[consulting] Salaries

Wed Sep 17 17:24:33 UTC 2008

One thing to note on the ledger against contracting, you have to pay all of
the Social Security and Medicare taxes. Salaried employees only pay half, as
the company picks up the other half. This in essence is another 8% hit
against the contractors pay. And don't forget the more complicated tax form
you have to fill out. J

-Greg

From: consulting-bounces at drupal.org [mailto:consulting-bounces at drupal.org]
On Behalf Of Sam Cohen
Sent: Wednesday, September 17, 2008 5:23 AM
To: A list for Drupal consultants and Drupal service/hosting providers
Subject: Re: [consulting] Salaries

This has been really helpful.  There are definitely advantages to a salaried
job but unless I'm missing something, money isn't even close to being one.  

Let's say you're a contractor consistently billing 30 hours a week at $75,
so your annual is about $110,000 a year.  According the various formulas, if
it were a paid job, it's equivalent to about $75,000 a year in salary. 

Maybe I'm missing something, but that seems like an enormous cut, especially
after taxes, because as an employee you could potentially lose all your
deductions, from your car, to your home office, to your equipment and
everything else. (and self-employment tax and social security can be lower
as an independent -- if you make yourself an S-corp and have a decent
accountant)  

You're probably talking about $30,000 to $40,000 more after tax dollars as
an independent.  And that's if you're just billing 30 hours a week.  It
could be a great deal more if you bill a lot of hours.  

To look at it another way, to make the equivalent of $75,000 salary after
taxes as an independent, you'd only have to bill about 17 hours a week at
$75 an hour.  

So it seems to me there are a lot of benefits being an employee -- less
stress, saner hours, being part of a team, learning from others -- but money
doesn't seem to be one of them.

Sam

On Wed, Sep 17, 2008 at 4:53 AM, Michael Goldsmith <ixlr8 at comcast.net>
wrote:

Another thing to consider, when thinking about how much a consultant is
worth at a full time gig would be a "bulk discount" on your hours.  It's one
thing if you're buying a single item that you'd pay the full price.  But if
you bought 10, 100, or 1000 of that item, you could probably work a better
deal for buying so many.  When you have a full time gig, you have consistent
work for a, hopefully, indefinite period of time.  You can't guarantee that
you'll have consistent work as an independent contractor.  That's worth
giving the employer a discount on your "hourly rate," since they're
ostensibly buying a large quantity of your hours.  Remaining consistent with
the hourly rate = the amount per year, the way I figure it out works
something like this:

Let's say that I bill at $100 an hour (to keep the numbers nice and round,
and the math easy).  A good independent contractor spends about 30% of their
time doing administrative work.  So now we're down to $70 an hour.  A good
benefits package is worth about $10 an hour.  I determined this, by adding
the relative costs of health, dental, vision plus standard vacation times,
which comes to a value of about $20K per year for the average family, which
when divided over the course of a year with a 40 hour week, comes to about
$10 an hour.  So now we're at $60 an hour.  Buying "bulk hours" I feel, is
usually worth about a 10% discount on hourly rate.  That discount comes off
the top, because you don't bill for your administrative hours spent trying
to find gigs, etc.  So now we're at $50/ hour.  Which comes to about $100K a
year, give or take, and Bob's your uncle.

Just adding in my two cents.

Thank you very much for your time and consideration,

Michael Goldsmith
(732) 619-6865 - mobile
ixlr8 at comcast.net - email
http://www.platypustheory.com - website

-----Original Message-----
From: consulting-bounces at drupal.org [mailto:consulting-bounces at drupal.org]
On Behalf Of Fred Jones

Sent: Wednesday, September 17, 2008 4:20 AM
To: A list for Drupal consultants and Drupal service/hosting providers
Subject: Re: [consulting] Salaries

>> Hi Fred,
>> We can talk offline about this, but here are some things to consider:
>> * Who pays your taxes when you are consulting?
>> * Who handles your health insurance?
>> * Do you go on vacations?
>> * What happens when you get sick or come down with a short/long term
>> disability?
>> * Do you attend training events/Drupalcons?
>> * Do you defer money towards a savings plan?
>> * Do you go on interviews or how much non-billable time do you
>> spending
>> sending out your resume or marketing your services?
>> * Do you work or get paid on holidays?
>> * Who handles the administrative duties of your consultancy?

Good questions. Some have good answers, as in I spend very little
time/money on this or that, but for others you are quite right--these
are real issues.

>> Anyway, I'm not trying to come down like I'm against freelancing,
>> but these
>> types of factors must be considered when doing an apples to apples
>> comparison of FT v. contract employment.  For what it's worth, I
>> grew and
>> sold a staffing firm in Atlanta before getting involved with a
>> Drupal shop
>> with a lifelong friend (that's another story in itself :-). If a
>> consultant
>> was able to maintain a 70% utilization based on a 2080 hour (52
>> weeks x
>> 40/hours) year then that was considered pretty good.

Interesting. That's $87K a year.

> Agreed on the 70% -- sounds outstanding for a contractor who's
> handling on their business development opportunities in addition to
> technical work.  Within a consulting firm I've always planned on
> 70-80% utilization for a "heads down" type role and 50%-60% for a role
> that is involved in building the business.
>
> In my previous position, I interview a lot of people who were moving
> from independent contracting.  One thing that was similar about them
> was that they were typically on the older side of the candidate pool
> (primarily over 40).  I found that benefits (retirement and health
> insurance, primarily) were at the top of the list for reasons to join
> a company.

Very interesting also. My problem is that I am the type of person who
can't work in an office--I must work at home (for better or for
worse). I also can only work 20-30 hours a week, so any of these full
time contracting jobs I have seen offered aren't for me. Well, perhaps
I do work more, but I only BILL 20-30 hours a week. I certainly sit in
front of my PC more than that.

I tried to create a little programming company once but business is
not my skill--computers is.

> One way to think about it is the "fully loaded" cost of an employee --
> I typically use a 40% uplift to budget for an employee.  If you're
> pulling in $115K a year as a contractor, then to cover these expense
> at the same level a company does you'd really be paying yourself less
> than $85K.

Hmmm, Dave's figures came out to $87K (unless I am misunderstanding
something). So either you guys are in cahoots, or you are both right
on.

My original question was what are people like me making. Michael from
Trellon said:

> the starting salary for Lead Developer
> positions is between $60k and $80k annually, , and there are 2 financial
> incentive plans in place designed to give people the opportunity to go
> beyond that amount.

So if I am following this thread correctly, that is the equivalent of
a bit under $60 an hour for a freelancer, just to start. With the
bonuses or whatever they are, one could get more. Sounds like that's
about what I am making. I think.

Thanks.
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