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I've spent much of my career as a software consultant. I usually make about 1/3 of my client billing rate. The rake is high. Part of that is normal overhead of

I've spent much of my career as a software consultant. I usually make about 1/3 of my client billing rate. The rake is high. Part of that is normal overhead of employer-side taxes, benefits, expensable items (hardware, business lunches, continuing education), infrastructure/support (office space, office staff/HR/non-owner management). We can generously call that another 1/3 of the client bill rate. That leaves the final 1/3 to the company for profit and business development. There's nothing remotely unusual about this arrangement.

WalterBright 6y ago
Back when I worked for Boeing, the accounting figure was that it cost Boeing about 45% over and above my salary to pay for my benefits package and taxes paid on my behalf (things like health insurance, retirement plan contributions, the so-called "employer's contribution" of Social Security taxes, etc.). This is why when one sees salary comparisons, they are misleading. A correct comparison would compare what is called "total compensation" which includes that 45%. For example, whenever you hear about public teacher salaries being low, no mention is ever made of the total compensation, which is pretty generous. Those "free" benefits aren't free at all. They come out of the employee's pocket.
- caymanjim 6y ago
  > For example, whenever you hear about public teacher salaries being low, no mention is ever made of the total compensation, which is pretty generous. This is disingenuous. It's perfectly acceptable to compare teacher salary to any other salary. The default assumption is that you're comparing W2-with-benefits to W2-with-benefits. When people talk about low teacher salary, they're talking about it in comparison to another salary with the exact same overhead. It's not necessary to assign cash value to employer-paid taxes and benefits when making an apples-to-apples comparison.
  - WalterBright 6y ago
    It is not disingenuous because the public teacher benefits package is much better than typical in the private sector. The teachers' unions have been quite clever about this, in negotiation for much of their pay in the form of benefits, so it looks like their pay is low. The newspaper, for example, often runs comparisons of salaries but never total compensation.
    - mgkimsal 6y ago
      Does it particularly matter? In most cases, people take whatever 'benefits' they're given - they don't have much leverage to take something else. Whether I want or need "great" health insurance, it might be something my employer provides, and would be part of my 'total comp'. It may not actually benefit me at all, and I have no choice in it. And likewise, if the insurance is crap, most people have no leverage to replace it with anything better anyway. Most people can only make choices with the take home portion of salary, regardless of what 'total comp' is.
      - s1artibartfast 6y ago
        Im not sure what you are saying here. Benefits absolutely play a role in the jobs people take. I have been offered two jobs with identical salaries, but one had a significant employer contribution to my 401k and stock options. you can guess which job I took. Likewise, my mother was a teacher and one of the main reasons was the incredible healthcare. She could have gone somewhere else with her 2 masters, but it was worth a ton with a sickly husband. A full salary pension is worth a lot of direct salary compensation too.
        WalterBright 6y ago
        I saw a figure once (they're hard to come by) that the value of the health insurance benefit for WA public school teachers was $36,000/year. https://www.seattletimes.com/education-lab/with-a-price-tag-of-900-million-washington-state-will-soon-take-over-all-school-employee-health-care-plans/ https://www.seattletimes.com/education-lab/with-a-price-tag-... https://www.hca.wa.gov/about-hca/school-employees-benefits-board-sebb-program/sebb-fact-sheets https://www.hca.wa.gov/about-hca/school-employees-benefits-b... Those links provide facts and figures, but no figure on what the value of the employee benefit is. I'd encourage anyone interested to ask their employer's HR dept what the value is of their employer provided health care benefit, and compare.
  - pininja 6y ago
    I upvoted you’re comments since they are accurate to my mother’s experience as a 33+ year elementary school teacher in CA. Her health care is similar to what my job provides, and then she gets a pension that highly incentives 35+ year career of continuous work in the same district. Any long term medical leave pauses pension credit, and moving to a different district within the same state can also mess with the pension terms. Switching jobs 15 years in feels like an all or nothing situation since they haven’t been paying into social security. I don’t know any teacher friends of hers that have retired before 30 years on the job. It’s stable, but it’s not an early retirement career. Finally, I want to acknowledge that funding in CA for teachers is difficult to adjust and complex, but it’s all inherently public. https://ed100.org/lessons/whopays https://ed100.org/lessons/whopays
    - WalterBright 6y ago
      Your link has many facts about sources of funding, but does not say what the value of the teacher benefits package is. > retired before 30 years on the job. It’s stable, but it’s not an early retirement career. I'd consider retiring at 52 early retirement, especially if it comes with a lifetime pension.
      - pininja 6y ago
        The median for retirement in CA is 61.9 years of age. Age factor plays a large role in setting pension, one cannot retire early without giving up a portion of the pension. The average monthly benefit is $4,088. Here’s an idea of pension contribution > Teachers contribute 8% of their monthly salaries into a state pension fund, while their employers contribute an additional 8.25%. On top of these payments, the state of California contributes another 2% into the fund. All from https://www.teaching-certification.com/salaries-benefits/california-teaching-salaries-and-benefits.html https://www.teaching-certification.com/salaries-benefits/cal...
        WalterBright 6y ago
        Thank you. So that gives the cost of the retirement plan at 10.5% of salary. The link, unfortunately, does not give what the cost of the healthcare plan is (or other benefits). Your link also says they can retire at 50 with 30 years of service. Sure, it's not the full pension, but they'll still be receiving the pension for another 30 years. Seems generous to me. I don't know a private company with a plan like that. SS doesn't start paying out until 62 (also at a reduced amount).
mrobins 6y ago
The article doesn’t say Andelans think only making 1/3 of their billing rate is unfair. It says they don’t make 1/3rd of their bill rate but the company perpetuates the fallacy that they do. It both makes Andela’s pay scheme seem more generous than it is while creating social misconceptions about how well off Andela’s workers are.
femiagbabiaka 6y ago
A one person small business and a corporation on the size of Andela simply can not be compared at any level.

