4 ms·

There are roughly 2000 working hours in a year, so annual_salary / 2000 = hourly rate of a salaried employee. And as a rule of thumb, contractors need to make a

There are roughly 2000 working hours in a year, so annual_salary / 2000 = hourly rate of a salaried employee. And as a rule of thumb, contractors need to make about twice the hourly rate of a salaried employee in order to come out even. So annual_salary / 1000 is roughly the equivalent contractor rate.

Timothee 14y ago
I just wanted to add that the difference of 1000 hours come from time spent looking for and dealing with contracts and other overhead like that (as well as downtime), which you don't have as a salaried employee.
- Nursie 14y ago
  I'm pretty sure that overhead and downtime don't count for half the working year!! At least not for any contractor I know.
  - moron4hire 14y ago
    Depends on your market and industry.
Nursie 14y ago
This misses out the effect of the tax advantage of being self-employed, which is massive. I'm actually a little under the salary/1000 rate in my contracting as compared to my last permanent role, but bring home about 50% more. --edit-- I understand this is because I have no trouble getting work, but that seems a weird thing to include.
- pandaman 14y ago
  Without write offs you pay more taxes as a contractor in the US (you are liable in full for payroll taxes instead of the half that full time employees share with the employer). Any possible advantages might come from writing off your work-related expenses but, frankly, this is not much for a programmer if you are honest and/or uncomfortable with possible audits (e.g. if you feel you are not able to prove to IRS you only needed your car for programming). Paid vacation and holidays is a significant part of compensation that contractors don't get. Also, if you don't have insurance from your spouse you will need to buy it yourself at much higher rate. Even if your spouse is covering you there is a value in backup insurance when one of you loses their job. The salary/1000 estimate is accounting for the above and not for the possible lack of work. If you don't expect to work 2000 hours per year on contract you should charge even higher rate.
  - Nursie 14y ago
    So this is a US thing. Thankyou for saying so. Here in the UK you don't need health insurance, and the tax situation is much better for a contractor/consultant than an employee. Paid vacation obviously till holds.
  - lsc 14y ago
    salary/1000 is pretty good in my experience; I've usually gotten less than that (going through agencies) Getting /more/ than that is quite difficult. (I mean, the agency gets that for you, sure, but they aren't going to pay you anywhere near that.) As an example, uh, last time I contracted full-time, I got $72/hr on a corp to corp basis. Right before that I was getting around $105K/year as a full time W2. (Last I looked, I was offered $95/hr, but had to back out 'cause one of my employees left for a better job, so I no longer had the time to rent myself out full time, and they didn't want me part-time. It was a good gig, too- just my thing. The company had just been bought and gutted, everyone that could had left. Just the sort of smoldering heap that I like.) I mean, obviously, if you value job security (I don't) then moving from $105K/year to $72/hr is a really stupid move... but I don't value job security, and I wanted to dump money into my hosting operation, so it was a reasonable choice for me. It's likely that I tipped my hand, though, and acted a bit too eager during the negotiations, and left some money on the table, but I don't think I could have pulled off $100/hr at the time. that was before I was published. But yeah; from what I see with the agencies? They have lower expectations... much lower expectations than someone hiring on direct to the client, but they don't pay all that much better. On the upside, standards are low and if you are good, they keep you in easy work. (It's also possible that I simply haven't fount the right agencies.) It's different if you are going direct with a large corporation, but that's very hard to do. Usually large corporations want a buffer corporation between you and them (and a corporation you set up that derives all it's revenue from your consulting doesn't seem to count) The rules are much loser for smaller clients, but smaller clients, generally speaking, don't pay nearly as much. Where I am? It's difficult to get most agencies to do 1099 or corp to corp these days; most want you as a W2, which means you are taxed exactly as an employee. There's some law that essentially prohibits one-person consulting corporations, or something like that. I've always negotiated a corp to corp deal, as I have a corporation that does other stuff, and when I consult, it's for venture capital, so for me, the tax benefits are very real (e.g. I get to spend the money on servers or support salary pre-tax) of course, any money I want to pass through to me, I've gotta pay the 15% on, as you point out.
ericb 14y ago
What is the rule of thumb for on w2 contractor vs. 1099 with rates?

