This is for Contract-to-Hire though. Which is a little different. You aren't going to be billing this company anyway. You are essentially setting a fixed rate

This is for Contract-to-Hire though. Which is a little different. You aren't going to be billing this company anyway. You are essentially setting a fixed rate for a fixed amount of time with the expectation of full-time employment after that time. So it does make sense to essentially contract yourself at that rate. But he's saying when you do, add in the 3% plus $8/hr to cover the things not being covered by your employer during that time. It'll make the transition a little smoother. You won't feel as if you're shafting yourself. I'd also add that if I were Contract-to-Hire, I'd also stipulate that once I'm hired, I'm a full employee. My contract period is my probationary period and after I should be treated as a full employee with all the benefits that entitles me to: health care, 401k matching, etc.