[consulting] Rate question

Tue Mar 29 13:57:12 UTC 2011

I concur with this for the most part to cover your tax obligation. But if you are doing a lot of context switching and lack of benefits (for example no unemployment), I would go with a much higher increase. Typically W2 work indicates you are going to be on a gig for months. Steady reliable work should come at a lower rate. If you are going to do small amount of 1099 work employers need to realize there is a premimum for being able to drop you at anytime with little effort. So if you are getting about 40/hr which is ~80k for a year at a W2 run rate, I would expect to charge 80/hr for 1099 short term gig. The longer the customer is willing to commit the more negotiable that rate is. 

Of course your rate is determined on your experience etc. Working as an individual it can be hard to charge higher rates. 

My point is don't undervalue the fact you are doing 1099. There are a lot of costs employer's incur that don't get passed on to the employee in salary. 

Oh and do yourself a big favor, pay your quarterlies and do the math of how much you should set aside. Working W2 and 1099 mixed could set yourself up for some heartache April 15th. Whatever your highest tax bracket is from your W2, you should set that aside for your 1099 work. So if you W2 work is going to put you in 25% for the year make sure you set aside 25% (for federal) and 13.3% for your Soc Sec and Medicare. 

Good luck! 

----- "Joe CodeWaggle" <joe at codewaggle.com> wrote: 
> 
> 

The self employment tax is probably the main difference. When you work W2, the employer (whoever is writing the check) is required to pay half of the social security and Medicare taxes. On 1099, you wind up paying the full amount yourself. Normally, for 1099 the rate is about 15% of your gross pay. This year there is a temporary reduction in the rate, check irs.org or do a search for “self-employment tax”. 

So, the employer normally pays 7.5% of your rate directly to the IRS. You need to increase your rate by more than 7.5% to cover that. Add in the time spent doing extra paperwork and I’d suggest at least a 10% increase in your rate. You’ll be responsible to make quarterly tax payments to the IRS for any 1099 income you receive. 

This assumes you normally do contract work and don’t receive any benefits. If you’re switching from employment as a benefits receiving full time employee, you’ll need to determine what those benefits (health insurance, paid vacation, etc.) will cost you to replace and add that into the rate you charge. 

Joe 

> 

> 

From: consulting-bounces at drupal.org [mailto:consulting-bounces at drupal.org] On Behalf Of nan wich 
> Sent: Tuesday, March 29, 2011 12:17 AM 
> To: A list for Drupal consultants and Drupal service/hosting providers 
> Subject: [consulting] Rate question 

I usuually work on a W2 because I hate taxes. Every once in a while, a recruiter won't offer W2. How much differential should I allow in my rates to go to 1099? Personally, the paperwork hassle is worth 100%. I know the typical company claims about 40% burdening, but that includes office space. 
> 

Nancy 

Injustice anywhere is a threat to justice everywhere. -- Dr. Martin L. King, Jr. 
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