There is no doubt that Contract Pilots have become a significant segment of the professional aviation community. No longer is the proverbial "pilot doing contract work" the unemployed pilot in between jobs, so much as they are now the "professional, dedicated, independent contract pilot" (IC Pilot), choosing the lifestyle of the self employed business person, and the road to personal freedom. Dedicated contract pilots are here to stay, and provide a valuable service to all types of flight departments, and their value is becoming more evident in today's market.

The life of an IC Pilot can be interesting to say the least. First of all, when a pilot decides to be an independent contractor, they become a business, and must operate within normal business practices. This entails such things as setting up business infrastructure, developing marketing plans, defining and targeting the customers, establishing a budget, positioning themselves as current and qualified as defined by the applicable FAR's (91 or 135), and executing the business plan. This takes considerable effort, time and money to accomplish. Consequently, as in many businesses, the first year or two are not the profitable years due to the large investments required to position themselves, training being the largest single expense. Also, extraordinary discipline is necessary during the course of the business, including keeping the budget in line with future expenses, e.g., setting aside quarterly Estimated Tax payments, future training money, health care premiums, setting aside funds for retirement, etc.

Many think that the life of an IC Pilot is carefree, but that is hardly the case. The common misconception is that the contract pilot can work when and for whom they want, at their total leisure. That is far from the case. The IC Pilot develops their business, starts getting the calls, books trips, has some trips canceled, others pop up, and it becomes a huge juggling act. Sometimes the IC Pilot leaves home, gets calls on the road, goes from customer to customer, and will be gone from home months at a time. Other times, the contract pilot sits at home wondering why nobody is calling them at all, worries about "making the nut" for the month, and is fraught with worry. Still, other times they book a trip, get other calls which they have to turn down or refer to other colleagues, then at the last minute their scheduled trip cancels, the other customers have filled their needs, and the contract pilot is left with nothing. These scenarios are normal occurrences and become the juggling act of the self-employed. I would not classify the life of an IC Pilot as carefree and easy going. It can be really tough, just like any other business.

The positive and negative sides of the contract pilot are numerous, but probably as balanced as any other self employed businessperson. The single most negative side is covering the costs of annual training, which depending on the aircraft the pilot is operating, can be as much as $25,000 or more a year, plus travel and hotel expenses while at school. Secondly on the negative side are the costs of self-employment taxes and health insurance. Thirdly, inconsistent income on a month-to-month basis. And lastly, the unreliability of consistent work, consistent customers, and general consistency of your life.

The positive sides can and will balance the negative sides. Independent Contractor status is a personal choice, and is primarily for the entrepreneur at heart. It takes a special kind of person to choose self-employment, and it can be done for a variety of reasons. More scheduled time with your family and friends (take time off when YOU want the time off) is one big benefit. The feeling of "personal freedom" and "choice in life" are attractions to many. And there is also a sense of mission and accomplishment by becoming a contract pilot. Every single time the telephone rings from a customer, they are looking for "help," and you are dedicated to "helping" them. Whether they need a Copilot, a Captain, or augmented crew for long-range operations, they have a "need," and the IC Pilot is there to help them fill that "need." So you go out on jobs with that sense of "helping" the customer. That can be very satisfying. And when they call you, if you can't help them, then it is your business to "help" them find someone who can. So you still "help" them in either case.

The tax aspect of the IC Pilot business of is an interesting subject. First and foremost, the Tax Man does not care whether you earn you income from payroll, or self-employment, he just wants his cut. And to get his cut, he has written tens of thousands of pages of Tax Code, to boggle your mind, fool you, and confuse the general public. Ain't it great to be American? In the case of the self-employed contract pilot, they must develop the business discipline of setting aside funds to pay the Quarterly Estimated Tax Payments, which are due and payable every March, June, September and December. Failure to pay estimated taxes results in end of the year penalties, which can be substantial for under reporting! So good book keeping and the discipline to set aside the funds are paramount in a successful business practice. For a "rule of thumb," it behooves the contract pilot to set aside 20% of the gross income for future tax payments. This can be set-aside in an interest bearing account of some kind, and it is there when the payments are due. The other rule of thumb is to set aside another 20% of the gross income for future training costs, because those checks to FlightSafety or SimuFlite WILL COME DUE, if you want to remain in the independent contract business. The training due dates are when most wannabe IC Pilots get panicky and run for the security of a JOB! However, if they have practiced the discipline of budgeting, then the IC Pilot has more options when that time comes due. If you save for the future, then the future can be your choice. Pay heed to this advice, if nothing else.

