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Salaried employee vs contractor — 21 Comments

  1. Pingback:Consultants: 1099 or W-2? | James Serra's Blog

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  3. I had to give an hourly rate to a potential employer few minutes ago and your article helped a lot in figuring out what to consider. Thank you!

  4. I went from 72k as a perm to $57 hourly contractor (w2) and even after paying benefits I am doing a lot better. I’ll likely continue to work contract for as long as I can.

    • This sounds in line with what I have read, and confirms my current frustration. I was laid off from a major corporation 5 months ago where my base salary was $96K. I just received a contract offer and I believe the staffing agency is trying to take advantage of my situation given that they likely realize I will be open to any offer after five months. The position is almost identical to my former perm job (of ten years!) and is actually a bit specialized (SAP MM reporting). I have been requesting an hourly rate of $65-$70/hr which I believe is very reasonable. However the headhunter is telling me the client can only offer $44/hr. Of course, he didn’t mention the markup which I suspect is total pimp territory. I do not want to blow the deal since I am in a bad position and looking at cashing out my 401K in another month. I really resent being put in this position, especially when the job requires a very undesirable bumper to bumper 1 hour compute each way. I am thinking that I could email an acceptance copying the client with the added condition that we revisit the rate after 3 months (it is a 9+ month assignment). I was thinking of actually including the $44 rate in the email to ensure the client understands the markup but I am not sure if this will blow the deal. Any thoughts appreciated

  5. Pingback:Consulting company: Perm/Salaried vs 1099/W2 - SQL Server - SQL Server - Toad World

  6. Pingback:Consulting company: Perm/Salaried vs 1099/W2 | James Serra's Blog

  7. Hi James,
    I appreciate this article. It is the closest to my own situation I’ve ever found online since I am a DBA. I have a question for you since this article is a few years old. Excerpted from above, you say “…you would only have to earn $60/hr as a 1099 contractor for the equivalent, which is very much on the low side.” If $60/hr as a DBA contractor was very much on the low side in 2011, what would you expect today’s ‘going rate’ to be? I know a lot goes into setting a rate, but generally speaking, what’s your opinion on this? And what rate is considered very much on the low side these days?

    Thank you in advance for your time and response. I look forward to it as I think many people are now in the ‘contractor’ status and would find this information very helpful. It’s extremely difficult to find real rate information online. I’ve turned many stones in my attempt to find even a simple guideline like the quote I excerpted from your article above. Most of what I have found seems to be rates agencies are offering to pay contractors, which naturally means they are charging the client much more. I don’t work with agencies so I am looking for information on true independent contractor rates.

    Thanks again for your insight. I am enjoying your blog!

  8. >> “Cost of contractors is an expense for a company and therefore a tax deduction, whereas a company can’t deduct salaries.”

    You might want to ask an accountant how to better word this. Companies can deduct salaries so I’m not sure what your point is. Yes, the costs are assigned to different accounts but both are expenses.

  9. As a manager in a top consulting firm, I make around $175k (Inc Bonus). As a contractor I will make around $100/hr to $125/hr range. is it better to stay with my full time job with benefits and vacation or take contract work?

    • As a contractor you will receive no vacation, no holiday pay, no sick days, no paid training*, no health insurance*, no disability insurance*, no life insurance*, no pension*, no matching 401K contributions, no non-taxable per diems*, etc. Those benefits represent significant value and, at the moment, the ones with asterisks are tax free. They most certainly bring your current net annual income & benefits up to the equivalent of $100/hr as a contractor and then some. And, of course, as a contractor it is unlikely you will bill 52 weeks a year. So you won’t gross $208-260K. And from whatever gross amount you make you need to deduct for the equivalent of the taxable benefits you choose to obtain. As a contractor if you choose to take two weeks vacation a year plus 10 holidays, your gross income is reduced $16-20K. Also, there are few contract IT manager positions available unless you mean Project Manager in which case a PMP is usually required. Another consideration is that for most contract positions you pay your own travel and lodging expenses. I’d be very surprised if $100-125 per hour would result in an annual income matching $175K. I’ve made those rates and I don’t recall ever having a net annual income equal to $175K even when my expenses were paid.

      • I forgot to consider the employer paid portion of payroll taxes which is at least 7.65% up to $117,500? of income.

  10. Hi James,
    Thank you for this article which has been so informative and helpful. I am a senior BA and right now if I am offered a full time job which will pay me around 95-100k annually compared to a contract position which currently is paying me $60/hr on W2. do you think it would be a good move for me? Not sure if this is considered a pay decrease if I move in full time.

    Thanks!

    • A $95-100K FTE position + benefits is usually substantially more that $60/hr as a contractor. As a C2C or 1099 or non-benefit W-2 contractor you get no paid holidays, no vacation, no sick days, no health benefits, no disability insurance, no life insurance, usually no workmen’s comp, no unemployment insurance, no tuition coverage, little or no training, no matching of Medicare and Social Security taxes (A contractor pays 15.3%. An employee pays 7.65% and the employer matches it.) If a business shuts down as some plants do once a year or a business closes the week between Christmas & New Year’s that usually means no pay for that week or two. And if you are paying your own travel expenses, you’re only making $40-50 an hour for the hours you do work. If your W-2 contractor position offers some benefits I suspect they are not terribly generous but they so count and should be considered. Generally the downtime/bench time alone makes a FTE salaried position something to seriously consider over a contract position.

  11. I am consulting at a major bank. I work between 50-55 hours per week but only get paid 40 hours per week. Can they do that?

    • Caity

      If you are salaried employee yes they can. Some companies will offset the additional hours worked by letting you take time off. Example, as a BA, I was apart of many deployment nights. So, I am easily working a 10 or 11 hour day. So, my company allows me to take off early the next day or whenever I feel like it before the pay period.

      Another company I worked for had it in my employee contract that the first 10-12 hours is for the company and any additional hours will be considered comp time. Which is equivalent to days off, etc. It depends on the company policy.

      As a contractor that extra 15 hours is OT. I am not sure if that’s time and a half but it’s OT.

  12. I’m trying to decide between 70/hr w2 with some health/dental but no pto, or 110k permanent w bench time, tuition reimbursement, pto, medical, etc. I’m not yet 100% clear on how good the permanent benefits are, but what’s your thought on this? There may be some wiggle room I the permanent salary number.

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