IC hourly compensation



I have been unemployed since December. I have been on a couple interviews but all were just "we aren't hiring right now but maybe in a few months..." I have been offered a couple contract options. Some have been just 1 project another is the possibility of an ongoing thing. I have been asked to give them an hourly rate. My dilemma is that in the past when I have side jobs I was a salaried employee who had benefits (health insurance, 401k, vacation, sick pay, paid for ARE pass, etc). Now I will be paying my own taxes, paying for health insurance, etc. My previous salary was $53k which works out to about $25.48/hour. I have seen suggestions on various forums from mark ups of 25% to 30% or 35% to cover the taxes and benefits.

Can anyone else give me an idea of what they are charging? I am in New Orleans but I'd like to hear from people outside of my area as well.

Also, thoughts on starting an LLC?

Apr 22, 13 3:35 pm

Have you look at

Apr 22, 13 3:35 pm

504 -

you've got 2 separate questions: starting an llc (or some other business entity) is really a question of whether you want to maximize your tax benefits while offering some level of protection against your personal assets. personally? i wouldn't hesitate to say yes. even if you're "just" consulting for another firm, it can't prevent (literally) someone from potentially suing you over issues related to the project you worked on. plus, it makes taking itemized business deductions less prone to the scrutiny of the irs (vs. if you were claiming them as just personal expenses).


what you can charge a firm is 100% dependent on how good of a negotiator you are, what your actual skill sets are and how unique they are. yes, you're going to be paying for expenses you never dreamed of, but it's not too hard to calculate out what you'd like to charge:

target your 'base' income (or your net income -what you make after all expenses  in your case, if you're starting with 53k, ok)

add in self employment taxes

add in social security taxes

add in your expenses (health care is the big one, but add in costs like business registration, supplies, gas to/from locations, testing, etc. really think about this category - it varies for everyone). Include computers, software, training, etc. in here.

if you want to have 'paid' days off, you'll have to build them into the equation (meaning, you're making a little bit more per hour to offset the days you're not working and actually getting a check. no one - i mean no one - will pay a contractor for 'days off'. )

add in some profit if you want - maybe 10%? 15%? of the total so far.

add all that up and divide by 2000 (if you assume a full work year). this is your rate. 

now, the big one: take that number and knock 20% off of it. why? because if you're doing short term stints (say, 3 months at a time), the chances of you having a lull between gigs is much higher than the ability to string gigs back to back with no gaps. meaning, you may go weeks without any work between gigs and you need to have the ability to absorb that lull. if you can live on that 20% less number, then great. if not, you'll have to go back and bump up your rate. 


this list isn't exhaustive and it's really a back of napkin, but it should help you start to understand what kinds of calculations you really need to make (and not just assume with a % markup "rule of thumb". thumbs are usually shorter for a reason). because i'm feeling good this morning, i did a quick back of napkin calculation for you based on your salary, assumed a single person health insurance in the southeast (quick quotes i could find online) and ran the rest of the yearly assumptions:

net income - 53,000

fica - 5090

medi -1419

health - 4,000 (it's not a 'super' policy, but it is insurance)

expense - 6,000 (500/month. you could easily run more, but this is reasonably tight).

subtotal - 73,500

paid days off - 2940 (80 hours at the rate above)

profit - 7,000 (just to keep it round)

grand total: 83,440 to earn

hourly rate (div by 2000): 41.42


here's where the rubber hits the road. will anyone pay you that much to do what you think you can contribute? if so, congrats and hit the streets. if not... ask yourself why not. and, really, you may want to find a principal of a firm you trust to give you some very candid advice/counseling in this regard. 


good luck with it...

Apr 23, 13 8:48 am

Gregory Walker- Thank you so very much for your reply. Extremely helpful. The hourly rate you came up with was exactly what I was thinking.

Apr 23, 13 12:39 pm

great post Gregory, just for comparison's sake, I've had two contract jobs making $35 and $29 an hour.  My salary in 2009 was $56k.  I now have a full time job at $52k.  

I can't find the story any more, but there was a recent study basically saying that its almost impossible to get a job after being laid off more than 6 months.  My advice is to take the contract work for as much $ as you can get, and keep looking for the job you really want. At least you will have recent and interesting work on you resume.

Apr 23, 13 1:07 pm

Thanks, Shuellmi. That is great advice. The article makes me nervous but also pushes me to make this happen. I'm also still finishing up my tests. So, on top of studying, testing, contract jobs, and looking for a job I've been able to keep myself busy. I hope that would count for something with a future employer. We'll see...

Apr 23, 13 1:50 pm

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