Mapping Rate to Salary
Steve Black
Hope this isn't to simplistic or been asked too often, but is there a
rule of thumb to map an hourly rate (pure rate, nothing withheld, no
benefits, i.e., 1099) to an annual salary?
Thanks,
Steve
maps...@attbi.com
Rate x 2000 = annual salary.
(Because 40 hours per week x 50 weeks = 2000)
--
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Windows Print Drivers and Components
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Lawrence A. Rodis
--
Regards,
Lawrence A. Rodis
President
Strategic Resource Consulting Group L.L.C.
A Microsoft Certified Partner
702-221-6274
lro...@strategicresource.com
www.strategicresource.com
"Steve Black" <stephe...@yahoo.com> wrote in message
news:cada74ed.03030...@posting.google.com...
Charles Calvert
wrote in <cada74ed.03030...@posting.google.com>:
>Hope this isn't to simplistic or been asked too often, but is there a
>rule of thumb to map an hourly rate (pure rate, nothing withheld, no
>benefits, i.e., 1099) to an annual salary?
A couple of folks have suggested ~ 2000 hours. I wouldn't. Why?
Because it's a rare consultant who bills 2000 hours a year, every
year.
If you're working via brokers and spend little time on marketing, I
would suggest a number like 1500 to account for:
1. No paid vacation or holidays.
2. Downtime between projects when you're not getting paid.
If you're an independent, then drop the number to 1000 to account for:
1. All of the above
2. Time spent on administering the business (doing quarterly taxes,
monthly payroll, writing and negotiating contracts, etc.)
3. Time spent marketing and selling your business
You'll find some good information on this if you search
<http://groups.google.com/> for past threads in this group and threads
from alt.computer.consultants prior to the year 2000.
--
Charles Calvert
Moderator - alt.computer.consultants.moderated
Submission Address: ac...@celticwolf.net
Contact Address: accm...@celticwolf.net
Pete Maclean
before and I think it is the best starting point. Certainly what I would
use myself.
One very big reason has, unless I missed it, not even been mentioned: that
consultants do not receive benefits and have to fork out more for social
security.
Some other (possibly debatable) reasons why 2000 is way too high:
- Consultants work harder and more conscientiously than employees.
- Employees generally do not work 50 weeks a year. I have worked 46 weeks
a year as an employee.
- Consultants should earn a premium for being available and disposable at
short notice.
- In many cases, consultants supply their own tools and office space.
I think I can support the 1000 figure by noting that when I switched from
full-time employment to full-time consulting, I moved from a $45,000 p.a.
salary to a $50 per-hour billing rate. I maintain that anyone using a 2000
factor is not only cheating him/herself horribly but is also degrading the
entire consulting profession.
Pete
Robert W. McAdams
>
> Hope this isn't to simplistic or been asked too often, but is there a
> rule of thumb to map an hourly rate (pure rate, nothing withheld, no
> benefits, i.e., 1099) to an annual salary?
If you are 1099, you are running a business, so your rate constitutes
revenues for your business, not salary. So to compute your actual
hourly wages, you have to first take out all of the overhead costs:
company part of FICA (which, if you're 1099, is half your
"self-employment tax"), cost of benefits, business expenses
(advertising, insurance, legal and accounting fees, telephone
expenses, office expenses, etc.). My business pays me about $2 in
salary for every $3 it gets in revenues, so my company's revenues have
to be about 1.5 times what I hope to make in salary.
Next, you have to take into account the fact that you are likely to
have significantly fewer billable hours than you would as an employee.
You won't get paid vacation, holidays, or sick time. And you won't
get paid for time you spend doing marketing or getting training. And
you may also have significant gaps between assignments. I wouldn't
count on having more than 1500 billable hours per year, and you may
have less than that.
If your business is going to take in 1.5 times your annual employee
salary for 1500 hours of billable work, your hourly rate will have to
be 1/1000 what your annual employee salary was.
