RE: Asking The Billing Rate?

Subject: RE: Asking The Billing Rate?
From: "Andrea C. Carrero" <andrea -at- wordtex -dot- com>
To: "TECHWR-L" <techwr-l -at- lists -dot- techwr-l -dot- com>
Date: Wed, 5 Oct 2005 14:08:10 -0400

Tony wrote: <snip>"However, according to the on-line Contractor's Handbook,
$45 per hour as a W2 contractor is the same as $45 K per year as an
employee with typical benefits..." <snip>

Tony (et al):

I have to agree with what you've said above. That's the "divide-by-1,000"
rule that many folks talk about in various online consulting communities.
The theory is that if you want to make $90,000 per year, you divide that by
1,000 to get your hourly rate of $90. I've found this theory to be pretty
accurate based on actual calculations.

As someone else just said, your individual situation will make your mileage
vary from mine. For example, $45 an hour is big bucks--depending on where
you are located and if you're an employee and someone is paying you all of
your benefits and the employer side of the taxes--and you incur no other
expenses related to your business. It is also big bucks, depending on where
you're located, if you're a contractor and you don't need any benefits
(e.g., a spouse or partner gets health insurance, etc., for you through
their firm) and you're not incorporated and, again, you have no other
expenses related to your business.

I think a lot of contractors who, like me, are trying to replace a full-time
elsewhere-employed salary with a consulting salary tend to forget all of the
things that an employer pays for ON TOP OF your salary. If **you are in
business for yourself** (and these are key words to remember) then you have
a lot to pay for on your own that you may need to account for in an hourly

Let me preface the following by saying to one and all to see what applies to
you. Note that I am not telling anyone what to use as a rate nor what to use
when calculating taxes, bennies, etc. I will share what I use, however.

DISCLAIMER: ****You should check with your accountant and/or attorney for
information about how this applies, if at all, to your specific

Here's a quick breakdown that I use (I'm a corporation), culled from various
sources including the Contract Employee's Handbook--see links below:

Benefits: 30%
Sick time
Health insurance, including medical, dental and/or vision
Life insurance
Disability insurance
Tuition reimbursement

Taxes: 12.45% or 20.10% (the difference is whether or not you're also paying
the employer-side taxes, indicated by the ** below)--Your taxes will depend
on which state you are paying taxes in. I used Pennsylvania in this example.
Worker's Compensation (.5%)
**FICA Social Security (6.2%)
**Medicare (1.45%)
Federal Unemployment Tax (FUTA) (.08 on the first $7,000 earned)
State Unemployment (PA = 3.5%)
Local Taxes?

Business costs: 2.5%
Professionals (Accountant, Attorney) (.15%)
Payroll processing costs (.5)%)
Liability insurance (.15%)
Benefits administration costs (.55%)
Cost of paying wages before receiving client payment (1.00%)
Bad debt (.15%)

So if I use the figures above to calculate what $45 an hour would get me as
a yearly salary (i.e., at 2080 hours), it's more like $44,366.40 (or $21.33
per hour) instead of $93,600. That also does not include any profit margin
nor any downtime. Notice that it's pretty much the divide-by-1,000 rule!

It truly depends on your individual situation as to what rate you use to get
an appropriate salary. Remember, one of the benefits of using a recruiting
agency to get work is that you don't have to market yourself. So, in
essence, the markup they charge to the client can be construed as a fee to
you for marketing your services. So if I took $45 an hour and brought home
$21.33 per hour, then I would be paying the agency $23.67 an hour (or
$49,233.60 per year) in marketing charges. Personally, my marketing budget
is nowhere near that much! That might be a charge that you find well worth
the money, though. :-)

I found the following useful in trying to work through the quagmire of
rate-setting. You might want to read these to see if any of this is worth
knowing for your particular situation.
df -- Setting rates, found on the Contract Employees Handbook site
dgreed.pdf -- Inefficiency and greed, found on the Contract Employees
Handbook site

I hope this all helps!


Word Technologies Inc.

Business/corporate communication and technical documentation
solutions--where individual performance contributes to team success


Try WebWorks ePublisher Pro for Word today! Smooth migration of legacy
RoboHelp content into your new Help systems. EContent Magazine Decision-
maker review (October 2005) is here:

Doc-To-Help 2005 converts RoboHelp files with one click. Author with Word or any HTML editor. Visit our site to see a conversion demo movie and learn more.

You are currently subscribed to techwr-l as:
archiver -at- techwr-l -dot- com
To unsubscribe send a blank email to leave-techwr-l-obscured -at- lists -dot- techwr-l -dot- com
Send administrative questions to lisa -at- techwr-l -dot- com -dot- Visit for more resources and info.

RE: Asking The Billing Rate?: From: Tony Markos

Previous by Author: RE: Asking The Billing Rate?
Next by Author: Re: RSS (was RE: Blogs replace newsletters?)
Previous by Thread: RE: Asking The Billing Rate?
Next by Thread: RE: Asking The Billing Rate?

What this post helpful? Share it with friends and colleagues:

Sponsored Ads