4 ms·

I'm not sure if you're saying it's less than 100K or just that you'd think contractors would make much more than regular employees, but $74 an hour works out to

I'm not sure if you're saying it's less than 100K or just that you'd think contractors would make much more than regular employees, but $74 an hour works out to roughly $150K a year if they work full time hours. Edit: sorry, clearly I know nothing about contracting.

moocow01 15y ago
Its a bit more complex than that. Heres a decent discussion on the breakdown... http://discuss.fogcreek.com/joelonsoftware3/default.asp?cmd=show&ixPost=102326&ixReplies=12 http://discuss.fogcreek.com/joelonsoftware3/default.asp?cmd=... (In short theres a lot of other costs and considerations that have to go into your rate as a contractor.)
furyofantares 15y ago
An employee with a 100k salary costs something like 200k to the employer. Contractors also expect a bit of a premium due to getting sporadic work, if they didn't get a premium they'd opt for stable work instead. In exchange for this premium you get someone you can stop paying the second you don't need them, and someone who presumably doesn't need training. A salaried employee worth 100k salary should expect somewhere around $100/hr contracting. But the average should be higher yet, because the average contracting job requires more experience than the average salaried job.
- mahyarm 15y ago
  Is it really double? The employer's side of FICA adds ~$15k , whatever the state adds to the employer adds a few more thousand. Lets be extravagant and say each of these line items cost $12k/year ($1k/month): * Office space, utilities, parking space * Health Insurance * Administrative Overhead * Office Equipment It comes out to around $168k/year. And I know almost nobody spends that much on each of those items.
  - mechanical_fish 15y ago
    You left out the time required to market yourself and look for new gigs, the allowance for empty space in your schedule (it's hard to manage a pipeline even in a factory where you have insane degree of control; don't expect perfect scheduling as a consultant) and a safety margin to cover the clients who don't pay thir bills. That said, "double" is a rule of thumb. Physicist law states that 1.68 is equal to two for rule-of-thumb purposes. ;)
  - moocow01 15y ago
    Actually I look at some of these breakdowns for large corps. You're pretty much spot on with your number. 100k employee is usually a line item at around 160k. Obviously depends on the org and role but thats a very safe average.
bad_user 15y ago
Contractors can't work full-time hours. Contractors are losing work hours by searching for clients, because you never want to end up with your queue empty. So you have to go to lots of meetings and invest in marketing yourself too. And in case plenty of clients are available, just filtering through them is a chore. Then contractors also work on multiple things at once. At least many of them do, because that way you're minimizing the risk of returning home with zero earnings for the month in progress (we are talking about contractors earning $74 per hour that can't afford to lose much). Some clients are simply going to walk away and you're going to be left without payment, so such a strategy makes sense. But working on multiple things at once means you're constantly doing context-switching. I think it is safe to assume that contractors are working 5-6 billable hours per day and not more.
patio11 15y ago
That is not quite how contracting math works out, though. You have to charge significantly more to account for just the direct costs of your employment (such as payroll tax, half of which is salary that every employee has but is unaware of) and the benefits package. Basically, you get to pay your own fully loaded costs. $74 an hour at 40 hour weeks gets you a package similar to that enjoyed by an salaried engineer at $80k to $90k or so. You also tend to charge more than even that calculation suggests, because you're responsible for downtime, overhead in getting new gigs between clients, credit risk, yadda yadda. The upshot is that you'd probably have a contracting rate in the low three figures. (They do, of course, go up from there.)
ryguytilidie 15y ago
FWIW I have been both a contractor and a full time employee a few times in the past 5 years and from what I have learned/been told, the general rule is if you make 74k, you should ask for 74/hr to be a contractor due to higher taxes, less job security, no benefits, etc. Obviously this is a pretty sweet deal as the paychecks are bigger, but your expenses are higher and eventually the threat of a changing economy taking your job mean you need to save some extra from that.
samstave 15y ago
74 is likely the take home rate of the contractor. I bill out at more than double that - but I don't take home $74/hour. Its a fucked up situation for many contractors; they are the ones doing al lthe work, and are typically billed out at 3 times what they make. The employers will say "we have to cover costs like payroll and benefits" and then turn around and charge the employee many hundreds of dollars for the benefits package (mine is 1200/month to cover my whole family.)

