What should my contract rate be?

dhindia · Post by **dhindia** » Tue Feb 10, 2009 1:28 am

$90-100/hour. Typically i have read and heard that x dollars on contract and 60% of x on full time are same. Also you are losing out on job stability etc.

RRS · Post by **RRS** » Tue Feb 10, 2009 2:16 am

Let me illustrate the calculation to show how NoChaos arrived at $65-$70 hourly rate :-).

In WI, your gross pay is $100K (including 3 or 4 weeks of employer paid vacation +company paid holidays) + $5K bonus + $3K company match for company match. Hidden are FICA match from your employer which will now need to come from your pay ($6K per year) and additional medical ins (if not covered through spouse) is another $4k .

State income tax differential between WI and CA is around 4%.
State sales tax differential between WI and CA is around 3%
That's around $7k extra for the $100k base.

So in a nut shell, you need to make $100K+$8K(due to roughly 8% for the paid vacation which will come from your hourly pay) +$3k (for company paid holidays)+$5K(bonus)+$3k(company match for 401K)+$6K (extra FICA from your pay)+ $4K (extra medical ins cost if not covered through spouse)+$7k(extra sales tax + state tax). I would add cost of living (apartment, gas, food,entertainment etc) in bay area,CA to the equation which is roughly 10% more than WI.

$146K/52*40 hours will be your comparable hourly rate if you don't want to pay premium for bay area weather compared to WI. ($136K/2080 will be with the understanding that you are paying that premium through your pocket).

You can use SEP IRA, your tax differential (between permanent employee v/s contracting) can be reduced if you go that way.Your medical benefits losses may be moot if you have a earning spouse.

I didn't list the perils of higher priced RE market in bay area if you need to buy house in the future as well as the gains of living in bay area for a techie as I don't know whether the perceived advantages of silicon valley as tech bastion can be hedged for future career growth/salary growth etc.

NoChaos · Post by **NoChaos** » Tue Feb 10, 2009 2:23 am

RaReSha3, you got it right. SEP IRA tax differential & business expenses:emwink: tax credit are major benefits for some.

DBN, what rate you are getting :)

Desi_by_Nature · Post by **Desi_by_Nature** » Tue Feb 10, 2009 2:27 am

Thank you all for your replies. Thanks RaReSha for the detailed explanation on arriving at the hourly rate. It really helps to know all this when I will be negotiating with the recruiter tomorrow.

RaReSha3;150593I would add cost of living (apartment, gas, food,entertainment etc) in bay area,CA to the equation which is roughly 10% more than WI.[/quote]

According to Salary.com the cost of living difference between Madison, WI and SFO is more like 57% !

RRS · Post by **RRS** » Tue Feb 10, 2009 3:21 am

Desi_by_Nature;150596

According to Salary.com the cost of living difference between Madison, WI and SFO is more like 57% ![/quote]

I should have said , it's another 10% more on your salary than WI. For example, 2 BR condo rent in a good complex is around $1700 and where as it may be around $950-$1000 in WI. The differential is $750-$800 which amounts to $10K by adding relative increases in other expenses like gas, food etc. But if your overall package was around $130K in WI, in order to not get hit in any way by adding that 57% differential, you would need roughly $210K package or $100 per hour and I doubt whether this job market grants such rate but I understand that there are exceptions in any time. If you command and get such rate, you need to think about sustaining that rate too in the future or when transitioning from contractor to employee.

For what it's worth,personally we took a hit for our cross coastal move but other intangibles of bay area living has made that hit less painful over the years.

MrNoDeal · Post by **MrNoDeal** » Tue Feb 10, 2009 4:15 am

1. Do a search in Craiglist or other job search website (indeed.com, Simplyhired.com, etc) for similar contracting positions and you should get a rough idea.

2. How bad does the consulting firm and the client want you? If you possess something unique then you can ask for a premium.

iwant2_r2i · Post by **iwant2_r2i** » Tue Feb 10, 2009 6:28 am

DBN,

Could you let us know what your area of expertise is? For certain areas of expertise, I might be able to provide input on what rates customers are billed.

direstraits88 · Post by **direstraits88** » Tue Feb 10, 2009 6:32 am

Desi_by_Nature;150557Hey all,

I am posting after a really long hiatus, and I hope most of you remember me :emsmile:

I need some advice figuring out my hourly contract rate for a job opportunity I have at hand. (I have always worked as a full time W-2 employee so never had to do this)

I am currently making 100k (base) + 4-5% year end bonus (yeah even in this economy). Complete family medical+dental coverage for $150/month. 3% match on 401k. This is in Madison WI.

The contract opportunity is in Bay Area for which I will have to relocate. The staffing firm is not offerring any relo. They say that they do have affordable medical/dental coverage (dunno how much that is but it's not gonna as cheap as what I am paying now). Obviously no 401k match or bonues etc.

So what do you guys suggest be the rate that I go for keeping in mind tax implications for contract jobs, and of course the big relocation factor from Wisconsin to California.

Thanks,
DBN[/quote]

It appears that the contracting firm is going to pay you on W2 if they mentioned about availing medical coverage.. This would eliminate the option of using SEP IRA or claiming any business expenses in tax.. Note the medical coverage will be 100% paid by you even though you are on W2. It will be around 10k for family coverage.

Your current CTC to your company appears to be around 130-140k. (100k +bonus +insurance cost+ 401k match +vacation/sick time).

Considering the cost of living in CA, you should get atleast $85 on W2 or $90 on 1099 (or s-corp).

Ofcourse, it's dependent on your current employment status... If you are in the risk of losing a job, then go for it.. If not, stay where you are..

Chicago Desi · Post by **Chicago Desi** » Tue Feb 10, 2009 6:58 am

DBN,

Where have you been man? Are we going to see you on the forum more regularly? Good luck with the move.

On a side note, CA may have different ordinances, so may be a good time to revive the bidet project. :emdgust:

dbs · Post by **dbs** » Tue Feb 10, 2009 3:03 pm

RaReSha3;150593.$146K/52*40 hours will be your comparable hourly rate if you don't want to pay premium for bay area weather compared to WI.

You got to have a break. I would divide by 48*40 or whatever your holiday entitlement was.
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