how much should I shoot for as a contractor

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Calhoon
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how much should I shoot for as a contractor

Post by Calhoon » Tue Aug 23, 2016 9:15 pm

Completely baffled about how much I should compensate for as a contractor.

Seen some threads here where the general rule of thumb is ask for 2X what you would be paid salaried, though seemed to me most of these threads were for physicians, IT personnel -- fields that could command a very high rate.

Tried to figure out how much it would cost me extra to contract and that I'm completely befuddled by. Got to admit that Healthcare.gov is incredibly messed up. Spent the better part of a day estimating how much insurance would cost me, and I still really have no idea. The calculators were messed up, and when I called in this was what whoever answered the phone would use for the estimates, which kept dropping off the kids.

Anyway, can see that when you get finished adding on insurance alone the rate ratchets up quite significantly.

Is this 2X still a viable starting point?

This would be in the technical writing/illustrating/multimedia field.

jjface
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Re: how much should I shoot for as a contractor

Post by jjface » Tue Aug 23, 2016 9:33 pm

You could start by checking what others are charging. What is the going rate.

KlangFool
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Re: how much should I shoot for as a contractor

Post by KlangFool » Tue Aug 23, 2016 9:57 pm

OP,

Q: How much should I shoot for as a contractor?

A: As much as the client / customer willing to pay.

1) Do you know how to negotiate?

2) Do you know how much do you want?

3) Do you know how much are you willing to settle for?

KlangFool

hcj
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Re: how much should I shoot for as a contractor

Post by hcj » Wed Aug 24, 2016 8:16 am

Writers I work with charge between $75-$100 per hour.

Geography makes a huge difference. I am in a high cost of living area.

Calhoon
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Re: how much should I shoot for as a contractor

Post by Calhoon » Wed Aug 24, 2016 10:12 am

Okay, great that helps. The rate I was getting offered was half of the low end of that range with no benefits. After benefits and taxes hacked away at it I'd be back down to what I was getting paid as a dishwasher back in 1984.

3feetpete
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Re: how much should I shoot for as a contractor

Post by 3feetpete » Wed Aug 24, 2016 11:33 am

2x is probably a good number. I assume x is what you are paid now so it is already adjusted for field you are in and local cost of living. You probably cost your company 1.5x by the time they pay for insurance, payroll tax, workmans comp etc. As a contractor they are not guaranteeing you 40 hrs a week so that is something also. They are only going to be paying for your productive hours.

Go for 2x and see what the market will bear.

rgs92
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Re: how much should I shoot for as a contractor

Post by rgs92 » Wed Aug 24, 2016 12:43 pm

In IT at least, it can be like the wild wild west. The exact same position at the same company will be offered from, say, $38/hour to $70/hour based on the business practices of the particular contracting firm (or pimps, as they are very commonly known among their users... crude but true).

Sorry for the language, but professional contracting has become a dirty business, so you need to be careful with them and do research to find out if you are being treated fairly when they call you.

It's like an outdoor flea market or used car lot these days and you may need to bargain. I was put up for one position for $70K a year, and just like that with a little hesitation on my part it became $96K a year instantly.

Another place offered me, I'm not kidding, $15/hour and when I mentioned this to the company hiring manager where I would be placed she shook her head and offered $50/hour.

The contracting firms are basically just clerks that do keyword matches between your resume online and the job requisitions. They have no understanding of the work at all, they just relay your stats and submit you. Companies do this and pay the contracting place about 20%+ of your salary each month so they can hire and fire quickly and not worry about labor laws since you don't work for them directly (and they don't need to pay any decent benefits).
Last edited by rgs92 on Wed Aug 24, 2016 1:02 pm, edited 1 time in total.

michaeljc70
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Re: how much should I shoot for as a contractor

Post by michaeljc70 » Wed Aug 24, 2016 12:56 pm

2x seems very high. I guess the answer is, it depends. I have worked in IT as a contractor for 20+ years.

If you are going to have a lot of downtime, that is a big factor. Downtime meaning one project/job is ending how long are you not working while you find/start the next project?

If there isn't much downtime, I think 125%-140% is much more accurate. 200% is kind of crazy in my view. If you are in a situation where you can get that (customer knows you/specific knowledge of a client/project, etc), then great. I don't think that is close to the norm.

