20130711

Contractor's Rate vs. Full-Time Employee Pay

I got many questions from Data Visualization Blog's visitors about differences between compensation for full-time employees and contractors. It turned out that many visitors are actually contractors, hired because of their Tableau or Qlikview or Spotfire skills and also some visitors consider a possibility to convert to consulting or vice versa: from consulting to FullTimers. I am not expert in all these compensation and especially benefits-related questions, but I promised myself that my blog will be driven by vistors's requests, so I google a little about Contractor vs. Full-Time worker compensation and below is brief description of what I got:


Federal Insurance Contribution Act mandates Payroll Tax splitted between employer (6.2% Social Security with max $$7049.40 and 1.45% Medicare on all income) and employee, with total (2013) as 15.3% of gross compensation.


Historical_Payroll_Tax_Rates


In addition you have to take in account employer's contribution (for family it is about $1000/per month) to medical benefits of employee, Unemployment Taxes, employer's contribution to 401(k), STD and LTD (short and long term disability insurances), pension plans etc.


I also added into my estimate of contractor rate the "protection" for at least 1 month GAP between contracts and 1 month of salary as bonus for full-time employees.


RR20120507-BCC-2

Basically the result of my minimal estimate as following: you need to get as a contractor the rate at least 50% more than base hourly rate of the full-time employee. This  base hourly rate of full-time employee I calculate as employee's base salary divided on 1872 hours: 1872 = (52 weeks*40 hours - 3 weeks of vacation - 5 sick days - 6 holidays) = 2080 hours - 208 hours (Minimum for a reasonable PTO, Personal Time Off) = 1872 working hours per year.


I did not get into account any variations related to the usage of W2 or 1099 forms or Corp-To-Corp arrangements and many other fine details (like relocation requirements and overhead associated with involvement of middlemen like headhunters and recruiters) and differences between compensation of full-time employee and consultant working on contract - this is just a my rough estimate - please consult with experts and do not ask me any questions related to MY estimate, which is this:



  • Contractor Rate should be 150% of the base rate of a FullTimer


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RS-COLLEGE LOAN SCAMS low resIn general, using Contractors (especially for business analytics) instead of Full-timers is basically the same mistake as outsourcing and off-shoring: companies doing that do not understand that their main assets are full-time people. Contractors are usually not engaged and they are not in business to preserve intellectual property of company.


Capitalist

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