[consulting] Figuring out what to pay an employee

[Christian Pearce]

That is sort of what we do now. We break down a percent for the company overhead, a percent for sales, and a percent for the employee. We extend the same plan to 1099 workers. Having this plan in place make it easy to hire a person full time. 

Here are some cautions. 

1. We set a base draw and track what they earned versus what they were paid. This provides some stability for the employee and keeps them from pulling their hair out. But it also means you could be paying them ahead and they could leave. Risks are there either way if you hire someone you need to get value out of them. This approach puts them in the driver seat. We manage people they manage themselves. 
2. You will never get 40 hours a week billable unless you want to want to sit in front of the computer 50 hours week. There is just going to be context switching and down time. You have to face that fact. We average about 32 hours a week billable. You need to charge accordingly. When you are a team of people you should be able to get hire rates because you are creating stability for your customer. We constantly get new business where people graduate from working with freelancers because they want someone who can be around and meet there needs. (Nothing wrong with freelancers they server a great market segment). 
3. Put a system in place immediately to track percentages. You employee will want to know where he stands at all times. 
4. When they are ahead you can add a bonus to the payroll to even them up. 
5. Don't forget about the taxes you have to pay as an employer when doing this calculations 
6. We have a really low internal rate for paying people to work on internal projects when we don't have outside work. Make sure you set that lower enough that people don't want to just do internal work all day. The idea is if you are essentially paying them through their base draw. If they are running red at least you got some value out of them if they decide to quit on you. We are always busy though. Usually we give internal work to new hires as we are getting them ramped up with new work. 

Think long and hard about this approach. It can be hard to attract people to this way of being paid. We have found it attracts the most motivated people. But finding them can be tough. Alternatively you can commit to paying them 15-20 an hour (think college grad). But still track there time and hours for the first year. Once they have proven their worth you can graduate them to a percentage. 

Good luck, 

Give me a ring if you want to talk about it more. 

----- "Tom Geller" <tom at tomgeller.com> wrote: 
> From: Sam Cohen <sam at samcohen.com> writes: 
> 
> > Any suggestions for starting salaries? How did those of you with employees 
> > first determine what salary to pay? 
> 
> If you'll be billing out this person's hours, one way to approach it is as a fraction of the employee's billable rate. 
> 
> When I worked in public relations it hovered around 2-1/2. So if the billable rate was $50/hour, the employee got $20/hour, as $50 is ($20 * 2.5). Multiplied by 2,000 hours/year (50 weeks, 40 hours/week) = $40,000/year. 
> 
> Others here can say whether that's common among developers, and what appropriate ratio is. Cheers, 
> 
> 

-- 

xforty technologies 
Christian Pearce 
888-231-9331 x1119 
http://xforty.com 
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