Negotiating contractor salary?

Question

I was recently offered a multi-year hourly contract as a senior software engineer with a Fortune 100 pharmaceutical company. The offer is $48/hour, which I think is relatively low, considering that my current salary as an employee is over $110K, plus I have 20+ years of experience and I have a Master's in Computer Engineering.

With that said, I would prefer working at this pharma (and the recruiter knows I want to leave my current company), but I'm not sure how to broach the subject of the salary.

I was considering making something up (i.e. my current company doesn't want me to leave so they want to raise my salary), but I'm not sure how that would fare.

Any help is appreciated.

Answer 1

Why would you even consider the offer?

It is all risk and no reward. As a contractor, you are in business with all the extra paperwork AND the understanding that the job is a limited term.

To clarify what is being pointed out by all of us, being an employee and a contractor are two drastically different things.

Consider doubling the rate before thinking about accepting. Think of all the things of you'll have to pay out of your own pocket: Healthcare, all the taxes, vacation (no PTO), etc.

UPDATE:

OP didn't mention anything about benefits. This is important to know if benefits are being offered. There is a major difference between a W-2 employee and 1099 contractor (vendor). Thanks to @XavierJ for the call out.

Answer 2

You really don't need to make anything up. It's either you take the $48 as-is (I wouldn't) or you go back to the recruiter and press for more money. To break even with your current salary, that'd be $52.88 an hour (use 2080 hrs/yr). Will your health care costs go up? Down? Are you losing out on a 401K? As a contractor, your chances are slim to none that your new employer will full cover health, or match on 401K.

It doesn't make any sense to go into a situation already grumbling about the pay rate. As of now at $48 you're losing $10K a year. Is the "prestige" of a Fortune 100 worth it? It may not turn out how you think. Prestige won't pay a mortgage.

Answer 3

In the broad field of IT recruiting there is nothing nuanced about asking for salary. If your current company offered no health insurance and no 401K match, the equivalent salary would be at least 55/hour. If they do, then its higher depending on the value of the benefits and also if they offer more than 2 weeks vacation.

So I would say, to the recruiter something like: I need $65/hour to make the jump.

You said you really want to work for this company, and if there is a contract to hire or someway you would be participating in the profits in the future, then I get giving up the salary. However, you can always participate in the profits, by earning more at a different company and buying the company's stock or bonds.

Answer 4

The two large companies that I worked for computed fringe benefits (PTO, health plan, 401k match, etc) as 40-50% of salary. As a contractor you are giving that up, so need to replace it in your hourly rate. Besides that, the company paid the rent and utilities on my office and had a staff to make work land on my desk that I didn't pay for. If it is a full time contractor position you don't need the marketing until the contract ends. A 50% raise in hourly is the minimum you should consider and I would expect more than that.

Answer 5

My rule of thumb, UK based, is 120-150 contractor days should match one year employee salary, before tax. With $110,000 annual salary, you want $700 a day minimum. That includes everything, taxes, unemployment times, no paid holidays. I don’t think US numbers would be much different.

Answer 6

I am going to assume that position is an actual contract position (1090) and not a 'contractor' W-2.

What do you not have as a contractor.

1st, no vacation days, or sick days. Assuming you/your family members are sick an average amount per year. Assuming you like vacations and take 2 weeks of vacation a year + federal holidays that you are no longer paid for that's about 15-20 working days pay you are missisng out on so about 160 hours or so 1920 hours a year @ 48 an hour is 92k. Already you are making less, to be honest even you worked 5 days a week, 52 weeks a year, you still wouldn't make 110K. But we are missing out on some stuff.

Lets talk about costs:

This depends but if it were me, my employer would no longer be paying healthcare for my family so that's about 800 a month, or 9600 a year. Dental, that's 360 a year for 1 person. Vision that's 150 a year, life insurance that's 200 a year. These are post tax dollars, so lets bump that up by 15% so 12k right there...

Retirement? You no longer have a company 401k. you can open a solo 401k but the fees are higher, and you don't have employer match, assuming you contributing the maximum with a 4% match (which is a fairly standard match) that's losing out on 4.4k a year.

What else... Your employer no longer pays half of your social security tax, that's another 4k a year.

So in total we see this will cost you: $20k a year.

I might be missing some things. After factoring all of that that leaves with 72k, or in other words. 40k less then your current job.

A general rule of thumb is that as a contractor you should make between 1.5 and 2x your current salary if you want to maintain the same standard of living. (need to save more due to lack of job security).

This is of course assuming that you would have the standard 40 hour work week. ANd aren't working 60+ hours.

TLDR: A salary of 110K is much higher than an hourly wage of $48.. unless the hourly wage includes over time/holiday pay/weekend pay etc... Then it gets more complicated.