Contract-to-hire pricing?

Subject: Contract-to-hire pricing?
From: Geoff Hart <ghart -at- videotron -dot- ca>
To: "TECHWR-L" <techwr-l -at- lists -dot- raycomm -dot- com>
Date: Thu, 03 Jun 2004 17:06:21 -0400


Felice Albala wondered: <<Is there a formula of some kind to determine a dollar amount when going from consultant to full-time employee?>>

Two main factors. First, most freelancers set their hourly rate high so as to provide the desired total income despite periods with no work. For example, if you base your total earned income on 48 weeks of work per year (i.e., 4 weeks of vacation), but expect to earn nothing during 8 weeks of the year, your total salary wouuld be based on 40 weeks of work per year. As an employee, you'll probably be working 48+ weeks, so your pay per week is lower for the same total salary.

Second, fringe benefits (pension plan, health care, etc.) are expensive. The "overhead" for employing someone ranges between 30% and 50% in my experience (Canada), depending on how lucrative these benefits are. The personnel director at any large company can tell you the range of rates in your area. As a freelancer, you build this overhead into your hourly rate to ensure that you can afford to purchase these benefits yourself. As a wage slave, the employer covers them, so your hourly take-home pay appears lower, even though your net income is the same at the end of the year.

<<Also, can a higher salary be negotiated if health benefits are not needed (or is that just my wishful thinking)?>>

Wishful thinking. Very few companies are flexible enough to offer different benefits packages to each employee. In most cases, they need to ensure that everyone is (for example) part of a health or pension plan to ensure that they have the minimum number of employees required to qualify for or fund that plan. In other cases, they simply lack the administrative staff to be able to treat everyone differently, and refuse to make the effort to do so.

It never hurts to ask, but don't expect to succeeed. What you can try during salary negotiations is to state proudly that you are currently earning $X per hour on an annualized basis, and expect to earn no less once you're employed full-time. If the gods of Personnel are smiling on you, they'll offer you a salary based on that hourly wage, even though that wage includes all the aforementioned padding (vacation, downtime, benefits). If not, they'll still offer you $X minus the cost of your benefits if they want to hire you.

--Geoff Hart ghart -at- videotron -dot- ca
(try geoffhart -at- mac -dot- com if you don't get a reply)


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References:
contract-to-hire pricing: From: Felice Albala

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