You have to figure 8% for payroll taxes. Then holidays, sick days, and vacation. Base this off what you'd get as an employee. Then figure out the insurance, bonus, and any other benefits (401k match maybe).

There are some huge tax breaks being self employed. I put $40k in a 401k last year tax free (well, Federal/state tax free). You cannot do that as an employee (limit under $20k).

Employer insurance isn't as generous as it used to be and the ACA helps you if you have pre-existing conditions.

sco
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Re: how much should I shoot for as a contractor

Post by sco » Wed Aug 24, 2016 1:35 pm

140% seems low.

If you are a salary employee making 100k even yearly, the employer no doubt is paying at least $140k in benefits, taxes and salary.

I'd say double your salary.

michaeljc70
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Re: how much should I shoot for as a contractor

Post by michaeljc70 » Wed Aug 24, 2016 1:47 pm

sco wrote:140% seems low.

If you are a salary employee making 100k even yearly, the employer no doubt is paying at least $140k in benefits, taxes and salary.

I'd say double your salary.

They have overhead and costs you don't have like HR and unemployment insurance. They have a higher cost of compliance also typically.

What are the 40% in benefits? People over estimate benefits.

sco
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Re: how much should I shoot for as a contractor

Post by sco » Wed Aug 24, 2016 3:59 pm

michaeljc70 wrote:
sco wrote:140% seems low.

If you are a salary employee making 100k even yearly, the employer no doubt is paying at least $140k in benefits, taxes and salary.

I'd say double your salary.
They have overhead and costs you don't have like HR and unemployment insurance. They have a higher cost of compliance also typically.
What are the 40% in benefits? People over estimate benefits.
Speaking purely from my person experience, I would expect it to be at least as follows.

Costs they carry that you should have as well, as a contractor.
Social Security Employer Costs 7.65% I believe.
Employer Insurance Costs, these will very widely but 12k a year wouldn't be out of the ordinary.
Unemployment costs.

Other costs,
401k Match maybe 5%?
No Doubt I am missing other things, like employee term life, shared parking costs, Educational reimbursement, etc. So back of the napkin with about 5 minutes though, I came up with at least 25% on the hypothetical 100k employee.

Some employers at the end of the year give a statement that shows how much they pay in benefits on your behalf, some may be patting themselves on the back a little much.

wadefish
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Re: how much should I shoot for as a contractor

Post by wadefish » Wed Aug 24, 2016 4:07 pm

You mention technical writing...

I believe people doing that kind of work through contract houses in my part of the country get paid $40 / hour, or so.

So if you're working directly with the client, with no go-between, I would start at $65 / hour, for a 40 hour contract. Maybe go higher for projects with a shorter duration. (That's assuming you've got experience in the field, and a portfolio of past work to show, which is generally what is required to get work through contract houses.)

Or, if you have specialty skills, like programming (so-called programming writers who do thinks like document SDKs and write code samples get paid more) or industry-specific knowledge that is required for the contract, you could go higher.

joebh
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Re: how much should I shoot for as a contractor

Post by joebh » Wed Aug 24, 2016 4:16 pm

Your costs have no bearing on what the employer will be willing to pay. Your costs are not their problem. While it would be nice to ask for 2x your prior salary as an employee, or 140% of your costs or something, that may or may not be viable. It depends on your abilities, but even more depends on the market demand.

If you are planning to contract independently, you have to find out what the market will bear. One way to do that is to start through an agency - they are typically very in tune with the market. Find out what they will pay you, then how much they are being paid by the employer. Then, when you go out on your own, you can find your own gigs without the agency, and get the price paid completely to you.

Another way is to take on a short-term contract and just guess at a rate. If you get a quick acceptance, then ask for more next time. If you get a lot of rejections, then lower your rate. Eventually, you'll learn how much you can command.

If you are in a field that is being outsourced to lower labor cost areas, you may have to drop your fees in order to compete.

On the other hand, if you are brought in for time-critical projects that can't be or aren't being outsourced, you can ask for more.

I'm not sure in what domain you work, but many tech writing jobs these days are being outsourced to at-home freelancers through gig websites on a per-project basis. There, it's pretty much a race to the bottom.

