Contract / Consultant rate
Thinking of trying my hand at being a contractor/consultant. How much more would (or should) my annual compensation be compared to a full-time employee salary and why?
Double your current compensation and then wave half of it goodbye as it 💸💸💸 to Uncle Sam and other things. Seriously, you need to keep taxes, insurance, etc. in mind. You tend to pay more taxes (and on a quarterly basis) as a contractor.
Just to add, be really sure that you understand the taxes such as how you pay your estimated state, federal, and fica. From there you can get a better idea of what your rate should be relative to a salaried position.
If you get a deal contracting on a corp-to-corp basis, you can seriously lower your taxes. Far more than W-2 employees can. You can get your overall effective tax rate from 40% to less than 20%.
Rule of thumb is salary of $x,000/yr = rate of $x/hr
I'm not sure how many people would be willing to pay hundreds of thousands of dollars an hour
This is missing benefits you get when on salary
Roughly 150% of your currentrate
$24k per year for medical + 4 weeks salaries + 15 or 20 % self employed taxes plus your net income decided by 2100.
2080 is 40 hours x 52 weeks, not 2100. That's assuming you actually work only full time currently.
Here’s what I do: Determine the hourly rate from the salary of an employee doing the same job. Multiply by 3x as a starting point. If longer contract, then lower rate, if shorter than higher. Short term is on spam of a few weeks. Long term is 6 months or more. I’ve always told my clients how i determine my rate and most are willing to negotiate when they understand short term has lots of asymmetrical risk biased towards the contractor.
Useful, thank you
One more thing I would add: Post all the employee/contractor lawsuits with companies such as Uber it is much more difficult to get hired via a 1099. Most large companies will make you go via a contracting firm where you are considered an employee with a W-2. If you really want the 1099 route, then a smaller company or or startup may work especially if they don’t peer too closely at the definition of contractor vs employee. One of the benefits of a 1099 is that you can deduct all your work costs and transportation. Also, you can shelter 25% of profits into a SEP IRA. Contracting pays well if you do it right, but you always need to be hunting for the next gig if it is mostly short term work.
Chances are zero you will be directly contracting with the company you will be working for, assuming major companies. You will have at least one intermediary. You can choose W2, or 1099. W2 might have insurance, how good can vary a lot. It’s no different from getting a full time job: get a few offers first. Your take home comp should be higher as you might not work for the whole year and you will be in between jobs more frequently. And will receive no or very little benefits even on W2. 150% is about right, if you have no major health concerns or kids that needs special healthcare.
I used to direct contract. It isn’t zero.
Definitely not zero. And if you're working with a consultancy on a W-2 you're not a consultant, you're simply an employee of a consultancy. At a complete guess, 3/4 consultants work though an intermediary who either finds work, provides benefits, or simply performs the accounting and tax services required. The other 1/4 do that themselves.
Contractor is not the same as consultant
It’s just semantics. In the eye of the company, everyone not an employee is a contractor (legally). The service you provide and how you pitch is all that matters.
Consultants are typically under contract to advise/execute projects. Ipso facto, consultants are contractors.
If you are a senior person 15+ YOE you will make more by working full time. If you are smart and efficient and get WFH contracting you can make more by working at 2 places at the same time.
Is that like the person that was outsourcing all their code & then committing it back as if he’d written it? So do that & work at another job FT to obtain dual incomes? Seems impossible, and dishonest.
This isn't true, at least in all cases. What do you earn as FTE - $200k, $250k? If you are genuinely worth that salary you can easily get $200-250/he, which is roughly double. We regularly pay $150/hr for fucking basic consultants - like not even senior level engineers.
WTF, why would you volunteer to be 2nd class citizen??? Makes no sense. Taxes are significantly more pain in the ass too!
Same reason why people work for startups instead of FAANG. Higher potential upside, larger risk.
I'm sick of being screwed over by companies. They treat me as a resource so I want to maximize my worth. I want to get paid enough to not care about politics or be personally invested in the long term success of the project or business I work for.
Any idea how would the health insurance work?
You just pay for it yourself. It's expensive but the good thing is you can shop around.
This, I spend ~$500/month on health insurance here in the Bay Area. And a single male in his late twenties.....it’s not worth it.