At some point in a person’s career, the topic of forming a LLC may arise. While running a company may or may not be an ambition that everyone shares, we should focus on how an engineer may be compensated. When working for others, you can be hired as a W-2 direct hire, a W-2 contractor, or a 1099 contractor. A W-2 direct hire is paid directly through a company for whom the engineer provides services. A W-2 contractor is paid by Company #2 for providing services to Company #1. W-2 contractors may be hourly or salary. They may or may not have additional benefits such as vacation, health insurance, etc. One important aspect of W-2 compensation is that the employer pays half of the employee’s social security liability. As a 1099 contractor, the employee pays the full rate for their social security (I believe it’s 12.4% of your total income). Although there are differences to each pay structure, a knowledgeable employee can figure out the cost differences and negotiate a fair compensation package across all structures.
In the event an employee opts for the 1099 contractor pay structure, the employee should consider the option of starting a limited liability corporation, a LLC. A LLC is a company entity that can be composed of 1 person and has
very little start-up requirements (less than $200 in most states). One of the biggest benefits to a LLC is protection of your personal assets. LLC’s provide a framework for keeping a person’s personal assets separate from the business assets. In the event of a lawsuit, your business assets are at risk and your personal assets are kept separate. In addition, there may be tax benefits, business programs, small business owner perks, etc.

A previous coworker of mine would always say that its not a matter of if you get sued, but a matter of when. As engineers with a responsibility to strive for public safety, act ethically, and become competent experts in our respective fields, there may be differences of opinions on how we should design and achieve our goals. Always anticipate the worst case scenario, then we have a base to celebrate the success.

Disclaimer: At the time of writing, I have recently started my own LLC. The purpose of this article is to encourage others to explore the possibility of opening their own LLC. Please thoroughly research and/or consult with a CPA and lawyer for assistance with properly setting up your business and learning the the extent of pros and con’s to maintaining your own business.

-M