How do I be a contractor?

Kevin, my former coworker, contacted me regarding his start up. We will all be set up as independent contractors to do the work. The base rate he threw out there was $65/hr. Doing pretend calculations, that is: $65/hr*10 hrs a week*4 weeks… $2600/month! Holy crap!! Wait wait, not so fast!

First, taxes. As contractors, we are responsible for paying a “self employment tax,” essentially paying our employers share of Social Security and Medicare. There goes 15.3% just for that, not to mention federal and state taxes.

Second, equity. Rather than getting paid all in cash, part of our pay would be in equity. The percentage is negotiable. If the company fails, we may never see that money at all. If the company soars, I could be a mutli-trillionaire. Hehe.

He thew out $20/hr cash rate as an example, which might equal 10% equity after a year. (He will type something up that better explains how this is split.) If around $20/hr is accurate, I’m looking at closer to $500/month in pure “i can put it in the bank” cash.

I want to research what my rate should be (I have no idea where–salary.com is not the answer), though I do trust Kevin. He’s a good guy, but I have to look out for myself. Any tips from anyone who has done contracting on how to set your rate? Any tips on how cash vs. equity should be split?

Unfortunately we probably won”t be up and running until August. We can get started sooner, log our hours, and get paid later, but there is no money yet, so he doesn’t mind if we wait.

I’ll be working under a guy who is seriously brilliant, incredibly friendly and easy to work with. My dad is always telling me how important it is to work with talented mentors, particularly when I’m young in my career. Not only will I learn cool technical things from a more experienced person, I have a feeling I’ll be exposed to a lot of business/start-up things as well.

I’m not anxious to have my free time sucked away, but… it should be worth it! Right?