Slashdot Mirror
Contractor's Cut of Billing Rate?
disenfranchised asks: "I've recently become aware that the company I contract through has increased my billing rate somewhere between 10 and 20%. This seemed like a logical time to ask for a raise, so I started doing my research. I've found some online salary comparisons. But I can seem to find an average contractor's take home percentage of the billing rate. Given that my company provides a benefit package worth a staggering US$100/month with no sick or vacation days but does find the clients and handle the tax end of things (as a W2 contractor), what can I expect as a reasonable percentage of the billing rate?" For those contractors out there who are privy to this information, what percentages do you get out of your work? What do you think is a fair percentage?
Everyone faces this dilemma. I have seen the split vary greatly depending on the skill set. If you provide a unique set of skills (say JAVA 2 years ago), your split might be as high as 80%. If however, you are new to the position and it is easier to find people (a new tester, little experience), your split may be as low as 40%
Eighty percent seems to be the magic high end if you work for someone else. Beyond bench time, healthcare, and business expenses, we need to pay half of the Social Security and Medicare taxes (~10%) and workers compensation. We then need to offer consistent retirement benefits if we want any ourselves. Finally, if the firm is of any size, they have a sales representative (or several), secretary, book keeper, etc. and a profit. All of this comes out of that other percentage.
I have seen "lost leaders", getting highly skilled (CICSO Certified Engineers) into the site paying 85%, so other consultants/contractors can be placed that actually bring in income.
So now that I have told you the percentage could be anything, how does that help? Consider:
Security - When we move into the next recession, will you still have a job even if work slow considerably? Is there a lot of work across multiple clients?
Extras - Do they treat you well? Pay for continuing education, hardware, books, etc?
Value - Can you articulate the value you bring? Can you do more than code? Do you? What would the current client say about your: Personality? Style? Knowledge? Willingness to get the job done at any cost? What would your coworkers say? Do you sell your company?
Be careful of the "I want it, because they are getting it," mentality. You are working for another company, where the owners find business, pay taxes, invoice clients, ensure your checks are paid, etc. They put themselves at risk creating the company. If you want it all, step out on your own.
If you do not want to step out on your own, then ask yourself, "what is fair compensation for me?" Keep an eye to what the market is doing, but do not drive yourself crazy wondering if you could get another 2.35% out of them.
Finally, I would offer one piece of advice. ASK. I am amazed sometimes at how a person will complain, bitch, and moan to coworkers, clients (a fatal error btw), the secretary, etc. but now ask the person who can give it. While it would be nice to think that employers are always watching the pay scale for the right reasons, sometimes the value statement just gets missed.
... I *am* an independent consultant specializing in embedded development with open source and Free tools.
/ft2, depending on where you are. Bandwidth and other utilities are usually extra.
I obviously spend a lot of time watching my overhead--- the expenses that your employer covers with their "cut" of your billing rate. So while I can't answer what a reasonable cut is, I *can* tell you a little about what you're getting out of it.
Aside: always make sure your salary stays up with the going rate for people with similar skills in your GEOGRAPHIC AREA (salaries vary widely with location in the U.S.). Befriend a few salaried locals with similar job descriptions, and find out what they're getting. Factor into that what you get for benefits and security--- less paycheck security *should* translate to a higher wage, for example.
Office space runs from $10-$100
Then there's your computer and office furniture. They may not seem like much, but if they're leased then the lessor is paying $50-$200/mo for them, at least. (Aside: I spent $14k of my own money in 2000 for computers and related equipment.) If you really are on a W2, then your employer has to pay taxes to cover Workmans Compensation (i.e. unemployment benefits) and Social Security. These aren't deductions from your paycheck, these are deductions from their *profit*--- the tax laws are designed like this, to prevent the employer from penalizing your existence with these expenses.
You've already mentioned your benefits package. I have a wife and three kids, so mine runs about $700/mo. Young, unmarried and single will definitely get you a better rate, however.
I also have to carry additional life, property and liability insurance. I can get sued if I screw something up, just like your employer can. These policies can total a few $100's a month, depending on the nature of the work you're involved in.
And then there are the obvious costs associated with secretaries, managers, and salesmen. Without them, nobody finds you any work to do. And there's also the savings needed to pay people when they're "between jobs". And does your company cover training?
If you have a reasonable employer, and they don't think you're out to screw them over, then they'll probably be open to explaining their cost structure to you. Especially if they sense that you're trying to understand their business better, in hopes of making them (and you!) more profitable.
I'm not trying to talk sour grapes here, but you're doing *very* well if you are bringing home 80% of your billing rate. Myself, I figure my effective take-home is more like 60%. And I manage my costs *very* aggressively, because I am a company of *one*.
HTH,
b.g.
b.g.