Author Topic: Salary vs. Contract Rates  (Read 8681 times)

tjt756

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Salary vs. Contract Rates
« on: April 22, 2014, 03:00:31 PM »
Hey all -

I work salary, but I was thinking about instead doing similar work as a contractor instead (for the same company), and doing it part time.  My salary is ~$125K, so what would be a reasonable hourly rate part time to ask for?

Thanks!

Freedom2016

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Re: Salary vs. Contract Rates
« Reply #1 on: April 22, 2014, 03:15:52 PM »
So that's a $60.10 hourly rate?

Years ago when I went from salaried to PT contractor for the same company, they paid me roughly 150% my equivalent hourly rate. Assuming that ratio still holds, that would mean something like $90/hr.

tjt756

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Re: Salary vs. Contract Rates
« Reply #2 on: April 22, 2014, 03:22:21 PM »
Thanks, course11.

Did that include any sort of bonus in your salary?  I know it's technically a bonus, but it's standard that I get a 20% bonus (5% each quarter) and I've never NOT gotten it.  Which means my real pay is over $140K/year.  So would you recommend I add that into the 150% multiplier you threw out there?

Freedom2016

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Re: Salary vs. Contract Rates
« Reply #3 on: April 22, 2014, 03:29:32 PM »
<shrug> I don't know. It might depend on your industry, on demand for contractors, etc.

Do you know any contractors in your industry who would be willing to share their rates with you?

MDM

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Re: Salary vs. Contract Rates
« Reply #4 on: April 22, 2014, 03:31:17 PM »
What is your motivation to switch to contractor status?  E.g., could you simply switch to Less Than Full Time (LTFT) status and stay on salary?  How sure are you that the company would hire you back on a contract basis?

To make it financially equal, account for at least:
  - extra self-employment taxes you need to pay
  - company-paid benefits you will lose (insurance? pension?  bonuses? etc.?)
  - greater likelihood (as a contractor) of being laid off in a downturn

General negotiation strategy:  Ask the company what they would pay you, instead of you first naming a wage.


tjt756

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Re: Salary vs. Contract Rates
« Reply #5 on: April 22, 2014, 03:45:12 PM »
MDM -
I've already come to an agreement with my employer that I could work part time with them, as I don't want to work full time anymore but they still need me.  They agreed to this, but we just haven't negotiated wages yet.  I'm confident they will be reasonable, as will I.

My boss told me today that "typical" pay for contractors in my engineering field at this company is $75/hour.  That seemed low considering my hourly rate is already closer to $65/hour, plus 3 weeks vacation, 2 weeks of sick time, standard bonus of 20%, good benefits, employee stock purchase, 401K matching, etc. 

Also, I'm more experienced than the typical contractor, not to mention I don't come with the month (or more) long ramp up time to learn the ins and outs of our office processes since I've been there for several years. 

I was assuming at least $100/hour would be typical.  I'm not so worried about getting every last dollar, but $75/hour seemed extremely low considering my current salary and benefits.  If I was thinking $80, I would just accept $75.  But I was assuming it would be closer to $100, which is a hell of a lot more in an 8-hour day.

BlueHouse

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Re: Salary vs. Contract Rates
« Reply #6 on: April 22, 2014, 04:30:00 PM »
I work salary, but I was thinking about instead doing similar work as a contractor instead (for the same company), and doing it part time.  My salary is ~$125K, so what would be a reasonable hourly rate part time to ask for?
I do contract work for the government, so my rates must be auditable.  When I switched from salaried to contractor, I used 3 separate methods to arrive at a number so I could defend my rate as needed. 

This was the article I used to help me determine my billable rate. (scroll down and they'll walk you through all 7 models.

http://consultantjournal.com/blog/setting-consulting-fee-rates

pdf the page and save it when you're done.  I can't tell you how many people have asked me for help on this, and I just keep sending them back to this page. 

BlueHouse

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Re: Salary vs. Contract Rates
« Reply #7 on: April 22, 2014, 04:40:11 PM »
My boss told me today that "typical" pay for contractors in my engineering field at this company is $75/hour.  That seemed low considering my hourly rate is already closer to $65/hour, plus 3 weeks vacation, 2 weeks of sick time, standard bonus of 20%, good benefits, employee stock purchase, 401K matching, etc. 

Your boss is surely mistaken.  It sounds as if he is looking at salary only without any overhead.  I work with budgets and have access to thousands of rates for many companies.  I've never seen a rate that low for skilled or unskilled labor. 
GSA Advantage has thousands of contractor rates that you can use for comparison purposes. 

