How to determine contractor hourly rate and employee salary equivalents?
Here are a few points to consider: Taxes: As a consultant, you will be responsible for the employer portion of the Social Security and Medicare taxes, and you might have to pay for state unemployment insurance and state disability insurance, as well. Office expenses: As a consultant, you may be required to buy your own laptop, pay for your own software licenses and buy other office-related supplies. For higher-end services, you may be setting up a complete office and even hire your own secretary and other support staff. Benefits: As a consultant, you will be responsible for your own health insurance, retirement plan and other benefits that an employer would ordinarily provide. Education: Your employer will likely pay for books and magazine subscriptions and send you to seminars, in order to keep your skills current; your client won't. Liability: Consultants face certain liabilities that employees don't, and have to factor the cost of insuring against those risks into their rate. Let's say you're a software developer, and your faulty code causes a nuclear plant's reactor core to overheat and melt down. As an employee, you'll get fired. As a consultant, you will get sued. Even consultants in low-risk fields can easily shell out thousands of dollars per year for a basic general liability policy. Sales & marketing: Don't forget that when your contract ends, you will have expenses associated with finding your next client, including the opportunity cost of not getting paid for your services during that time. All these factors contribute to your overhead, which you have to roll into your consulting rate. You should also add a margin of profit -- after all, as you're in business for yourself, you should be compensated for taking this entrepreneurial risk.   If you're looking for a quick over-the-thumb rule, you can figure that your equivalent consulting rate should be about twice what you would be paid hourly as an employee. Assuming you work 2,000 hours a year, if you would receive a $100,000 salary, your hourly rate should be $100. Of course, this is only a very rough guideline. Ultimately, your rate will mostly be influenced by how established you are and how much your services are in demand. Take $100,000 base salary, x 1.5 = $150,000 contractor salary, divide by 1,872 hours = $80/hr
Nice attempt at trying to obfuscate the math by suggesting your wage was half of what you actually got paid.  You were paid $9/hr, not $4.50.  Was your CEO spending billions of other people's money playing martian when he could have been paying his employees instead? "If you're really a part-time worker, then there are some simple considerations.... The remote working environment, choice of own hours, and non-guarantee of work availability point to your ""part-time"" situation being more like a consultancy, and that would normally double or triple the gross hourly rate. But if they're already offering or paying you a low hourly figure, they are unlikely to give you consultant rates." "Why would you just look at salary and not total comp for a first year? It's pretty misleading to say ""$60k to work 100 hours a week"" when you do in fact get paid well above that.  Also, in my 2 years of consulting, I've never come anywhere close to 100 hour work weeks. It usually fluctuates between 45-60 hours. Not to mention Fridays are usually pretty casual/relaxed days since you're working from home or in your home office doing random firm activities/networking." Okay but still three people at $12/hr is $16 more per hour than one person at $20/hr. And if anything paying taxes and benefits for one employee is cheaper than doing so for three. I still don't see how u/NEVERDOUBTED asserts that the three at $12/hr cost less. Where's the math, man??? I'm trying to get the numbers to work. I built a quick spreadsheet that allocated the lost time as stated against the overall pay increase, assuming 1.5x for more than 40 hours.   I can't find a reasonable number of hours worked where a 9% cut in hours outweighs the near 20% increase in wages. "The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them?  If you are doing semi-unskilled work part-time, then $20k might be reasonable.  If you are a professional working full time, it's too low.  Don't forget that, in addition to ""billable"" work, you are also doing office tasks, such as invoicing and bookkeeping, that the IRS will also want to see you getting paid for. There was an important court ruling on this subject recently: Watson v. Commissioner.  Watson owned an S-Corp where he was the sole employee.  The S-Corp itself was a 25% owner in a very successful accounting firm that Watson worked through.  All of the revenue that Watson generated at the accounting firm was paid to the S-Corp, which then paid Watson through salary and distributions.  Watson was paying himself $24k a year in salary and taking over $175k a year in distributions.  For comparison, even first-year accountants at the firm were making more than $24k a year in salary.  The IRS determined that this salary amount was too low.  To determine an appropriate amount for Watson's salary, the IRS did a study of the salaries of peers in firms of the same size as the firm Watson was working with, taking into account that owners of firms earn a higher salary than non-owners.  The number that the IRS arrived at was $93k.  Watson was allowed to take the rest ($80k+ each year) as distributions. Again, this number was based on a study of the salaries of peers.  It was far short of the $200k+ that the S-Corp was pulling in from the accounting firm.  Clearly, Watson was paying himself far too low of a salary.  But even at this extreme example, where Watson's S-Corp was directly getting all of its revenue from one accounting firm in which Watson was an owner, the IRS still did not conclude that all of the revenue should have been salary and subject to payroll taxes. You should ask an accountant or attorney for advice.  They can help you determine an appropriate amount for your salary.  Don't be afraid of an audit, but make sure that you can defend your choices if you do get audited. If your choices are based on professional advice, that will help your case.  See these articles for more information:" In accrual accounting, you account for items on the income statement when the service has been delivered - in this case, the service that your employees are providing your company. Because of this, you incur the expense in the fiscal year that your employees work for you. So, you incur the expense, and net income decreases by (1-t)*wage expense.  