Bob McAdams
Fambright
Thomas Bartkus
news:acah6vk31tett04e6...@4ax.com...
>
> A couple of folks have suggested ~ 2000 hours. I wouldn't. Why?
> Because it's a rare consultant who bills 2000 hours a year, every
> year.
>
Charles,
I really think the more simplistic approach is what is wanting here.
Yes - consultants always have lots of unbillable hours. Yet, these are real
work hours. How much am I actually earning for the work hours I am
investing? How does it compare to an annual salary as a wage slave? I only
want to divide the number of $ I get past Uncle Sam by the hours I am
working. For this purpose, you can safely ignore the distinction between
billable and non-billable.
The tax + benefits adjustments are complicated enough!
Thomas bartkus
maps...@attbi.com
>I really think the more simplistic approach is what is wanting here.
>
>Yes - consultants always have lots of unbillable hours. Yet, these are real
>work hours. How much am I actually earning for the work hours I am
>investing? How does it compare to an annual salary as a wage slave? I only
>want to divide the number of $ I get past Uncle Sam by the hours I am
>working. For this purpose, you can safely ignore the distinction between
>billable and non-billable.
>
>The tax + benefits adjustments are complicated enough!
I agree. But then again, I agree with all the other folks who pointed
out that 2000 hours was unrealistic, and I agree with my original
suggestion that 2000 hours x rate was realistic.
The question is: what exactly did the OP mean by "mapping rate to
salary?" I took it to mean a simple comparison, ignoring the issue of
billable hours. If you take it to mean a more realistic *projection*
then it's a whole 'nother ball of wax. Saying that 1000 hours (or
1500 or whatever) is a realistic estimate is completely dependent on
your skill set, the market, the economy, and about a dozen other
factors. Some people do bill 2000 hours per year (and more). Some
bill far less. It depends on what you do and how well you do it, and
there's no single rule of thumb that's going to be accurate for
everyone.
As you point out, annual income / hours worked (billable or not) is
the most accurate answer, but it takes a year to get an answer with
that method (at which point you will already know the answer).
Charles Calvert
<tbar...@hotmail.com> wrote in <Ak2dnbrdUrq...@comcast.com>:
>"Charles Calvert" <cb...@yahoo.com> wrote in message
>news:acah6vk31tett04e6...@4ax.com...
>>
>> A couple of folks have suggested ~ 2000 hours. I wouldn't. Why?
>> Because it's a rare consultant who bills 2000 hours a year, every
>> year.
>>
>I really think the more simplistic approach is what is wanting here.
>
>Yes - consultants always have lots of unbillable hours. Yet, these are real
>work hours. How much am I actually earning for the work hours I am
>investing? How does it compare to an annual salary as a wage slave? I only
>want to divide the number of $ I get past Uncle Sam by the hours I am
>working. For this purpose, you can safely ignore the distinction between
>billable and non-billable.
I think that you're interpreting the OP's question differently than I.
The usual question is "how much do I need to charge per hour to make
$X per year". I interpreted the OP's question as being essentially
that.
Kamal R. Prasad
if I had to choose betweena job and a consulting assignment, what
would be the break-even point?
I know annual pay = 2000* billing rate.
but what is the avg hours a consultant ends up billing?
also, how do companies evaluate whether its worth hiring a consultant
or making someone permanent?
thanks
-kamal
Charles Calvert <cb...@yahoo.com> wrote in message news:<u6et6v497k15asno9...@4ax.com>...
Jerry Stuckle
First of all, pay is NOT equal to 2000 time billing rate. This would
only be true if you
a) billed 2000 hours per year,
b) had no expenses, and
You can figure these only if you have full time employment.
To be realistic -
a) You won't bill 2000 hours per year (unless you don't have a family
life). You need to do marketing, accounting, negotiate contracts and
all kinds of other non-billable time. Or, you need to pay someone else
to do these things for you (see below)
b) You will have all kinds of expenses you now take for granted.