*Edited to include an actual GSA entry with engineering rates and position descriptions.  (below)

GSA Awarded Rates:
 
Labor Category / Minimum Education  / Minimum Experience / GSA Awarded Rate
 
Principal/Sr. Program Manager           Bachelors        25        $314.11
Sr. Project Mgr/Sr. Systems Engr        Bachelors        20       $244.31
Project Mgr/Systems Engr                  Bachelors        17        $209.40
Senior Engineer                                 Bachelors         12       $167.54
Staff Engineer                                   Bachelors           8       $132.64
Designer                                           Bachelors          15       $104.83
Administrative Support                     Bachelors          11         $76.70
 
 
Labor Category Descriptions:
 
Principal/Sr. Program Manager
Organization Relationship: Assigned to Project, Program, Task or provides direct support to a Task
Leader. May function as a Task/Program/Project Leader.
 
Reports to: Principal or Assigned Lead
 
Knowledge: Senior Technical/Engineering professional who acts as a leader or adviser in complex and
critical client projects. Performs specialized tasks associated with program/project technical and
management requirements. Possesses advanced knowledge of management and program execution
principles as well as methods and techniques used in area of technical expertise. This position requires
well developed leadership qualities, communications, and program/project management skills. Works
independently on efforts. Position requires managing other employees and performing tasking.
 
Education/Experience:
BS degree in a Technical Discipline; 25 years of experience in related activities;
MS degree in a Technical Discipline; 23 years of experience in related activities;
PhD. Degree in a Technical Discipline; 21 years of experience in related activities;
28 years of directly applicable experience, no degree.
 
Senior Project Manager/ Senior System Engineer
Organization Relationship: Assigned to Project, Program, or Task and provides direct support to a Task
Leader. May function as Task/Project Leader.


Source:  http://www.gsaelibrary.gsa.gov/ElibMain/sinDetails.do?executeQuery=YES&scheduleNumber=871&flag=&filter=&specialItemNumber=871+2
« Last Edit: April 22, 2014, 04:48:43 PM by BlueHouse »

the fixer

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Re: Salary vs. Contract Rates
« Reply #8 on: April 22, 2014, 05:56:29 PM »
I work salary, but I was thinking about instead doing similar work as a contractor instead (for the same company), and doing it part time.  My salary is ~$125K, so what would be a reasonable hourly rate part time to ask for?
I do contract work for the government, so my rates must be auditable.  When I switched from salaried to contractor, I used 3 separate methods to arrive at a number so I could defend my rate as needed. 

This was the article I used to help me determine my billable rate. (scroll down and they'll walk you through all 7 models.

http://consultantjournal.com/blog/setting-consulting-fee-rates

pdf the page and save it when you're done.  I can't tell you how many people have asked me for help on this, and I just keep sending them back to this page.

I was planning on saying something similar to this. Run the numbers multiple different ways, because there really are various ways to look at it. Use each thought experiment to evaluate the offer.

For instance, start with adding in direct costs as a contractor (self-employment taxes, health insurance premiums, invoicing/accounting, business expenses you'd incur)

Consider indirect costs/benefits like differences in retirement plans, costs of forming an LLC, or liability insurance. These things may or may not apply.

Consider the ACTUAL number of hours you work in your job now, salaried, if you work unpaid overtime.

Consider the benefits of being a contractor that might apply to you. Would you have more flexibility in moonlighting with other clients? Do you have to get approval to take time off from your salaried job that might be a simpler process as a contractor?

What you'll end up with is being able to state "I should take this offer for a contract position if I value X, Y, and Z highly but value A, B, and C very little." In my case, I like self employment so much that I'm willing to be paid LESS per hour for part-time work than I could make getting a full-time job. That's a personal decision.

MidWestLove

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Re: Salary vs. Contract Rates
« Reply #9 on: April 22, 2014, 06:41:29 PM »
Consider the ACTUAL number of hours you work in your job now, salaried, if you work unpaid overtime.

Consider the benefits of being a contractor that might apply to you. Would you have more flexibility in moonlighting with other clients? Do you have to get approval to take time off from your salaried job that might be a simpler process as a contractor?

+1. think of why do you want to make a switch and what is important to you (i.e. how long of the contract it is ,etc) . remember that it boils down to market rates as much as personal wants and if you ask too high you create additional incentives to get rid of you. in corporate world I see, contractors for temporary/unexpected needs, for "spikes" that can not be accommodated with in inflexible FTE structure , or for specific (term limited ) projects. Noone wants to pay all of the money to long term contractor if FTE could be had cheaper (an FTE, non necessarily you) and you manager is not a dummy. Even if your manager is a dummy, there is his/her manager, there is finance support groups that would question the spend, review boards ,etc. and once you switch - you switch

tjt756

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Re: Salary vs. Contract Rates
« Reply #10 on: April 22, 2014, 08:56:08 PM »
Thanks everyone, this was helpful.

