Contract Rate vs Paid Salary
I am not sure I belong on Door 64 anymore. I have taken a contract for a publicly traded SW company in Houston.
I like the group I work with. My boss is nearly perfect. The people are all very nice (and well dressed). Plus, HTX has a crazy amount of good places to eat.
But I am wondering, what happens if they ask me to go full-time? If the stars align and enough people think I am worthwhile, how would I respond?
Let's say I was making somewhere in the ballpark of $85 an hour. After taxes and other things, that's about $13K a month. Per annum, that's > $140k.
What should I say IF my boss offered to transition me from consultant to full-time? Should I require a salary of at least $140k (considering my host gives benefits)? Should I ask for more or less? Benefits. Should i shoot for the moon? Or is that immature and disrespecting?
I never thought i'd be worth -- in salary terms -- more than $30k per annum. I have consistently lowballed myself. Then I saw the light. A ton of people are making small fortunes by doing very little. Plus, I have started to recognize my skills and how they are (might be) unique.
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I've done the math on this
I've done the math on this question so many times in my career, and worked in both categories so often, that I think these ideas are valid. First, though, be sure your present contract employer didn't write in a no-hire clause, which would render the whole conversation moot.
1. What's your present contract expiration? If it's long-term or open-ended, that gives you more leverage in full-time salary expectations. OTOH, if it's a relatively short contract, say nine months or less, then your higher present compensation won't have as much bearing on the long-term picture. That is, if they brought you in as a firefighter to put out a specific fire, and now they want to hire you as a fire marshal to prevent future fires, you shouldn't ask as much.
2. Don't expect a 1:1 match between contract:full-time, although it could happen. The HR dept. will try to tell you that full-time benefits mean a 1:2 ratio between full-time and contract. That doesn't apply in your case, though, as you're already receiving benefits. Use 2:3 or 3:4 as a starting point. If the HR drone only recites the standard line, shake 'em up by pointing out that there's no such thing as "permanent" employment in private industry, and hasn't been for many years.
3. Be nimble and resourceful in your conversations. The HR drone will typically present a canned package which you're expected to sign obediently. Don't accept this at once. Do your homework:
(a) Salary.com - research what your peers make, HTX cost of living, etc.;
(b) cost of move - will your new employer pay it?
(c) Barron's and others' predictions for your company and the whole industry;
(d) your manager's estimation of where you'll be in two years, then five years (turn that old interview question around!).
4. Assuming that all other benefits are ~equal between the contract employer and the full-time employer, ask for stock options to sign on full time. They'll probably offer you some anyway, but stock is one of the most flexible options you can negotiate. For instance, beyond the number of shares, ask for different options, such as some stock that vests earlier or automatically, along with the standard package.
5. If the HR drone just looks at you blankly and/or threatens to take the present deal off the table, take the conversation to your wanna-be manager. You're not working for the HR drone, and that person doesn't typically think creatively.
6. If you don't want the offer, don't take the offer. We're not down in the coal mine or out in the field like our ancestors, locked in for life. I've turned down low-ball, full-time offers before, and stayed on as a contractor in the same gig. In a worst-case scenario, you can find your way back to I-10.
Wayne C. Vermillion
Instructional Designer/Project Manager
p.s. "well dressed" at a software company? You're really not in Austin any more...
Oh, and bonuses (bonii?) -
Oh, and bonuses (bonii?) - beyond profit-sharing, inquire about bonuses for such things as publishing a white paper, presenting at a conference, securing a patent, etc. Get that written into your contract.
Again, this will probably be beyond the HR person's comprehension, so be prepared to escalate. It's just a conversation, so you shouldn't take No right away.
Wayne C. Vermillion
Instructional Designer/Project Manager
Another thing to take into
Another thing to take into consideration - is your contract W2 or 1099? If you are 1099, remember that part of moving to W2 is that your employer pays that 1/2 Self Employment Tax that the IRS will collect from your 1099 compensation, so your salary expectations should already start down by about 7.65% from your current level.
Another resource for salary comparison: Glassdoor.com
Jim Adcock
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I've been in this situation
I've been in this situation many, many times... though I've never actually accepted a FT position (I prefer to be in biz for myself).