Now the upside of the tax issue is a wonderful thing. The IRS gave the self employed something that the employed don't have. Schedule C . . . what a wonderful thing! As a self employed entity, all your training costs, laptops, pilot supplies, health care premiums, some of your uniforms, meals and entertainment, office supplies, advertising, etc., are tax deductible! Just about everything you do in furtherance of your business can be used to reduce your tax liability. The full time employed pilots don't have that. So tax wise, usually the IC Pilot "net" is much better. Even the costs of hiring tax CPA's and Attorney's are deductible. How can you go wrong? Of course, the other side of that coin is the additional overhead of running your own business, but, hey, business is business.

The issues of medical, dental and retirement plans could be considered some of the more difficult issues for the self employed, but once again, there are benefits to these expenses. Of course, it helps if your spouse works and is covered by a medical plan, but everyone does not have that opportunity. There are medical plans available for the individual, and that is one option for each IC Pilot to pay their premiums for medical coverage plans. I think that perhaps, with the increased interest in independent contract pilot business, that in the near future, IC Pilots will be able band together as a group, and will be able to develop a group plan for medical and dental coverage that will benefit all the self-employed pilots. That, of course, remains to be seen, but for my part, I intend to help develop this "group."

Retirement plans are entirely up to the individual. You save and invest your own retirement funds just like any other small businessperson in America. This takes discipline and should not be treated lightly. The upside is that through your business entity you can set up your own retirement plan, whereby you and your entity both contribute to your retirement plan, called SEP (Self Employed Plan). Here you can contribute much more than the $2,000 a year the full time employed people do. As with the "rule of thumb" for setting aside training and tax funds (20% each), you can develop your retirement plan by paying yourself 10% to your retirement plan. That’s my recommendation, and it works for my family and me.

If you notice after these "rules of thumb," you have set aside 20% for taxes, 20% for training and 10% for retirement; your take home is about 50% of your gross income. You need to learn to live within that means. Depending on how successful your IC Pilot business is, it will either work very well for you, or it won’t work at all. It’s all up to the individual.

Another "set aside" slush fund needs to be expenses. Inevitably, you will be covering your hotels, airfare, meals, etc., which will be billed back out to the customer. Generally there is some lag time between the invoice date, and the time your credit cards come due, so your slush fund needs to be in place to avoid all the credit card interest and late payment charges. Generally I have found the Invoice date and the time you actually receive the payment to average 20 days. Though some customers will stretch you out for up to 30 days or more. Needless to say, they are not the favored clients.

Who are the customers? That's pretty easy . . . the owners and operators of the aircraft. Each contract pilot will maintain their currency under applicable FAR's (91 or 135) in one or more type aircraft, and finding the owners of those type aircraft is nothing more than normal research.

Contract pilots are based all over the world. Part of choosing to be an independent businessperson is the ability to choose your lifestyle and your living location. However, the closer to a major airline hub that one resides, facilitates the ease and costs of positioning to the customer aircraft locations. I know IC Pilots who choose to live in remote parts of Montana and Idaho, and I know IC Pilots who choose to live in major metropolitan areas. That's a personal choice, and if one chooses this type independent work, then they should follow their heart and live the way they want. But again, those living in major airline hubs will find it much easier, more efficient and more cost effective to travel to the customers location.

As the IC Pilot segment of the aviation community develops, there are some information the contract pilots should share with the Chief Pilots, owners and operators of the aircraft. Namely, often times, utilizing temporary contract pilots is much more cost effective than hiring new, full time pilots. Here I refer to "additional crew" required by longer international operations or an increase in department flying, justifying one or more additional crewmembers. There is never a consideration for replacing entirely a flight operation with contract personnel. That, in itself, violates the IRS rules (Section 530, IRS "Safe Harbor" Ruling, 1979) whereby the definition of an "Independent Contractor Status) is defined. I suppose people in the past have paid their "full time workers" under "temporary employee" status, to get out from under the Social Security Taxes and other salary burden associated with payroll taxes.

For the purposes of augmenting a flight department, consider the following scenario:

Assuming the going pay rate for a Gulfstream Pilot is $100,000 per year, then the hiring company payroll will realize approximately a 30% payroll salary burden (Social Security taxes, workman's comp, Insurance, 401K's, and other benefits), that brings the salary cost of the employee to $130,000 per year. Then account for the required annual flight training at a cost of approximately $25,000, the result is the cost factor of that employee pilot to be $155,000 per year.

