Re: Asking The Billing Rate?

Subject: Re: Asking The Billing Rate?
From: Jefro <jefro -at- jefro -dot- net>
To: "TECHWR-L" <techwr-l -at- lists -dot- techwr-l -dot- com>
Date: Wed, 05 Oct 2005 12:34:55 -0700

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>

In my experience the difference isn't anywhere near that clear-cut. It is obviously greatly dependent on the number of hours billed as well as deductions.

My math shows that a $45/hr job billing 35 hours a week, 50 weeks per year, grosses $78750, and in that tax bracket would net around $39000 in cash per year, using 50% as a round figure for taxes, benefits, and deductions---not an unreasonable figure for a contract employee. But billing 40 hours a week the net grosses $90000 and yields $45000 after deductions, not counting overtime. By comparison, a salaried job at $45000 with about 40% deductions should yield $27000 in cash per year.
In other words, the two billing models are very dissimilar, and the "divide by 1000" rule of thumb doesn't seem to work. A $45000 salaried job is closer to a $31/hr contract billing 35 hrs/week, or a $27/hr contract billing 40 hrs/week. A $45/hr contract is similar to a $65000 salary.

Note that there are companies out there whose business is to treat contractors like salaried employees by providing health insurance, 401k, and "employer-of-record" services along with client billing and salary management. You go out and get a contract job, but sign on with this company as a W2 employee and live simply. The major benefit is having someone else deal with what my wife calls "all the tidbits", but it also makes tax season MUCH easier. Here's one that also happens to sponsor the Contract Employee's Handbook:

Hope this adds some value,



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