WalterBright 6y ago

Back when I worked for Boeing, the accounting figure was that it cost Boeing about 45% over and above my salary to pay for my benefits package and taxes paid on my behalf (things like health insurance, retirement plan contributions, the so-called "employer's contribution" of Social Security taxes, etc.). This is why when one sees salary comparisons, they are misleading. A correct comparison would compare what is called "total compensation" which includes that 45%. For example, whenever you hear about public teacher salaries being low, no mention is ever made of the total compensation, which is pretty generous. Those "free" benefits aren't free at all. They come out of the employee's pocket.

caymanjim 6y ago
> For example, whenever you hear about public teacher salaries being low, no mention is ever made of the total compensation, which is pretty generous. This is disingenuous. It's perfectly acceptable to compare teacher salary to any other salary. The default assumption is that you're comparing W2-with-benefits to W2-with-benefits. When people talk about low teacher salary, they're talking about it in comparison to another salary with the exact same overhead. It's not necessary to assign cash value to employer-paid taxes and benefits when making an apples-to-apples comparison.
- WalterBright 6y ago
  It is not disingenuous because the public teacher benefits package is much better than typical in the private sector. The teachers' unions have been quite clever about this, in negotiation for much of their pay in the form of benefits, so it looks like their pay is low. The newspaper, for example, often runs comparisons of salaries but never total compensation.
  - mgkimsal 6y ago
    Does it particularly matter? In most cases, people take whatever 'benefits' they're given - they don't have much leverage to take something else. Whether I want or need "great" health insurance, it might be something my employer provides, and would be part of my 'total comp'. It may not actually benefit me at all, and I have no choice in it. And likewise, if the insurance is crap, most people have no leverage to replace it with anything better anyway. Most people can only make choices with the take home portion of salary, regardless of what 'total comp' is.
    - s1artibartfast 6y ago
      Im not sure what you are saying here. Benefits absolutely play a role in the jobs people take. I have been offered two jobs with identical salaries, but one had a significant employer contribution to my 401k and stock options. you can guess which job I took. Likewise, my mother was a teacher and one of the main reasons was the incredible healthcare. She could have gone somewhere else with her 2 masters, but it was worth a ton with a sickly husband. A full salary pension is worth a lot of direct salary compensation too.
      - WalterBright 6y ago
        I saw a figure once (they're hard to come by) that the value of the health insurance benefit for WA public school teachers was $36,000/year. https://www.seattletimes.com/education-lab/with-a-price-tag-of-900-million-washington-state-will-soon-take-over-all-school-employee-health-care-plans/ https://www.seattletimes.com/education-lab/with-a-price-tag-... https://www.hca.wa.gov/about-hca/school-employees-benefits-board-sebb-program/sebb-fact-sheets https://www.hca.wa.gov/about-hca/school-employees-benefits-b... Those links provide facts and figures, but no figure on what the value of the employee benefit is. I'd encourage anyone interested to ask their employer's HR dept what the value is of their employer provided health care benefit, and compare.
- pininja 6y ago
  I upvoted you’re comments since they are accurate to my mother’s experience as a 33+ year elementary school teacher in CA. Her health care is similar to what my job provides, and then she gets a pension that highly incentives 35+ year career of continuous work in the same district. Any long term medical leave pauses pension credit, and moving to a different district within the same state can also mess with the pension terms. Switching jobs 15 years in feels like an all or nothing situation since they haven’t been paying into social security. I don’t know any teacher friends of hers that have retired before 30 years on the job. It’s stable, but it’s not an early retirement career. Finally, I want to acknowledge that funding in CA for teachers is difficult to adjust and complex, but it’s all inherently public. https://ed100.org/lessons/whopays https://ed100.org/lessons/whopays
  - WalterBright 6y ago
    Your link has many facts about sources of funding, but does not say what the value of the teacher benefits package is. > retired before 30 years on the job. It’s stable, but it’s not an early retirement career. I'd consider retiring at 52 early retirement, especially if it comes with a lifetime pension.
    - pininja 6y ago
      The median for retirement in CA is 61.9 years of age. Age factor plays a large role in setting pension, one cannot retire early without giving up a portion of the pension. The average monthly benefit is $4,088. Here’s an idea of pension contribution > Teachers contribute 8% of their monthly salaries into a state pension fund, while their employers contribute an additional 8.25%. On top of these payments, the state of California contributes another 2% into the fund. All from https://www.teaching-certification.com/salaries-benefits/california-teaching-salaries-and-benefits.html https://www.teaching-certification.com/salaries-benefits/cal...
      - WalterBright 6y ago
        Thank you. So that gives the cost of the retirement plan at 10.5% of salary. The link, unfortunately, does not give what the cost of the healthcare plan is (or other benefits). Your link also says they can retire at 50 with 30 years of service. Sure, it's not the full pension, but they'll still be receiving the pension for another 30 years. Seems generous to me. I don't know a private company with a plan like that. SS doesn't start paying out until 62 (also at a reduced amount).

mrobins 6y ago

The article doesn’t say Andelans think only making 1/3 of their billing rate is unfair. It says they don’t make 1/3rd of their bill rate but the company perpetuates the fallacy that they do. It both makes Andela’s pay scheme seem more generous than it is while creating social misconceptions about how well off Andela’s workers are.

femiagbabiaka 6y ago

A one person small business and a corporation on the size of Andela simply can not be compared at any level.