By utilizing the services of independent contract pilots, who charge a flat daily rate plus expenses, at $800 per day (for example), that provides the operator with 194 days of contract pilot usage to break even from the full time versus. Of course, there are additional expenses incurred with contract pilots, such as airfare, hotels to and from the originating flight location, so it would be fair to apply a percentage of "expense cost" to this equation. My personal experience from 5 years of Invoicing the customer daily rates and expenses, demonstrates about 8% costs associated with moving me to and from the job site. These expenses are only for airline to and from the job, plus any first day / last day hotels, and do not include expenses associated with being on the road with the aircraft, as those expenses would be incurred with either a contract pilot or full time pilot equally.

Taking the $155,000 figure previously derived, subtract the 8%, the total break even cost is $142,600, divided by $800 a day for the contract pilot, you have 178 days whereby the operator can use a contract pilot and break even compared to a full time employee. That makes good business sense, and often times is more cost effective from the operators’ standpoint.

Of course, obviously the reliable availability of a full time pilot employee is greater than finding the contract pilot, so I always encourage the operators to have their "list" of dedicated IC Pilots, making it easier to find somebody to help. In most cases, I am more than willing to help an operator develop a list of qualified, reliable IC Pilots. This willingness to "help" them, results in their appreciation of professional, DEDICATED contract pilots with a good attitude for BUSINESS. Furthermore, when you help the operator build their IC Pilot list with your colleagues in the IC business, you will find that "favor" will come back to you in your own future business.

Finally, there is the issue of daily rates that contract pilots charge. It is "old ways" that contract pilots accept what the operator "offers." True, many supposedly "contract pilots" will ask what the operator pays, but most professional, dedicated IC Pilots have their rates established, and inform the operator what those fees are. Obviously the rates will differ from aircraft type to aircraft type, and that varies even from one part of the country to the next. I believe that is slowly changing, and the USA will become more standardized in the future. Why standardize? Because to be an effective IC Pilot, one has to maintain their training currency, and the training organizations don't vary their rate depending on which part of the USA the pilot lives. So those training costs become pretty fixed overhead, and expensive overhead as well.

Additionally, I feel it is important that as a group, the IC Pilots should become standardized. I have seen, over the past two years, a standardization of rates that demonstrates that IC Pilots stick together more than any other professional pilot outside the airline unions. And that is impressive. When some of the wannabe contract pilots cut their rates back to get business, the rest of the community knows really quickly about it (thank you to the internet), and those "cheap pilots" get shut out of the IC community pretty fast. Besides, the "cheap wannabe pilots" are the first to run when their training dates come due, so they are not really serious IC Pilots after all.

I can speak for the Gulfstream aircraft (my specialty) and the rates nationwide tend to average $600 to $700 a day for the GII and GIII aircraft, and $700 to $800 for the GIV. The GV pilots are getting nearly $1,200 to $1,550 a day. But the contract pilot can charge what they want. It's a free enterprise system and that is one of the advantages of being self-employed. However, some effort of conformity to industry standard rates does benefit the contract pilot community. A professional person deserves to be treated in a professional manner, and the owners of a $30-million aircraft should realize that, and not try to save one hundred dollars when they are looking for highly qualified professionals to operate their investment.

Most importantly, never forget that the daily rate of a Contract Pilot is directly related to the cost of training.  The 2005 rates at FlightSafety are upwards of $52,000 for a full service GV training contract.  So it goes without saying, the self employed contract pilot has to keep his rates up to pay for that training and still have money leftover for taxes and living.

Other type aircraft daily rates I simply don't know. I hear that small jets go around $300 to $400 per day, and midsize jets go for $400 to $500 per day, but I really don't know that for sure. Perhaps a poll on the Internet would gather this information.

Another issue that comes up on occasion, is the Chief Pilot will tell an IC Pilot that they only need them as a Copilot, so they think the rates should be less. Well, the truth is that the training organizations don't give discounts for "Copilot." Nor the time spent in the right seat of the simulator. You are either rated and qualified and current in the aircraft, or not. Left seat, right seat, back seat, it is all the same when it comes to paying the bills and overhead generated by being self-employed.

Finally, in closing, below is a letter I posted to several potential newcomers to the contract business, and I am including it here. I wrote this piece in response to pilots asking me about the contract business, and it was written almost two years ago. Many of my attitudes have changed since, but it is still a good thought line that may again be appropriate here.

Enjoy life, fly safe, and be true to yourself.

Jeff Beck

SiBeck Pilot Services

Gulfstream GII / GIII / GIV / GV

G4Jeff@aol.com