Employee's Salary -vs- Consultant's Hourly Rate
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Taking into consideration "employee overhead" (such as benefits, etc), what is a good way to determine a suitable hourly rate for a consultant given what an employee's salary would be for the same job? So, for example, if an employee's salary is $55,000 to do Job X... what should the consultant's hourly rate be for Job X? -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
Get a plumber to come to your house. Charge the same rate , you'll be living well. .netter
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Surely a consultant is also going to want to make money to cover them for lack of job security ? I got $100 an hour from a US company once. I didn't realise I'd quoted that ( it sort of came out of a general discussion on a short term job I had done ), I never would have asked for it, nor have I asked for it again. But they paid it without blinking. Christian I have several lifelong friends that are New Yorkers but I have always gravitated toward the weirdo's. - Richard Stringer
When I was at CSC I was billed out at around $180 USD per hour at one particular client. I was a project lead. I received something like 25 an hour from that 180. The project manager was around 200-225/hour. At another client, the project was done using Forte, and because Forte was such a flaky, steaming pile of dog feces, we had to have a full time Forte consultant onsite to troubleshoot all sorts of silly problems. He was billed out at $250 USD and hour. I have always been amazed at what clients will pay :) ¡El diablo está en mis pantalones! ¡Mire, mire! Real Mentats use only 100% pure, unfooled around with Sapho Juice(tm)! SELECT * FROM User WHERE Clue > 0 0 rows returned Save an Orange - Use the VCF!
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Taking into consideration "employee overhead" (such as benefits, etc), what is a good way to determine a suitable hourly rate for a consultant given what an employee's salary would be for the same job? So, for example, if an employee's salary is $55,000 to do Job X... what should the consultant's hourly rate be for Job X? -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
Most companies use a factor of 3 to compute the actual employee's cost. So if you make $50K a year, the company is actually spending $150K. You should use the same factor yourself. You have equipment costs, software costs, training costs, insurance costs, additional tax burdens, you need to consider yourself as both employee and employer, and therefore probably want your "employer" to contribute to your IRA by some amount, you have housing and utility costs, transportation costs, more insurance costs, etc. Also consider convering yourself with your own "unemployment insurance" factored into your rate. Geez, it sounds awful, doesn't it? Marc MyXaml Advanced Unit Testing YAPO
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This is a big generalization, but in my experience the consultant's hourly rate would be 1.5 to 2 times the employee's hourly rate. (To get the employee's hourly rate, divide his yearly salary by 2000). --Mike-- LINKS~! Ericahist updated! | 1ClickPicGrabber | CP SearchBar v2.0.2 | C++ Forum FAQ Strange things are afoot at the U+004B U+20DD
Hi Mike, Do you find that this value varies depending on the type of task that is required? I.e would it be closer to 2 times (versus the 1.5) when dealing with more specialized technologies? -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
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Depends on the value you place on things. For example as a W2 employee you get vacation and sick time. However, some people might not count sick time as they never take it. For me personally, my calculations have always showed that I need to make $20,000 more as a 1099 hourly contractor than as a W2 employee to make up for lost benefits (FICA, health, sick time, etc.) As an example, if the salary is $80,000, then the hourly rate to match that would be $50/hr. Cheers, Tom Archer - Archer Consulting Group Programmer Trainer and Mentor and Project Management Consultant
Very interesting point, Tom. I guess you need to cover all bases when determining an appropriate rate. Benefits (or lack thereof) should definately play a part in this determination. -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
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Surely a consultant is also going to want to make money to cover them for lack of job security ? I got $100 an hour from a US company once. I didn't realise I'd quoted that ( it sort of came out of a general discussion on a short term job I had done ), I never would have asked for it, nor have I asked for it again. But they paid it without blinking. Christian I have several lifelong friends that are New Yorkers but I have always gravitated toward the weirdo's. - Richard Stringer
Christian Graus wrote: Surely a consultant is also going to want to make money to cover them for lack of job security ? Without a doubt. Quantifying that seems a bit tricky, but needs to be accounted for nonetheless. Any tips in that regard? Christian Graus wrote: I got $100 an hour from a US company once. I didn't realise I'd quoted that ( it sort of came out of a general discussion on a short term job I had done ), I never would have asked for it, nor have I asked for it again. But they paid it without blinking. Hey, why not charge it again? Evidently your time was valuable to them or they would have had a word or two to say about it. Rates I currently charge are in that ballpark, and I consistently find clients happy to pay. Granted, they expect value, which I deliver. They obviously aren't going to pay you for nothing. -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
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When I was at CSC I was billed out at around $180 USD per hour at one particular client. I was a project lead. I received something like 25 an hour from that 180. The project manager was around 200-225/hour. At another client, the project was done using Forte, and because Forte was such a flaky, steaming pile of dog feces, we had to have a full time Forte consultant onsite to troubleshoot all sorts of silly problems. He was billed out at $250 USD and hour. I have always been amazed at what clients will pay :) ¡El diablo está en mis pantalones! ¡Mire, mire! Real Mentats use only 100% pure, unfooled around with Sapho Juice(tm)! SELECT * FROM User WHERE Clue > 0 0 rows returned Save an Orange - Use the VCF!