Everything thing from pens and pencils to vacation time to the
self-employment tax (currently 7.65%). Need an accounting program? Pay
for it. Need to buy a book or take a class on a new
language/database/other topic? Pay for it.
The best estimate I've seen is that to figure equavilent take-home pay,
take your annual salary and divide by 1000. That is, if you're making
$75K, you need to be able to bill $75/hr to take home the same amount.
Of course, like all estimates, this varies significantly depending on a
multitude of factors. Some consutlants will do better, some worse. But
it's a reasonable start, anyway.
--
====================================
To reply, delete the 'x' from my email
Jerry Stuckle
JDS Computer Training Corp.
jstu...@attglobal.net
Member of Independent Computer Consultants Association
www.icca.org
====================================
Charles Calvert
wrote in <15bc8b57.03040...@posting.google.com>:
>I have a related question (if you don't mind):-
>if I had to choose betweena job and a consulting assignment, what
>would be the break-even point?
>I know annual pay = 2000* billing rate.
As Jerry pointed out in his response and others said in this thread,
no consultant can count on 2000 hours every year. Just ask how many
folks in this thread are billing that much.
>but what is the avg hours a consultant ends up billing?
I don't think that there is an answer to that question. It depends on
the economy, how good the consultant is at marketing (or how lucky
they are) and how much they want to work. Some folks think that an 80
hour week is fun. Others like to balance work with play more.
>also, how do companies evaluate whether its worth hiring a consultant
>or making someone permanent?
That's another question without an answer. It depends on the person
doing the evaluating. IME, most of them are substantially less well
informed and substantially less logical than one would hope.
David Smelser
see
http://www.hwg.org/resources/faqs/ratesFAQ.html
It examines the rates calcuation methods of ad agencies, lawyers,
accountant, and auto mechanic rates and applies then to web developers.
-David
Jim Espaillat
the employer/client's perspective:
1) Hiring a consultant to work 1000 hours at $75/hr costs the company
$75,000. Exactly.
2) Hiring an employee at $75,000 costs them a lot more. First, figure
time off: 10 vacation days + 10 holidays + 5 sick days + 5 personal days
= 30 days (out of 260 weekdays per year) that most companies pay for
their employees to do nothing. (Granted, it's not a direct dollar cost,
but it's a huge productivity cost.) Second is benefits: health
insurance, life insurance, retirement plans, training, even subsidized
cafeterias; all these things cost the company money, sometimes whether
you use them or not. Third is the employer-side taxes: FICA, UI,
disability, etc. Accounting folks usually consider the <true> cost of
an employee to be 30-50% more than their nominal salary.
3) Employee costs usually come out of a payroll or HR budget;
consultants are often paid out of a capital expense budget. Which is
better (for you) is usually only a question of which budget actually has
money in it, and perhaps, who has authority to spend it. However,
payroll is usually viewed as an ongoing (therefore higher) expense,
while consultants can sometimes be justified as a one-time expense.
HTH,
Jim
Jerry Stuckle wrote:
--
Jim Espaillat
Delphinus Consulting, Inc.
Custom Software Solutions
www.delphinusinc.com
Charles Calvert
<solu...@delphinusinc.com.invalid> wrote in
<3E8D0F3...@delphinusinc.com.invalid>:
>In answer to Kamal's last question, you can extend Jerry's analysis from
>the employer/client's perspective:
>
>1) Hiring a consultant to work 1000 hours at $75/hr costs the company
>$75,000. Exactly.
"Exactly" is only correct if you don't count the costs of finding
consultants, vetting them, negotiating the contract, processing
invoices and issuing payment.
There are similar costs for hiring employees: advertising the
position, culling resumes, conducting interviews, processing
applications and handling payroll.
I don't know that these costs are equivalent. I also suspect that
most businesses don't track them closely enough to accurately compare
them. I suspect that opinion or personal bias has more to do with how
they are perceived in many cases than actual numbers.