Net income decreases, so owners' equity decreases; to balance you credit wages payable. Once the wages are paid, you decrease the liabilities side (wages payable) and offset it with a Cash change on the assets side. I'm a freelance programmer, reverse-engineer, and network engineer. I do quarterly 1099 filings using a cheap local accounting firm. I did them on my own at first; not that hard.. You deduct from sum the percentage for that earning-tier issued by the IRS.. $500.00 for writing algorithms on a timer? Yikes.. I did topcoder once but it didn't pay much then it was only good for portfolio.. No way I would race to do algorithms for third-world-rate capital.. Software Contractors are not employees of the company that is procuring the software. Software Contractors necessarily work for another legal business entity. There is a business to business relationship between the procurer of the software and the entity producing the software. Therefore, the company procuring the software is not required to pay a minimum wage, or adhere to any other employment law. When any individual or company orders a software product and agrees to pay for it, that is a fixed priced contract. This happens millions of times a day. The amount of time taken to produce the software has no direct bearing on price. For instance, there is no minimum price for Microsoft Word based on the number of hours taken to produce it. Generally a Software Contractor will be a director and shareholder of a limited liability corporation. Directors are exempt from the standard protection offered under employment law. If the company producing the software was employing non-directors to produce the software, rather than sub-contracting to another business then employment law would apply. This sounds very like disguised employment. You act like an employee of the company, but your official relationship with them is as a contractor. You gain none of the protection you get from being an employee, and this may make you cheaper, less risky and more desirable for the company who is hiring you.  Depending on your country you may also pay corporation tax rather than income tax, which may represent a very significant saving. Also, the company hiring you may not have to pay PAYE, national insurance, stakeholder pension, etc. This arrangement is normal and legal providing you genuinely are acting as a subcontractor. However if you are behaving as an employee (desk at the company, company email, have to work specific hours in a specific location, no ability to subcontract, etc.) you may be classified as a disguised employee. In the UK it used to be common practice for highly paid employees to set up shell companies to avoid tax. This will now get you into hot water. Google IR35 It sounds like your relationship in this case is directly with the recruiter. You will have to consider if the recruiter is acting as your employer, or if you remain a genuinely independent agent. The duration of your contract with the recruiter will have a bearing on this. In the UK there are a whole series of tests for disguised employment. This is a good arrangement provided you go in with your eyes open and an awareness of the legislation.  However you should absolutely check the rules that apply in your country before entering into this agreement. You could potentially be stung very badly indeed. Note:  This is not professional tax advice.  If you think you need professional tax advice, find a licensed professional in your local area. What are the expected earnings/year? US$100? US$1,000?  US$100,000?  I would say if this is for US$1,000 or less that registering an EIN, and consulting a CPA to file a Partnership Tax return is not going to be a profitable exercise.... all the earnings, perhaps more, will go to paying someone to do (or help do) the tax filings. The simplest taxes are for a business that you completely own.  Corporations and Partnerships involve additional forms and get more and more and complex, and even more so when it involves foreign participation.  Partnerships are often not formal partnerships but can be more easily thought of as independent businesses that each participants owns, that are simply doing some business with each other. Schedule C is the IRS form you fill out for any businesses that you own. On schedule C you would list the income from advertising.  Also on schedule C there is a place for all of the business expenses, such as ads that you buy, a server that you rent, supplies, employees, and independent contractors.  Amounts paid to an independent contractor certainly need not be based on hours, but could be a fixed fee, or based on profit earned.   Finally, if you pay anyone in the USA over a certain amount, you have to tell the IRS about that with a Form 1099 at the beginning of the next year, so they can fill out their taxes.  BUT.... according to an article in International Tax Blog you might not have to file Form 1099 with the IRS for foreign contractors if they are not US persons (not a US citizen or a resident visa holder). The short Answer is NO, HMRC do not like disguised employment which is what this is as you fall under IR35 you can bill them via an umbrella company and you should be charging the contractor rate not a permie rate.  http://www.contractoruk.com/ There's a lot more cost in wages than just the hourly wage itself.  As you got taxes that is split between the employer and employee.  You also have general overhead costs (ie paperwork).  If they are full time employees you then have the costs of benefits as well in there. "We used an internal billing system where we have Project numbers, overheads, and proposal numbers. Projects may or may not have a client backing them, Overheads are strictly that, overhead costs.  In the chargeback system we utilize (written by yours truly) we devised an SLO (Service Level Offering) which is the default, PC and Default software such as Office, Adobe Reader, Windows etc... and the hardware itself plus depreciation. This, when analyzed with total Business Unit working manhours, can devise an hourly rate that we apply to all Projects/Overheads/Proposals through time booked to these account through the Timecard system. A rate of 3.00 per manhour worked is applied accross the business Unit.  Additional costs are divied by percentage based on Timecards. If Employee A charges 50% time to Project 1, 40% to Project 2 and 10% to project C, then those percentages will be applied to divy out the additional IT costs to the various projects, and thus making these items billable back to the client. This lowers our Overhead costs, transfers cost from Cost Centre to Profit Centre and lowers our GMAF.  As for external to IT, it often prevents shit from getting done. ""Hey man, can you help me for a second?"" ""RAAAAAAWWW GIMME CHARGE NUMBER!!!!!!!!"" and creates internal animosity between project managers." This is a snapshot of the Jan '17 puts for XBI, the biotech index.  The current price is $65.73. You can see that even the puts far out of the money are costly. The $40 put, if you get a fill at $3, means a 10X return if the index drops to $10. A 70X return for a mild, cyclic, drop isn't likely to happen.  Sharing youtube links is an awful way to ask a question. The first was far too long to waste my time. The second was a reasonable 5 minutes, but with no example, only vague references to using puts to protect you in bad years.  Proper asset allocation is more appropriate for the typical investor than any intricate option-based hedging strategy. I've successfully used option strategies on the up side, multiplying the returns on rising stocks, but have never been comfortable creating a series of puts to hit the jackpot in an awful year.