Hector
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Re: how much should I shoot for as a contractor

Post by Hector » Wed Aug 24, 2016 4:28 pm

I have seen this for most IT jobs in my area: Most contractors are employees of vendors; if google is hiring a contractor via vender, contractor would be on W2 on vendor's payroll. So vendor pays unemployment insurance, social security and medicare tax similar to regular employer. A lot of vendors offer 401ks (without match) and healthcare (at massive premium, but pre-tax). Depending on particular city law it is mandatory for companies to give sick time to each employee on W2 in some cities.

So you are not going to get 2X in the situation I mentioned. You need to know what benefits are you going to get, are you going to be on W2 or on 1099 and then figure things out.
Last edited by Hector on Wed Aug 24, 2016 4:55 pm, edited 1 time in total.

michaeljc70
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Re: how much should I shoot for as a contractor

Post by michaeljc70 » Wed Aug 24, 2016 4:45 pm

sco wrote:
michaeljc70 wrote:
sco wrote:140% seems low.

If you are a salary employee making 100k even yearly, the employer no doubt is paying at least $140k in benefits, taxes and salary.

I'd say double your salary.
They have overhead and costs you don't have like HR and unemployment insurance. They have a higher cost of compliance also typically.
What are the 40% in benefits? People over estimate benefits.
Speaking purely from my person experience, I would expect it to be at least as follows.

Costs they carry that you should have as well, as a contractor.
Social Security Employer Costs 7.65% I believe.
Employer Insurance Costs, these will very widely but 12k a year wouldn't be out of the ordinary.
Unemployment costs.

Other costs,
401k Match maybe 5%?
No Doubt I am missing other things, like employee term life, shared parking costs, Educational reimbursement, etc. So back of the napkin with about 5 minutes though, I came up with at least 25% on the hypothetical 100k employee.

Some employers at the end of the year give a statement that shows how much they pay in benefits on your behalf, some may be patting themselves on the back a little much.
I am not sure what the 12k employer insurance costs would be. Unemployment and disability? Seems high. I don't have those costs so I don't consider them. I suppose some people will want to buy disability insurance.

Keep in mind almost all 401k matching is limited to a certain amount. It is not carte blanche on your whole income typically.

I've done the math many times for myself. It will vary, but I would be shocked if it was 200% or even 150%. Maybe if you work for Google or something.

I think that doing the math is not that hard for each individual. You can get a quote for term insurance, calculate the 401k match, get a quote on a similar health plan, etc.

One thing I did not see mentioned and that can make a BIG difference is contractors get paid for hours worked and salaried workers don't. If you worked 50 hours a week, you will now get paid for that extra 10 hours. That alone can offset all other costs.

hcj
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Re: how much should I shoot for as a contractor

Post by hcj » Wed Aug 24, 2016 9:36 pm

The employers cost doesn't have much to do with your rate. There are many factors at play. It's mostly supply and demand. What are others charging and how badly do they want you in particular. Is it a small job or a long and continuous gig. Etc.

However, if we really want to run those numbers, don't forget to account for paid vacation weeks and paid holidays. Salaried persons get those days paid; contractors need to work it into their rate.

Not sure if explicitly mentioned above: when you file your taxes you need to pay a self employment tax (i.e. employers half of social security).

401k match is typically 3-6% of your salary. The ceiling is the IRS limit of 18k/year. Unless you are at a very high salary or an unusually high employer match, the 18k limit won't be hit on the employer side and thus the 401k match can be thought of in % of salary terms.

sco
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Re: how much should I shoot for as a contractor

Post by sco » Wed Aug 24, 2016 10:41 pm

I used 100k as my example, and 5% on the 401k Match. That is pretty easy to calculate. Based upon my limited experience a limited match up to 4-6% of salary is not out of the ordinary..

Now, all employees don't take advantage of that, just like all employees don't use all their vacation.. But it is still a cost I consider, when I consider salary or self-employement, because I do take full advantage of both.


The 12k was to represent all insurance costs, including Health insurance subsidies.



You are asking either 1 of two questions.
1. What should I ask for my time.
2. What will this company pay for this jobs, and how does it compare to their full time employees?

