Thank you for the additional information about what you?re looking
for. As I said in my request for clarification, there are some rough
estimates on how to compare earnings as an employee and its equivalent
as an independent contractor. The rule of thumb is 30 ? 35 per cent
more payment as a contractor to make up for the various taxes and
benefits that are paid by the employer when working as an employee.
As you requested, I?ve found some resources to help guide you through
developing an appropriate comparable pay rate. Most of these are
written from the perspective of the employee/contractor but you can
use them for figuring out a rough estimate. There may be additional
considerations that only your prospective contractor would know about.
I suggest that you review these guidelines and use them for developing
a discussion framework for presenting your proposal.
This article from salary.com gives you an excellent overview of the
issues to consider when you?re contemplating switching from being an
employee and going out on your own as an independent contractor. It
presents the points you should consider and it provides a framework
for figuring how to develop an hourly rate comparable to the
equivalent yearly salary.
Pay Yourself Right When Being Your Own Boss
Independent contractor fees.
But as a contractor, you need to pay for your own benefits, as well as
additional Social Security contributions, so the number needs to be
higher. Salary.com uses an adjustment factor of 30 percent to convert
an hourly wage for a salaried employee to an hourly wage for a
contract employee. Multiply your unadjusted hourly rate by (1 + 0.3)
to get your adjusted hourly rate. For example, if your unadjusted
hourly rate comes out to $20 per hour, your contract rate should be
$20 * (1.3) = $26.
An example shows how this works for a senior-level web designer in
Kansas City. A Web designer III working in Kansas City makes $66,244.
The unadjusted hourly rate for this position is $66,244/2,080, or
$31.85. Adjusted by 30 percent, the contract rate comes to $41.40.
This worksheet from a longtime independent contractor will help you
review a wide array of elements that the prospective
consultant/contractor should consider before leaving work as an
employee. The formulas presented here should help you develop a
suitable proposal for your situation.
Consulting Rate Worksheet
Here?s a worksheet that FTEs and Consultants could use to convert
their incomes from one to the other. There are a lot of variables, but
I?ll try to account for all that I know of. This is written for the
USA, but I?m sure you can easily translate it for other countries.
Below are several links to discussion forums where contractors discuss
the pros and cons of working as an employee vs. a contractor. They
provide insights about the issues to consider while developing hourly
rates that are comparable to yearly salaries.
Rate of Pay for long term contract
($70 - W2 vs. $75 - corp to corp)
Pay Rate as a Contractor v. FTE
See comments from MSHack, Monday, January 12, 2004 for detailed instructions.
Busting freelancer myths.
1099 vs W2
When freelancers discuss payment, they often mention 1099 or W2. On
the surface, these describe the tax relationship between you and the
other party. As it turns out, however, the path you choose determines
much more. Read on to learn the pros and cons of each.
Spread between W2 and 1099
1099 vs W2... Those with experiences with either or both of these... NEED ADVICE.
Sometimes a contractor has the option of charging by the project
instead of by the hour. This article provides some pointers on this
Should you charge by the hour or the project?
Here is an earlier Google Answers question that asked for similar
information that might be useful to you.
Q: W2 versus 1099
I trust that the information I?ve provided will help you develop an
effective proposal. Please don?t hesitate to ask for further
clarification if any of this is confusing.
I wish you well for hiring this candidate.
All the best.
~ czh ~
1099 vs w-2
hourly rate 1099