I should have mentioned earlier, I'm quitting my job either way because I'm moving.  I had originally planned on taking some time off between jobs, but then I offered to work part time mostly as a favor to them and I'll be in town for awhile anyways, as well as to make a few extra bucks while still having plenty of free time for other things. 

So it's not critical that I maximize my pay, but it's important to me that I'm not just working on the cheap either.  I don't need this money, but if I'm going to give them my time I just want to make sure I'm getting a fair wage.

I don't know the local market pricing, so I think I'll just show some of the numbers shared above and propose something along the lines of $100/hr, which seems to be on the low end of the range.  This is what I figure I need in order to make it worth my time, especially since I'll have all the additional end of year paperwork for what should end up being only about 6-7 weeks of part time work.

bacchi

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Re: Salary vs. Contract Rates
« Reply #11 on: April 22, 2014, 09:57:34 PM »
Are those GSA numbers to an agency or 1099? $100/hr seems fair as 1099. Asking for anything like the above might be too shocking, especially if the boss threw out $75/hr.

NewStachian

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Re: Salary vs. Contract Rates
« Reply #12 on: April 23, 2014, 07:28:20 AM »
Sorry this question isn't 100% in line with the thread, but it's related to contracting and there seems to be a lot of experienced people here. What constitutes years of experience? Does it have to be years in that exact job? Or years as a professional in the industry? I'm wondering if my military service would factor into this number so I could determine where I'd be on the scale as a contractor.

Thanks!

zurich78

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Re: Salary vs. Contract Rates
« Reply #13 on: April 23, 2014, 08:23:09 AM »
I think it can be a bit dangerous to do a straight base salary from a FT position to contract rate conversion.  There are other factors that need to be considered with the contract rate IMO.  For instance...

- Retirement plan offering.  If the FT job has a 401K with matching, you probably won't have that option as a contractor so that should be baked in to your desired hourly rate
- Benefits (Medical/Life/etc).  If they are the same, then you can ignore this
- PTO.  You won't get paid time off as a contractor, so I think that should be factored in and the rate should be bumped up a little to compensate for that.
- Any other employee perks or benefits that you won't get as a contractor. 

If you just do a straight salary conversion, then you're going to have to pay for these things out of your new contract rate pay, which would basically reduce your take home relative to the FT compensation rate. 

Lastly, on your years of experience question.  The way I look at it when hiring is the number of years of experience in your area of expertise, regardless of industry.  So if you're a project manager, then, X years of project management experience that you can prove and speak to.  The perceived quality of that experience is a whole other animal of course.

BlueHouse

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Re: Salary vs. Contract Rates
« Reply #14 on: April 24, 2014, 12:17:34 PM »
What constitutes years of experience? Does it have to be years in that exact job? Or years as a professional in the industry? I'm wondering if my military service would factor into this number so I could determine where I'd be on the scale as a contractor.
Years of experience does not have to be in the exact job, so yes, military service (if doing some type of related work) would count. 
Using the sample provided earlier, the Education/Experience section of the schedule identifies experience in "related activities".  Note directly below that line that you can substitute 2 years of that experience for a Masters degree, or 4 years for a PhD.  if you hold no degree, you would need additional years of experience. 

copied from GSA Schedule   --------------------
Education/Experience:
BS degree in a Technical Discipline; 25 years of experience in related activities;
MS degree in a Technical Discipline; 23 years of experience in related activities;
PhD. Degree in a Technical Discipline; 21 years of experience in related activities;
28 years of directly applicable experience, no degree.
----------------------------------------------------------
Please also note that every GSA Schedule is a list of jobs, their descriptions and requirements, and the rates associated with them.  The Schedule itself is created by a company (not the government), so all of these titles and descriptions are completely dependent on roles created by the company. 
For instance, in my company I can choose to call myself "Master Chief Bird Calling Mummified roller-skater".  I then define the qualifications for that role and assign a rate to that role.   When I work under someone else's contract, they usually do not have any job that sounds anything like what I do.  Or if they do, my hourly rate is often far above what they have approved in their schedule (contract).  So they bill me as either a "Subject Matter Expert" or a "Program Manager" because those rates go much higher and my rate fits easily within. 

tjt756

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Re: Salary vs. Contract Rates
« Reply #15 on: April 25, 2014, 07:23:31 PM »
Just following up...

I asked for and was given $100/hour, which is a large amount more than the $75 that was originally floated out there.  You guys just made me $200/day richer!!! 

I'll only be doing it for about 6 weeks, 3 days per week.  But that's still $3600 more than I would have otherwise gotten.

BlueHouse

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Re: Salary vs. Contract Rates
« Reply #16 on: April 25, 2014, 08:42:43 PM »
Just following up...

I asked for and was given $100/hour, which is a large amount more than the $75 that was originally floated out there.  You guys just made me $200/day richer!!! 
That's fantastic!  Congratulations tjt756!  Good job negotiating!