Jim Crafton wrote: When I was at CSC I was billed out at around $180 USD per hour at one particular client. I was a project lead. I received something like 25 an hour from that 180. Yuck X| That's a terrible percentage (14%) for your pocket. Ever consider going independent and keep a much larger percentage? Jim Crafton wrote: I have always been amazed at what clients will pay I guess, but when you think about it, as long as you are providing value to your client(s) then it is usually a no-brainer. If it costs them $100/hr to pay a consultant 100 hours to save them more than $10,000, why would they have a problem with that ;-) -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
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Get a plumber to come to your house. Charge the same rate , you'll be living well. .netter
David Gallagher wrote: Get a plumber to come to your house. Charge the same rate , you'll be living well. :laugh::laugh::laugh: -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
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FWIW, I always followed the "salary is double the rate" idea, which states that getting paid a $100,000 salary roughly the same as ~$50/hr. Note that I have not done any math or comparisons WRT benefits, etc. to verify this value, it is just what the contractors (I assume we are really talking about contracting and not consulting here1) and myself have always used to determine a rate value. And $50/hr is rather cheap for a skilled contractor... A good all-around developer should be able to swing ~$70+ easy, and an architect-level one should be able to grab $100+ without too much trouble. (My last gig was a one month deal for ~$70/hr, and that was a discounted rate because I was able to work completely from my home office!) IMHO, when determining an hourly rate, you also have to factor in the convenience of the employer as well(!) - not just your lack of benefits. It is often worth a little more to an employer to be able to hire and drop you on a moment's notice without having to get HR/Benefits/Unemployment/Etc. too much involved with it. You get additional compensation for assuming that risk, and they can expect to play a little more for that convenience. Other things to consider are things like the overtime policy, an hourly cap, etc. You might be able to charge a higher rate if you know that a lot of hours are going to be required and you work out an overtime deal with them, like doing deferred billing of any overtime that exceeds 5 hours. (One of the more successful consultants I am friends with has done that before, and he pretty much demands, and gets(!), whatever rate he wants!) Just a few thoughts for you... Peace! 1: As I understand it, a contractor is someone that works full-time for a single client at a time. For example, a contractor that builds your house is working on your house full-time. A consultant is on-call (on retainer) to multiple clients on an as-needed basis, kinda like how you would call support/helpdesk or use a site like Experts Exchange. -=- James
If you think it costs a lot to do it right, just wait until you find out how much it costs to do it wrong!