I recommend looking at it from their point of view. I agree with some of the points from the poster above, but I don't think it's wise to assume HR is a bunch of drones. Economic times have forced far more executive reviews, and headcount is accounted for very differently than contract services. I have never seen stock options for someone under $175/hr. Also, unemployment is still high and underemployment is really high. It's still an employer's market. Contractors are often treated as a commodity, and there are definitely people willing to take a job at a lower salary. You're not just competing with locals... relocation packages have vanished since people are willing suck up the costs in order to find gainful employment. You're competing with the whole country, as well as foreigners. This is especially true if you're a specialist. There are a lot of staffing firms that can find people to work for long term rates that are a lower total cost of ownership for the company over multiple years.
As a general rule of thumb, salary makes up about 66% of the overall employee cost. As an independent contractor, payments make up 100% of the cost. There are a lot of additional things outside of just health benefits to consider. For example, liability insurance, e&o, professional liability, unemployment insurance, auto, etc. that are commonly left up to the contractor. These become the responsibility of the company once you go W2 with them. It's also important to note how many hours aren't billable for FTE's vs Contractors. PTO is not applicable to contractors. Tax allocation can also play a big role depending on the company and which state it's taxed in.
Contrary to popular belief, it actually costs more for group health insurance than it does for individual insurance. Employers often pick up a significant portion of the tab, but healthcare costs have been rising consistently by up to 40%. The point is there are a lot of costs involved with hiring someone full time that aren't involved with 1099 work. The cost of the plan is coupled with the administrative overhead of managing the plan. It's expensive to have FTE's.
In my experience, consultants making $125/hr are typically offered about $110-120K. Prior to coming to Austin a few months ago, I worked mostly in the Chicago market, which pays better than the Texas markets. Remember too that economic times are still not exactly bright, so there may be some downward pressure. If I were in your shoes, I would ask for about $100K and be prepared to take around $85K. I've also seen a $50K salary replaced by a $75/hr contractor. So, it can vary depending on the company. Perhaps a general calculation might be around $1000 per contract $1 (i.e. $85/hr = $85K). I agree with prior posters that you should do industry research though. Keep in mind though that some sites like salary.com use historical numbers... make sure you remember the context of which you're doing your research in.
I hope that helps. Good luck!
Corey Butler
Chief Consultant
Ecor Group
An Ecor Systems Company
http://www.ecorgroup.com
http://www.coreybutler.com
I'd tend to agree with
I'd tend to agree with Corey... in the current market $85/hr on contract probably equates to somewhere between $85k and $100k on salary. In a good market it should be closer to $100k, in a market like we were in a year or so, probably down around $85k.
Your current situation is
Your current situation is that you are on contract and being paid for your time. Don't let that blind you to the fact that no one actually works full time, and you aren't always on contract.
The rule of thumb is that your consulting rate needs to be 2.5 to 3 times your expectation for an annual salary. Thus to get an expected annual income of $100,000 ($48/hr), you would need to charge roughly $120/hr to $144/hr ($250/$300,000/yr).
This rough number takes into account direct expenses (like self employment tax) and also indirect costs like time spent marketing yourself, vacation, holidays, training, etc. and also some $$ for direct expenses (laptop, printer, broadband, cellphone, etc.), healthcare insurance and retirement contributions, insurance and possibly office space.
Almost no one (except attorneys -- according to attorneys) can legitimately bill 2,080 hours or more a year. In most consulting organizations a utilization rate of 60% to 80% is considered normal.
So, does this mean you should only expect 33% or 40% of your contract rate as a permanent hire? No, it doesn't, but it is a place to start.
Going to the employer's side, they calculate a "fully burdened" salary at something like 142% to 150% of the rate the employee sees. Thus, they see that same $100,000 salary as costing them $142,000 to $150,000. So, for them a starting point for converting you to a full time employee would be about 66% of your current hourly contract rate as an equivalent cost (from their point of view).
Now, if you have been paying attention, you'll note that employers want to cut by a third and consultants should be willing to take a 2/3 rds cut !! What gives? Two things are going on here. First, consultants typically underprice themselves. They don't actually account for all their costs, and they price themselves as loss leaders. That's one reason companies like to use consultants instead of full time employees. Second, larger businesses can keep you busy full time doing what you do best (and that probably isn't sales, marketing, advertising, accounting or looking for customers). They actually do those things cheaper than you can do it yourself.
