Contract to Hire Discount
blog.andrewmcwatters.org
blog.andrewmcwatters.org
@ $50,000 per annum
50,000 / 200 => 250 per day.
On average, you'd realistically want to be charging closer to Base + 40%. Im my example, this would be $350
just to give yourself time off, $$ for equipment, marketing, growth, insurance, accounting, other general business costs.
Contractors are expensive because we're the business. We take on the risk. We do the HR, taxes, insurance, office rentals, equipment costs/hire. Everything.
additional overheads like accountancy professional services, insurance brokers, insurance and equipment as well as the time spent dealing with them are significant.
if a contractor converts to fte, or a long term contract (12+ months) then these figures adjust down. but for short term contracts, the per hour rates can appear quite high (although actual gross totals tend to not be much in the scheme of things).
this is why the mean rate from the last hn contractor salary poll was $100-$150/hr.
You aren't going to be billing this company anyway. You are essentially setting a fixed rate for a fixed amount of time with the expectation of full-time employment after that time.
So it does make sense to essentially contract yourself at that rate. But he's saying when you do, add in the 3% plus $8/hr to cover the things not being covered by your employer during that time. It'll make the transition a little smoother. You won't feel as if you're shafting yourself.
I'd also add that if I were Contract-to-Hire, I'd also stipulate that once I'm hired, I'm a full employee. My contract period is my probationary period and after I should be treated as a full employee with all the benefits that entitles me to: health care, 401k matching, etc.
1099-NEC would be the appropriate way to report non-employee compensation but many businesses do not do this.
If the question is "should I freelance or take a full time job", that's a much bigger, more involved question.
where there's a general expectation that a w-2 earner will be budgeted for years into the future.
The 2x doesn't come for free nor is it just for PTO & health - it's paying for all the non billable time generally spent marketing, prospecting, qualifying leads, creating proposals, paying for time to proposals that never result in paid work, etc.
A typical independent consultant or freelancer only does billable work 50% of the time.
To answer your question as to "should you?" - it depends on your goals. Contracting versus standard employment is not just a financial, but a lifestyle decision.
2-3x base pay is a rule of thumb I've heard. Generally speaking however, most small software development companies are around $150/hr+ in practice.
As an employee, you are taking on a 6 month contract can be terminated at any time, basically. And you are stuck performing "for your job".
From what I've seen with C2H employees, they are either what you see, and you like it, Or it changes, when they become employees. The latter is a real problem. Because the whole point of C2H is "try before you buy." But, really that try isn't under realistic conditions. If they are what the company likes, buying out the "C" can be a pain, and cause instability and unhappiness for the employee.
C2H employers, use it for various reasons, but I've seen mainly instability in some form, cause them to use C2H. Be it that they can't hire perm because of internal malfunctions, or they aren't sure if they'll be around for you to go perm, etc. In one case I think they did it to make sure the contracting agency found people for them, because the profit is higher.
As far as rates: I'd bill it as a 3-6 month contract, that I assume would not renew. Remember, you can decide to walk away also, and see the above... you just might.
If you do C2H:
It's strange out there, stay interviewing my friends.
To my knowledge there is no special legal protection for full time (or "direct hire") employees versus contract to hire employees. They are both just W-2 employees.
In the US no explanation is required. Anyone can be terminated at any time with no justification (unless you negotiated special employment terms, which is rare outside C-Suite or VP level)
Certainly more painful than ending a contract for a large company.
In this environment it would be preferable to hire on contract as a ‘probation period’ in order to determine fit.
I'm currently contracting in a startup where it seems that most all of the permanent employees work weekends. I was recently asked if I'd be interested in going permanent and my reply was "not just yet" because I really don't want to work weekends.
https://www.dol.gov/agencies/whd/fact-sheets/17e-overtime-co...
But does this really work in practise. What I have usually seen is that the client usually pays in that range 125-150 /hr. But then a huge chunk of that is eaten up by the middlemen - companies like Randstad, KForce, Adecco, Robert-Half et. al.
In the end, you are barely left with 70-85$/hr at which point consulting makes no sense and it is better to go full-time becase you get better health insurance from the company rather than buying it from the marketplace.
If you are a single-member LLC or an agency, your rates are business rates.
For example, my agency charges $175/hr per resource.[1]
That is to say, contract to hire employment is not contracting a software development firm.
When the conversion period ends, base pay is cut, and that allocation goes into employee benefits.
You're an employee to the IRS the whole time.
for business to business billing it's basically offensive.
i'll also note that those passthrough agencies, peos and co-employers can charge up to a 100% markup though.
...and, contract to hire is still just contract, until hire.
It's just clear!
Consider instead a “value” strategy, specifically you can price yourself high and see if you can get engagements. If not, lower your price until you can. Or start low and raise until you can’t get engagements. Either way you are letting the market set your rate.
The truth is there is a variety of factors that control your pricing power… marketing, supply/demand, availability, quality perception, risk, fire-ability, and so on.
https://docs.google.com/spreadsheets/d/1hVtKa9Vls7Uy7YHPA-RF...
It factors in PTO, FICA, 401K match, equipment, etc. It's made by my company, https://www.facet.net