Tip for new SUV drivers: Professional Driver on Closed Course does not mean your Dumb Ass oGreat post, James! James R. Twine wrote: I assume we are really talking about contracting and not consulting here Yes, by your definition, I'm referring to contracting here... working "full-time" for a single client for short periods of time (i.e. a few months, etc. depending on the project). James R. Twine wrote: And $50/hr is rather cheap for a skilled contractor... A good all-around developer should be able to swing ~$70+ easy, and an architect-level one should be able to grab $100+ without too much trouble. I agree. Do you think geographic location plays much of a part in this in the US? Are you in the US? Would you mind sharing your general location (i.e. nearest large city)? James R. Twine wrote: IMHO, when determining an hourly rate, you also have to factor in the convenience of the employer as well(!) - not just your lack of benefits. Very interesting point! It can be very convenient for an employer to hire a contractor for various reasons, and that is certainly worth something to them (i.e. it adds value to the deal for them). -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
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Most companies use a factor of 3 to compute the actual employee's cost. So if you make $50K a year, the company is actually spending $150K. You should use the same factor yourself. You have equipment costs, software costs, training costs, insurance costs, additional tax burdens, you need to consider yourself as both employee and employer, and therefore probably want your "employer" to contribute to your IRA by some amount, you have housing and utility costs, transportation costs, more insurance costs, etc. Also consider convering yourself with your own "unemployment insurance" factored into your rate. Geez, it sounds awful, doesn't it? Marc MyXaml Advanced Unit Testing YAPO
Marc Clifton wrote: Most companies use a factor of 3 to compute the actual employee's cost. So if you make $50K a year, the company is actually spending $150K. Wow, that seems high. I would have never guessed there to be *that* much overhead for employees. But... (see below) Marc Clifton wrote: ...equipment costs, software costs, training costs, insurance costs, additional tax burdens, you need to consider yourself as both employee and employer, and therefore probably want your "employer" to contribute to your IRA by some amount, you have housing and utility costs, transportation costs, more insurance costs, etc. Also consider convering yourself with your own "unemployment insurance" factored into your rate. ... when you put it that way, it does really make sense! As a contractor you need to cover all this yourself. It's not just a mortgage payment that needs to be made! -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
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Marc Clifton wrote: Most companies use a factor of 3 to compute the actual employee's cost. So if you make $50K a year, the company is actually spending $150K. Wow, that seems high. I would have never guessed there to be *that* much overhead for employees. But... (see below) Marc Clifton wrote: ...equipment costs, software costs, training costs, insurance costs, additional tax burdens, you need to consider yourself as both employee and employer, and therefore probably want your "employer" to contribute to your IRA by some amount, you have housing and utility costs, transportation costs, more insurance costs, etc. Also consider convering yourself with your own "unemployment insurance" factored into your rate. ... when you put it that way, it does really make sense! As a contractor you need to cover all this yourself. It's not just a mortgage payment that needs to be made! -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
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Depends on the value you place on things. For example as a W2 employee you get vacation and sick time. However, some people might not count sick time as they never take it. For me personally, my calculations have always showed that I need to make $20,000 more as a 1099 hourly contractor than as a W2 employee to make up for lost benefits (FICA, health, sick time, etc.) As an example, if the salary is $80,000, then the hourly rate to match that would be $50/hr. Cheers, Tom Archer - Archer Consulting Group Programmer Trainer and Mentor and Project Management Consultant
There's more to it than that, I think. Yes, the FICA and Medicare taxes double - since you have to pay what would normally be the employer's share, too. Health insurance alone is about $5k a year, with similar price increases for other forms of coverage. You also need E&O insurance in many cases. But the one item not mentioned much is that a contract worker as often as not doesn't find full time work, and not all hours spent are billable time. The desired income has to be spread over a smaller number of annual hours - a number hard to predict. I know that when I worked at TRW making $57K a year, my time was billed to the Air Force at $110 an hour under contract, and my much more talented support people (who made far more) were charged at $130 to $200 an hour. That was 15 years ago, too, and there's been some inflation since then. A similar markup is prudent for an independent contractor, if the market will bear it. Even in my hobby activities, I charge $60 an hour to fix computers that were destroyed by the local computer shops; they charge $100 an hour and don't do house/office calls.:-D "If it's Snowbird season, why can't we shoot them?" - Overheard in a bar in Bullhead City
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Get a plumber to come to your house. Charge the same rate , you'll be living well. .netter
I tell whiny clients, "you pay a mechanic $75 an hour to fix your car; I only charge $60 to fix computers, but I can fix cars, too. Have your mechanic work on your computer and I'll take care of the car." "If it's Snowbird season, why can't we shoot them?" - Overheard in a bar in Bullhead City
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When I was at CSC I was billed out at around $180 USD per hour at one particular client. I was a project lead. I received something like 25 an hour from that 180. The project manager was around 200-225/hour. At another client, the project was done using Forte, and because Forte was such a flaky, steaming pile of dog feces, we had to have a full time Forte consultant onsite to troubleshoot all sorts of silly problems. He was billed out at $250 USD and hour. I have always been amazed at what clients will pay :) ¡El diablo está en mis pantalones! ¡Mire, mire! Real Mentats use only 100% pure, unfooled around with Sapho Juice(tm)! SELECT * FROM User WHERE Clue > 0 0 rows returned Save an Orange - Use the VCF!
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Get a plumber to come to your house. Charge the same rate , you'll be living well. .netter
David Gallagher wrote: Get a plumber to come to your house. Trying to get the plumber to come in the first place is a real chore. I've been looking for a decent plumber for 2 months (fit an en-suite). Luckily a friend of mine owns a small construction company and he's letting me have one of his plumbers for a £100 a day :wtf: - I'm certainly not arguing.