Bottom Line: If you can get an offer of 66% to 70% of your $85/hr you should be in the right ballpark, if it includes a standard benefits package.
charles.carrington@carrington.com
Charles, your detailed
Charles, your detailed analysis is gratifying, validating my estimate of 2:3 full-time:contract rate.
Corey, your point about increased hiring scrutiny in these times is well-taken, especially since I didn't take it into account. Allowing for my evident, ahem, under-appreciation of HR, I intended to make the point that flexible negotiation is key. When a candidate is competing against the rest of the world, as you describe, that flexibility is vital.
However, I'm curious about others' opinions of stock option grants. Unlike Corey's experience, I've always been offered stock options for full-time positions at or above the 80K range. (Cisco, Tx Instruments, Hyperion, Polycom in this decade) Uniformly, these promised full vesting at five years, with partial vesting starting at the second year. However, given the insecurity of truly long-term employment, and given that a company can set the terms of their stock however they wish (in accordance with law, of course), I advocate negotiating for quicker-vesting options, or even outright grants.
Wayne C. Vermillion
Instructional Designer/Project Manager
Wayne - I think we're both
Wayne - I think we're both saying the same thing... flexibility certainly is key on both sides of the negotiation table.
I'm also curious about other's experiences with stock options. It sounds like Wayne & I have very different experiences. In fairness, I'm pretty new to the TX market - the majority of my experience in this area came in Chicago, though I've also been involved on 3 coasts (US/UK) with employment opportunities. Most of the vesting I've seen in public companies has been exclusively through 401K unless it's an executive level position or a startup. Most of the groups I've worked with have a 3yr vesting period. 5yrs actually sounds pretty long to me. I've also seen a lot of tuition reimbursement and training vouchers for positions under $100K. Anyhow, I'd love to hear about other experiences... learn something new every day!
Corey Butler
Chief Consultant
http://www.ecorgroup.com
http://www.coreybutler.com
The only positive experience
The only positive experience I've had with stock options were when I worked for Wells Fargo (before I moved to TX). I (along with 100k other employees or so) got a grant of options, the number of shares being dependent on salary. The options were supposed to vest after 5 years or if the stock hit a certain price. This was during the mid-late 1990s... and the stock went up faster than had been predicted and the shares vested within less than a year, at which time I (and most of the others) cashed out. I cleared somewhere between $7.5k and $10k if memory serves. Anyway, everybody liked that so much that the company (after doing a 2-for-1 stock split) did it again, and once again surprising everyone the stock went up faster than expected and the shares vested and I cleared somewhere between $5k and 7.5k. Sadly after that they didn't do it again, and by then it was approaching Y2K. Wells Fargo also had one of the most generous 401K plans I ever was in and a pretty good tuition reimbursement program which a number of people I worked with were able to take advantage of, although I was not. Unfortunately those days are way gone.
My previous employer offered a token number of shares in exchange for employees signing a non-compete and intellectual property agreement and a few other things. I read the fine print and declined to do so, especially since I was already planning to leave well before the shares would have vested. I haven't lost much on that deal since their peak stock price since the grant would have only yielded a modest gain that would barely fill a shopping cart with groceries once.
But wait, there's
But wait, there's more...
Tuition reimbursement and corporate classes are not-so-obvious benefits of full-time employment, since I've never seen these offered for contractors. Depending on the corporate financial and course restrictions, tuition reimbursement alone could add several thousand dollars/year to a total compensation package.
I'd love to have my cake and eat it, too, by negotiating a financial bonus for a certification funded by the same employer.
Wayne C. Vermillion
Instructional Designer/Project Manager
Are there very many
Are there very many employers who still offer tuition reimbursement anymore? Most small to medium sized companies appear to have dropped benefits like that if they ever offered them. The others have enough restrictions and strings attached (like re-payment required if an employee leaves within x amount of time -- even if they are terminated or laid off by the employer) to make it somewhat risky.
While it might seem like a big increase in compensation, the down side for the employee is often that the employer extracts the $$$ back out by increasing the work requirements to the employee without giving an increase in salary. I'm not saying that isn't fair, just that employees shouldn't look at it like it was a free lunch.
In my opinion, it's simple.
In my opinion, it's simple. All things being equal, you're better off and more secure as a full time employee, especially if you're doing the job you're hired to do and performing well.
