefits such as medical
or dental coverage, old age pensions, paid
vacation or sick leave. Because such benefits can
account for an additional 40% of a employee's base salary, IT contractors
need to
take that into account when negotiating contracting rates.
To work as an IT contractor, a software coder can either operate
as a proprietor or as an incorporated entity. The primary difference
is that proprietors must report their income in the tax year that the income
is earned. A corporation, however, can retain earnings and pay the
software coder either wages and dividends. In most
jurisdictions, small companies are subject to corporate tax after wages and expenses
are paid. There are also initial costs to incorporate and ongoing
costs (e.g. accountant, lawyers) to run the company.
The decision to incorporate depends on many factors including where
the software coder incorporates, where he or she lives and works, and how much
money is earned and withdrawn from the company (e.g. wages, salaries,
dividends).