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Marc Clifton wrote: Most companies use a factor of 3 to compute the actual employee's cost. So if you make $50K a year, the company is actually spending $150K. Wow, that seems high. I would have never guessed there to be *that* much overhead for employees. But... (see below) Marc Clifton wrote: ...equipment costs, software costs, training costs, insurance costs, additional tax burdens, you need to consider yourself as both employee and employer, and therefore probably want your "employer" to contribute to your IRA by some amount, you have housing and utility costs, transportation costs, more insurance costs, etc. Also consider convering yourself with your own "unemployment insurance" factored into your rate. ... when you put it that way, it does really make sense! As a contractor you need to cover all this yourself. It's not just a mortgage payment that needs to be made! -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
ExtraLean wrote: Wow, that seems high. I would have never guessed there to be *that* much overhead for employees. But... (see below) Just to add a real case, I had this consulting company, and the factor we used was 3, too. But this is for a full, structured company. A "lone ranger" should go well with a 2~2.5 factor. Don't forget that you only set the minimum price. The customer is really who sets the price :) I see dead pixels Yes, even I am blogging now!
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Surely a consultant is also going to want to make money to cover them for lack of job security ? I got $100 an hour from a US company once. I didn't realise I'd quoted that ( it sort of came out of a general discussion on a short term job I had done ), I never would have asked for it, nor have I asked for it again. But they paid it without blinking. Christian I have several lifelong friends that are New Yorkers but I have always gravitated toward the weirdo's. - Richard Stringer
Christian you great idiot. :-) You are actually worth at least 100$ an hour. With coders productive capabilities vary greatly from coder to coder. Hell some coders are purely an expense to businesses. Regardz Colin J Davies The most LinkedIn CPian (that I know of anyhow) :-)
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Surely a consultant is also going to want to make money to cover them for lack of job security ? I got $100 an hour from a US company once. I didn't realise I'd quoted that ( it sort of came out of a general discussion on a short term job I had done ), I never would have asked for it, nor have I asked for it again. But they paid it without blinking. Christian I have several lifelong friends that are New Yorkers but I have always gravitated toward the weirdo's. - Richard Stringer
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When I was at CSC I was billed out at around $180 USD per hour at one particular client. I was a project lead. I received something like 25 an hour from that 180. The project manager was around 200-225/hour. At another client, the project was done using Forte, and because Forte was such a flaky, steaming pile of dog feces, we had to have a full time Forte consultant onsite to troubleshoot all sorts of silly problems. He was billed out at $250 USD and hour. I have always been amazed at what clients will pay :) ¡El diablo está en mis pantalones! ¡Mire, mire! Real Mentats use only 100% pure, unfooled around with Sapho Juice(tm)! SELECT * FROM User WHERE Clue > 0 0 rows returned Save an Orange - Use the VCF!
Jim Crafton wrote: flaky, steaming pile of dog feces Lovely expression that. Almost made me spew my oatmeal all over the monitor. :laugh:
Software Zen:
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Very interesting point, Tom. I guess you need to cover all bases when determining an appropriate rate. Benefits (or lack thereof) should definately play a part in this determination. -- Edward Livingston (aka ExtraLean) -- "I still maintain that seeing a nipple is far less disturbing than seeing someone get their brains blown out." -- Chris Maunder
ExtraLean wrote: Benefits (or lack thereof) should definately play a part in this determination. Absolutely. As an example, let's say you have a job offer for $100,000. Simple math shows you that very $5/hr is $10,400 per year. That's $104,000 per year. (Note that I'm referring to 40/hr weeks here as I've personally never had a contract position that was less than 40hrs). However, the two are not as equal as they look. First, the contract position has no paid vacation so (assuming only 2 weeks of vacation) you have to lose 2 weeks pay for that (~$3,800). Likewise, the employee gets sick time. Once again assuming the minimum (2 weeks), that's $3,800 of paid non-work time for the employee. I don't remember the exact numbers, but if I recall correctly medical insurance was something like $300 cheaper as an employee than as an individual policy holder. That's $3,600 per year. FICA was something like $5,000 That's something like $16,000 diff. It's been about 10 years since I truly went through and calculated everythign to the dollar and the amounts shift depending on things like length of vacation/sick time and so on, but as a general rule of thumb, I needed $20k more as a contractor than as an employee. Cheers, Tom Archer - Archer Consulting Group Programmer Trainer and Mentor and Project Management Consultant