Re: Fair Contracting Practices and Fees

Subject: Re: Fair Contracting Practices and Fees
From: Susan Holbert <susanh -at- WORLD -dot- STD -dot- COM>
Date: Thu, 23 Jan 1997 20:02:19 -0500

When figuring hourly contract fees, Brannon Golden suggested the following:

>4. Divide [typical employee's] annual salary by 52 (weeks in a year).
>5. Divide ... by 40 (hours in a week). ...
>6. Estimate your overhead costs (equipment, office space, insurance,
>etc.), and ... pare these down to an hourly figure.
>7. Add your ... hourly charge to your hourly expense estimate.
>8. Round up a little.

I have been a contractor for 17 years. This formula will send you straight
to the poor house!

The rule of thumb, which I have seen published in several places, is that
a contractor must charge twice the nominal hourly rate as an employee. In
other words, a $40,000 employee gets $20/hr. A contractor must charge $40/hr
to make the same amount. A contractor's annualized salary after benefits =
hourly rate x 1,000.

For those who would like to know why, a lengthy explanation follows after
the next paragraph.*

For the person who wanted to know what to charge, I'm an indexer, not a
tech writer, but my guess is that here in the Boston area beginning tech
writers start at $25/hr. The average well-qualified writer gets around
$40-45. Highly experienced and technically expert writers get up to about
$50-60. For those who fear that stating fees will undercut them, I think
contractors are more likely to be underbid by those who don't know what the
going rates are than by those who do.

*Explanation for figuring hourly rate:

Re Divide by 52 weeks: No contractor can bill 52 weeks per year. You must
figure in 2-4 weeks of vacation, 2 weeks paid holidays, 1-2 weeks of sick
time/mental health days. Furthermore, if this is a short-term project (less
than one year), you will have to pay yourself for time in between projects.

Re Divide by 40 hours: If you do this, remember to bill your client for
lunch hours, coffee breaks, shmooze time, and personal time that all
employees take on site. If you only bill for hours worked, figure that the
average "40-hr" employee works no more than 30 hours per week.

Re Estimate your overhead costs: Your overhead must include all cash
employee benefits such as health/disability/life insurance, pension
contribution, training and support services. This is usually 30% over
employee salary. Your overhead must include your non-billable hours, such as
record-keeping, buying supplies, paying bills, looking for work. Then add
your cash expenditures, including office supplies, mileage, professional
help. Contractors pay higher FICA taxes, but this may be offset by the tax
savings of a home office. If not, add the FICA taxes and the tax loss on
insurance deductions and other tax-sheltering employee benefits.

Susan Holbert
Indexing workshops and videos
susanh -at- world -dot- std -dot- com 617-893-0514

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