Full TIme employees have other problems, which is why even for the more costs companies will frequently use contractors. You do not get 40 hours of productive work out of an employee that you hire, and they are hard and expensive to get rid of when a project is done.

Part of the deal with a contractor, is that they don't have to go to all of the BS time waste meetings and can hopefully dedicate most of their 40 hours to the actual project that they are supposed to be working on..

WhyNotUs
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Re: how much should I shoot for as a contractor

Post by WhyNotUs » Thu Aug 25, 2016 7:20 am

I work in a different field but have been an independent contractor for most of my adult life. Unless you have a unique skill, then the market will be a more useful input than a 2x metric.

My field has become quite crowded over the years as former government workers semi-retired and dabbled in consulting. By the time people have figured out that they often did not have much to offer, a new wave of FGWs hit the pavement. With their government pension in hand they can work for a modest (to me) hourly rate and usually have a contract or two in line before they retire. Subsequently, my hourly rate, which used to seem great, is now less than in 1993 in inflation-adjusted dollars. It really doesn't matter that my insurance costs have tripled.

For me, getting work that I am interested in has been the reward. So, my suggestion would be to set a "rack rate" of double but really focus on building a set of industry relationships and projects that have meaning to you and then see what the market will bear. Health insurance is a huge hurdle for independent contractors and I wish you luck sorting it out.
I own the next hot stock- VTSAX

Calhoon
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Re: how much should I shoot for as a contractor

Post by Calhoon » Thu Aug 25, 2016 8:57 am

Everyone thanks for the responses. Defiantly helps.

I need to know what my final take home would be after all the smoke clears to make sure the move still makes sense, which I think I have a better bead on now. Only thing throwing me yet is insurance, though maybe I'll just figure 1,000 per month and be done with it.

Another factor is that these recruiters seem very sleazy to me and so automatically I get the sense that I'm being used. The phones been ringing off the hook. The one firm must've called me forty times in one week, including hang-ups, and my inbox is full of messages. I went to one of those high pressure timeshare scams one time, and that's what it feels like every time I talk to any of these recruiters. Rgs92 same as you they started out at 20, that's the highest we can go, and then they proceeded to keep increasing it, until now it was double what they started. A twenty dollar difference. That I would be getting paid from the recruiting firm on a 1099 basis. I assumed that the job was priced out by the firm for x dollars an hour, the recruiting firm would pay me y, and pocket the difference. But rgs92 from what you're saying that's not the case. From your experience, the recruiting firm gets about 20 percent from my salary.

Spirit Rider
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Re: how much should I shoot for as a contractor

Post by Spirit Rider » Thu Aug 25, 2016 10:12 am

I have spent more than 35 years in the IT industry. I have worked as a contractor several times and hired dozens of contractors while in management. Some thoughts on various issues raised on this thread.

Those who say the default is 200% of an equivalent W-2 hourly rate, must be living on a different planet. That is just not my experience. It is and has always been classic supply and demand. It will always be based on your specific knowledge, skills and experience, local market conditions and the urgency of the client's needs.

I can only think of two or three cases when I received 200% or more as an independent contractor. In those cases, I had specialized knowledge, skills and experience directly beneficial to the job at hand. Also, I was a known quantity to the hiring manager and going directly without a recruiter. When I was providing more of a commodity function and/or using a recruiter, I was usually in the 140% - 160% range.

Likewise, I can only think of a minority of cases where we paid 200% as a manager. Those cases were where the individual had specific skills that we needed and were a known quantity to us and we could contract with directly. No way would we pay 200% and an agency fee on top of that. Recently I was a project manage at a Fortune 500 company doing 7-8 figure business services contracts. We budgeted 25% for employee benefits and always targeted 135% - 150% of our own W-2 hourly rates based on job codes.

Oh, in no case either as an IC or a client did the agency fee ever come out of the IC's rate. If a recruiter wants to charge an agency fee to you, move on to a different recruiter or only consider the net rate as "your" rate.

Based on experience, I would say that the technical writing/illustrating/multimedia field is more of a commodity field for ICs. I would think that the default range would be more like 130% - 150%. As always this is going to be somewhat influenced by you, the job, the company's needs and local market conditions.

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