moocow01 15y ago

Its a bit more complex than that. Heres a decent discussion on the breakdown... http://discuss.fogcreek.com/joelonsoftware3/default.asp?cmd=show&ixPost=102326&ixReplies=12 http://discuss.fogcreek.com/joelonsoftware3/default.asp?cmd=... (In short theres a lot of other costs and considerations that have to go into your rate as a contractor.)

furyofantares 15y ago

An employee with a 100k salary costs something like 200k to the employer. Contractors also expect a bit of a premium due to getting sporadic work, if they didn't get a premium they'd opt for stable work instead. In exchange for this premium you get someone you can stop paying the second you don't need them, and someone who presumably doesn't need training. A salaried employee worth 100k salary should expect somewhere around $100/hr contracting. But the average should be higher yet, because the average contracting job requires more experience than the average salaried job.

mahyarm 15y ago
Is it really double? The employer's side of FICA adds ~$15k , whatever the state adds to the employer adds a few more thousand. Lets be extravagant and say each of these line items cost $12k/year ($1k/month): * Office space, utilities, parking space * Health Insurance * Administrative Overhead * Office Equipment It comes out to around $168k/year. And I know almost nobody spends that much on each of those items.
- mechanical_fish 15y ago
  You left out the time required to market yourself and look for new gigs, the allowance for empty space in your schedule (it's hard to manage a pipeline even in a factory where you have insane degree of control; don't expect perfect scheduling as a consultant) and a safety margin to cover the clients who don't pay thir bills. That said, "double" is a rule of thumb. Physicist law states that 1.68 is equal to two for rule-of-thumb purposes. ;)
- moocow01 15y ago
  Actually I look at some of these breakdowns for large corps. You're pretty much spot on with your number. 100k employee is usually a line item at around 160k. Obviously depends on the org and role but thats a very safe average.

bad_user 15y ago

Contractors can't work full-time hours. Contractors are losing work hours by searching for clients, because you never want to end up with your queue empty. So you have to go to lots of meetings and invest in marketing yourself too. And in case plenty of clients are available, just filtering through them is a chore. Then contractors also work on multiple things at once. At least many of them do, because that way you're minimizing the risk of returning home with zero earnings for the month in progress (we are talking about contractors earning $74 per hour that can't afford to lose much). Some clients are simply going to walk away and you're going to be left without payment, so such a strategy makes sense. But working on multiple things at once means you're constantly doing context-switching. I think it is safe to assume that contractors are working 5-6 billable hours per day and not more.

patio11 15y ago

That is not quite how contracting math works out, though. You have to charge significantly more to account for just the direct costs of your employment (such as payroll tax, half of which is salary that every employee has but is unaware of) and the benefits package. Basically, you get to pay your own fully loaded costs. $74 an hour at 40 hour weeks gets you a package similar to that enjoyed by an salaried engineer at $80k to $90k or so. You also tend to charge more than even that calculation suggests, because you're responsible for downtime, overhead in getting new gigs between clients, credit risk, yadda yadda. The upshot is that you'd probably have a contracting rate in the low three figures. (They do, of course, go up from there.)

ryguytilidie 15y ago

FWIW I have been both a contractor and a full time employee a few times in the past 5 years and from what I have learned/been told, the general rule is if you make 74k, you should ask for 74/hr to be a contractor due to higher taxes, less job security, no benefits, etc. Obviously this is a pretty sweet deal as the paychecks are bigger, but your expenses are higher and eventually the threat of a changing economy taking your job mean you need to save some extra from that.

samstave 15y ago

74 is likely the take home rate of the contractor. I bill out at more than double that - but I don't take home $74/hour. Its a fucked up situation for many contractors; they are the ones doing al lthe work, and are typically billed out at 3 times what they make. The employers will say "we have to cover costs like payroll and benefits" and then turn around and charge the employee many hundreds of dollars for the benefits package (mine is 1200/month to cover my whole family.)