Salary vs. Contract rates, adjustments, etc (software)

Jasconius · May 2010

I've been on salary for all of my career but I am considering offers right now for long term (read: about a year) contracting work. The work is local enough but does require relocation.

The deal is that the job has no defined benefits. I need to come up with a number, and I am wondering if there is any baseline rules for "if I make this much on salary, a contract rate would be (Salary * 1.##)". I've already calculated the cash value of all of my relevant benefits, but isn't it considered decent to also add in value for the notion of job insecurity, and the possibility of having to relocate yet again after the contract expires?

What is considered normal in this arena, any hints, advice... and so on.

Thanks!

The Crowing One · May 2010

Pretty much. Base contract salary is rate+whatever you can sneak it.

I've always never shown a "plus health" but most employers will assume that a base rate+ is standard concerning the less hours required each week.

PirateJon · May 2010

The rule I've heard is pay for the position/$1000 - so if the job is replacing a person that makes $75,000 a year you should charge $75/hr.

Rules I got from another site that were highly helpful:

1) Never negotiate a flat rate as a contractor, you're just asking for abuse, we call those things salaries and they come with benefits provide protection for you in exchange for a lower pay check.
2) Negotiate a set normal business hours rate.
3) Negotiate an after hours normal business hours rate.
4) Negotiate an above 10 hours a day rate.
5) Negotiate a minimum bucket or increment of hours.
6) There is a special place in hell for recruiters, avoid them at all possible costs, they are scum.

Remember - you're a business now: you have to pay salary and benefits to your employee (you), arrange time off (sick leave at least) and vacation, cover training, marketing, taxes, business licenses and fees, etc etc.

Deebaser · May 2010

One thing to consider is that you'll have to pay the full freight of your payroll taxes. So approximately 15% of what you ask for you will go to taxes on top of Federal/State Income taxes.

That and price out individual health/dental plans in your state.

Jasconius · May 2010

Does that 15% include Medicare/Social security taxes? Or is it 15%+ all that other junk?

PirateJon · May 2010

FICA is social security and is 7-8% of your income. There are also quarterly taxes due to Fed and State. My total was closer to 40% than 15%.

Start reading here, and check the estimated taxes bits.
http://www.nolo.com/legal-encyclopedia/consultants-contractors/

Jasconius · May 2010

Are these tax laws relevant to 1099 contracting as opposed to true vendor syle contracting?

I am not my own LLC, just to be clear. These sort of tax regulations sound pretty bizarre if I am not legally my own company.

I just want to be sure.

Roland_tHTG · May 2010

But you will be your own company, just without the extra legal mumbo-jumbo to define things between you and your business that an LLC provides.

PirateJon · May 2010

Right, the term is Sole Proprietorship. This is good in that it's easy to setup, but bad in that you are responsible for any debts (like a lawsuit).

Jasconius · May 2010

Wow, so if Fico is 8% and payroll is 15%, that sounds like a solid 23% out off the top (plus medicare tax though it's pretty low).

I live in Florida, so I don't have to pay shit for state taxes. homersimpsonwithmonacleandcane.jpg

So really my only new tax is the employer side of Payroll, which is 7.5%, good to know!

Are the federal taxes due quarterly in a sole proprietorship?

Hlubocky · May 2010

Out of curiosity, what does this type of work have to do with that guy that crashed the airplane into the IRS building a few months back? I remember reading about how basically there was some law from the 1980s that said software developers can't be in business for themselves (or something like that).

PirateJon · May 2010

Quarterly estimated taxes:
http://www.nolo.com/legal-encyclopedia/article-30084.html

Deebaser · May 2010

I wasn't entirely clear but I was including the FICA as part of the 15%. When you're 1099 you're responsible for paying the employer portion effectively doubling your medicare / SS taxes.

Jasconius · May 2010

PirateJon wrote: »

Quarterly estimated taxes:
http://www.nolo.com/legal-encyclopedia/article-30084.html

Well that's damned annoying.

I have never heard of software developers "not being able to go into business for themselves". I know plenty that have and do.

noobert · May 2010

My old man has been a contracter (senior analyst/programmer) for the last 25 odd years, he works out his rate by simply asking his agent what the going rate is for someone with his experience/the kind of job hes after. Maybe just try calling one and seeing how much information you can get with out actually agreeing to any contracts etc.

Different country and all, but he uses agents since it was far to time consuming to work out the Tax/Super/Accounting junk that comes with being a Sole Proprietor. The company that places him takes care of all of that and the legal side for what seems to be a totally reasonable cut.

Wiley · May 2010

Jasconius wrote: »

Does that 15% include Medicare/Social security taxes? Or is it 15%+ all that other junk?

I did $2000 worth of contract work this summer with the Oklahoma State Department of Education. I paid almost $800 in state and federal taxes on it, so my rate was near 40%.

Penny Arcade

Salary vs. Contract rates, adjustments, etc (software)

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