I have to disagree with the
I have to disagree with the post that full-time is better than contract. There is no certainty, so having control and flexibility is more important than any illusions of security. I've been in both situations several times, and can tell you that the fit for either contract or employee depends your particular disposition and economic position. My personal positives with contract are:
These are more on the life-balance side of the equation and should be weighed seriously when considering an offer.I have declined offers with employers where the offer did not compensate loosing some of these benefits. I stayed on as a contractor because I made clear that I want to stay and continue to provide value.
What does a "well-dressed" software company look like anyway?
Hey Door64'rs. The main
Hey Door64'rs.
The main reason I tell all my Central Texas peeps to join Door64 is because it works. It's like LinkedIn oughtta be. A real community.
I would expect to pay $everal million peso$ for the individual advice I have received from ya'll. Instead, we offer our perspectives, our domain expertise and our talents to each other for free. As a community. Or a "tribe" (if that term doesn't offend).
As it turns out, I was not offered a full-time job. In fact, the meeting in which I expected an offer was about something entirely different. (NOTE to MEETING Schedulers: Please state Objective in Invitation).
I am completely prepared though when the time comes.
In just a few weeks, I have solidified trusting professional relationships with folks across the organization. I know just enough of the process to appear confident and provide reliable, workable solutions.
When the time comes, I'll know what to say and how to diplomatically say it.
Thank you Door64. Thanks Matt. I'll look forward to paying you back (non-monetarily, indirectly) sometime in the not-so-distant but not-too-immediate future.
Very Truly Yours.
"Tribe" shouldn't offend.
"Tribe" shouldn't offend. "Tribe" is certainly much better than "diatribe".
--
Jerry Dunham
Does it take two tribes to make a diatribe?
Thank you, and especially
Thank you, and especially for the follow-up!
You're absolutely right when it comes to pinging the door64 community with your questions. I'm so glad you did, and that everyone chimed in the conversation to help out! That's how it's supposed to work.
Matt
--
I love all the great data
I love all the great data and POVs in this thread. Very relevant since many of us in Austin swing back & forth between FT & contractor gigs.
Here are qualitative points to consider as well:
- what is your overall career plan?
- how do you like to work?
- what do you like the most about the work you do? Can you do it more as a contractor or as an employee?
There are trade-offs either way. And "compensation" isn't always about tangible money/benefits, whether a contractor or an employee. Family needs also factor in.
Good luck with your decision & your career!
Julie Hunt
Julie Hunt Consulting
Software Strategy Consultant & Analyst
Business Technology + Market Intelligence
www.linkedin.com/in/juliebhunt
Blog – http://jhcblog.juliehuntconsulting.com
Twitter: @juliebhunt
Regarding stock options. I
Regarding stock options. I have worked for two companies that were transitioning from small to medium and both offered stock options to me and other rank and file emplyees. Neither had gone public. Neither went public while I was there.
Personally I feel like stock options are pretty worthless. For Pre IPO companines it is a piece of paper with indeterminate real world value. It will only become valuable if you manage to stay long enough for the option to mature. At least for a public company, the stock option has a real world value. Even so, it is a loyalty incentive in a market that hasn't got any loyalty.
P.S. I am also in Houston.
Guy Fielder Experienced
Guy Fielder
Experienced C-Level Leader
Professional Geek Wrangler & Nerd Herder
I am old, gray and scarred from several decades in R&D. I just want to compliment the contributors to this thread. The advice is not only sound but quite good. Despite the legends to the contrary, geeks are intelligent and thoughtful and I am proud to be a card toting member.
Guy. I wanna get a "card"
Guy. I wanna get a "card" too. How'd did you acquire your "geek card"?
csg2. Yeah, stock options have been fairly laughable for me too. I got a boat load when at Sun Microsystems. Never cashed in one. Often they'd devalue after I got the "congrats" note.
Julie. I like your questions. Esp. "Can you do it more ... ". INTRApreneurial has different meaning for a contractor vs. a FTE. You can take more risks.
And always, HIGH5 to Matt. Thanks for the comment bud. You are super.
I wanna add one more awareness ... being contingent vs being salaried can be merely a state of mind. For example, I believe in 40 hr weeks regardless of your job status. If I can't hit home-runs in a 40 hr workweek window, then I am not working efficiently. Loyalty to success is also a state of mind; you either wanna to or you don't.
Yer Colleague, J