Timothee 14y ago

I just wanted to add that the difference of 1000 hours come from time spent looking for and dealing with contracts and other overhead like that (as well as downtime), which you don't have as a salaried employee.

Nursie 14y ago
I'm pretty sure that overhead and downtime don't count for half the working year!! At least not for any contractor I know.
- moron4hire 14y ago
  Depends on your market and industry.

Nursie 14y ago

This misses out the effect of the tax advantage of being self-employed, which is massive. I'm actually a little under the salary/1000 rate in my contracting as compared to my last permanent role, but bring home about 50% more. --edit-- I understand this is because I have no trouble getting work, but that seems a weird thing to include.

pandaman 14y ago
Without write offs you pay more taxes as a contractor in the US (you are liable in full for payroll taxes instead of the half that full time employees share with the employer). Any possible advantages might come from writing off your work-related expenses but, frankly, this is not much for a programmer if you are honest and/or uncomfortable with possible audits (e.g. if you feel you are not able to prove to IRS you only needed your car for programming). Paid vacation and holidays is a significant part of compensation that contractors don't get. Also, if you don't have insurance from your spouse you will need to buy it yourself at much higher rate. Even if your spouse is covering you there is a value in backup insurance when one of you loses their job. The salary/1000 estimate is accounting for the above and not for the possible lack of work. If you don't expect to work 2000 hours per year on contract you should charge even higher rate.
- Nursie 14y ago
  So this is a US thing. Thankyou for saying so. Here in the UK you don't need health insurance, and the tax situation is much better for a contractor/consultant than an employee. Paid vacation obviously till holds.
- lsc 14y ago
  salary/1000 is pretty good in my experience; I've usually gotten less than that (going through agencies) Getting /more/ than that is quite difficult. (I mean, the agency gets that for you, sure, but they aren't going to pay you anywhere near that.) As an example, uh, last time I contracted full-time, I got $72/hr on a corp to corp basis. Right before that I was getting around $105K/year as a full time W2. (Last I looked, I was offered $95/hr, but had to back out 'cause one of my employees left for a better job, so I no longer had the time to rent myself out full time, and they didn't want me part-time. It was a good gig, too- just my thing. The company had just been bought and gutted, everyone that could had left. Just the sort of smoldering heap that I like.) I mean, obviously, if you value job security (I don't) then moving from $105K/year to $72/hr is a really stupid move... but I don't value job security, and I wanted to dump money into my hosting operation, so it was a reasonable choice for me. It's likely that I tipped my hand, though, and acted a bit too eager during the negotiations, and left some money on the table, but I don't think I could have pulled off $100/hr at the time. that was before I was published. But yeah; from what I see with the agencies? They have lower expectations... much lower expectations than someone hiring on direct to the client, but they don't pay all that much better. On the upside, standards are low and if you are good, they keep you in easy work. (It's also possible that I simply haven't fount the right agencies.) It's different if you are going direct with a large corporation, but that's very hard to do. Usually large corporations want a buffer corporation between you and them (and a corporation you set up that derives all it's revenue from your consulting doesn't seem to count) The rules are much loser for smaller clients, but smaller clients, generally speaking, don't pay nearly as much. Where I am? It's difficult to get most agencies to do 1099 or corp to corp these days; most want you as a W2, which means you are taxed exactly as an employee. There's some law that essentially prohibits one-person consulting corporations, or something like that. I've always negotiated a corp to corp deal, as I have a corporation that does other stuff, and when I consult, it's for venture capital, so for me, the tax benefits are very real (e.g. I get to spend the money on servers or support salary pre-tax) of course, any money I want to pass through to me, I've gotta pay the 15% on, as you point out.

ericb 14y ago

What is the rule of thumb for on w2 contractor vs. 1099 with rates?