For the Europeans feeling US numbers are unattainable: I'm on
£1100/day in London with about 8 years devops/cloud/IaaS experience
It sounds as though you did it by combining the skill set with an enterprise app and negotiated hard by owning that niche?
Despite your deserved success, UK contracting rates are on average poor compared to east coast and west coast US.
What advice do you have for people who are happy to do technical work but find too stressful (in terms of 'people skills') to manage clients and the networking side of sourcing clients?
10% seems low for a UK recruitment agency placing contractors in software dev or similar fields unless we're talking about relatively long engagements and the recruiter fees continue throughout.
1. Recruiter sources a direct hire. At hire they're paid 30% of one year's salary, and if the hire is still there 30/60/90 days later, they keep the money.
2. 10% finders fee for fixed-price contract to a contractor (paid by the contractor, not the company)
3. Company employs someone, who is then billed out to another company as staff augmentation / contract. Markup varies widely but ranges from 2-200% and in my experience is inversely proportional to the quality of the person doing the work.
In terms of making money without being in a supervisory role: Become really good at operating / devopsing niche enterprise software. Try and specialise in software where:
* There aren't many users (and therefore few competing specialists)
* The users are large, rich enterprises
* It's "legacy" and therefore the pool of competing specialists is shrinking (but importantly the pool of customers is shrinking at a slower rate than the pool of specialists)
* It's complicated
* The software provides enough value to its users such that paying an incredibly expensive contractor to look after it is much cheaper than not using the software and having to pay the salaries of the dozens/hundreds of jobs the software automates away.
This is insane. FTE + contracting put me at something like 300-325k USD for 2021 and under 15% effective tax rate, and targeting similar on ~40k less for 2022
Is there something that makes your contract based employment significantly different to a salaried role?
You’d cap out around this in Norway too; in fact you’d probably break 50% and that’s before considering taxes on the consumption your post-tax money is used for.
They were originally supposed to stop people pretending to be a contractor while actually working like any other employee just to get favourable tax treatment. There were quite a few people abusing that loophole previously.
But the rules recently changed so that now big clients are responsible for determining whether a contractor is a disguised employee or not instead of the contractor themselves. This is supposed to be assessed for each specific engagement but in the real world big clients don't like risk so they usually insist that anyone conceivably caught by the IR35 rules must work through an "umbrella" company. The end client pays the umbrella and the umbrella employs (that is, actual legal and tax employment) the contractor. This guarantees that the end client isn't accidentally working with a disguised employee so they don't end up with a nasty unexpected tax bill later.
The problem with this is that the umbrella company will take a small cut and will also then deduct all of the costs for both an employee and a large employer from the rate they receive from the end client before paying out the rest to the contractor. So as the contractor your rate ends up covering not only the taxes you'd pay for an equivalent salaried employment position (which is what IR35 was supposed to cause) but also a big chunk extra for employer taxes and other statutory payments (which is explicitly not how IR35 gigs are supposed to work but it's almost completely universal in the industry and the government seems to be in no hurry to do anything about it) plus a small extra fee for the umbrella company's profits.
This is how you get the huge proportion of your headline rate turning into costs that ukoki described. You can't think of that rate as being comparable to other payments like an employee's salary or real business-to-business sales (including true outside IR35 contract or freelance work). Working via an umbrella is actually worse than all of them. But if you want gigs with big clients who have risk averse legal teams (but I repeat myself) it's the game you have to play now.
I'm also strongly incentivised to do stuff like timing long inside-I35 contracts (eg 12 months) so they straddle two tax years so that the marginal tax rate in each year only approaches "very unpleasant" and doesn't reach "extremely unpleasant". And with the remaining time either do outside-IR35 contracts if I can find them, or just stop working and enjoy my time and money because at 70%+ marginal tax rates the motivation really starts to dissapear.