In the US most salaried positions come with benefits, such as health and dental insurance, etc, etc.
Is there a rule of thumb that converts salary + benefits to an hourly rate for a 1099? Obviously, there cant be an exact conversion, but there must be a generally accepted rule.
To be more clear, I am looking for a formula along the lines of (annual_salary/2200_hours) + (annual_salary*.25) Or is this unrealistic?
The rule of thumb for conversion from a full-time salaried position with benefits to an hourly rate as a contractor or freelancer is
( annual salary / 2000 ) X (2, 3, or 4)
Your target annual salary, divided by 2000, which is the number of working hours in the year, will give you an hourly rate. Multiplying that by 2 is intended to reflect the cost of benefits. That multiplier may be more or less depending on what your needs are and the number of dependents you have.
The figure of 2000 hours assumes that you will be working all but 2 weeks out of the year, which is a reasonable expectation for a full-time employee. As a freelancer or contractor, however, you may be very well working much less than that, in which case you may want to figure in a number of hours lower than 2000.
The trick is to set a rate that's not too low -- sometimes a rate can sound very high, but depending on what you need to earn and what you need to pay for, it can be easy to fall into a money-losing situation.
This calculation is merely a shortcut -- you'll want to do a more detailed analysis of what benefits will actually cost you before entering into a contract.
See also https://www.quora.com/Compensation/How-should-a-contractor-or-consultant-arrive-at-an-hourly-rate
In the United States the rule of thumb is that salary pay rate that the employee sees only represents about half of the rate the employer has to charge a customer for their time.
For example the employee sees that their hourly rate is $20 per hour. The see that they earn $20*40*52 or $41,600 per year.
But they get 10 days of holidays, and two weeks for vacation, and a few more days for sick leave. Those hours their boss gets zero work, but they still get money in their paycheck.
Then there are:
Therefore the employer must sell their services at a high enough rate to pay for all of this. The rule of thumb is if the employee make $20 per hour their boss has to charge $40 per hour. I have worked with some who just use the rule: Hourly rate equals annual salary divided by 1,000. So to pay somebody $41,600 you have to charge customers $41.60 per hour.
Some one man shops can make this work to their advantage if they are already retired. They don't need to put a ton of money away for retirement. They may also have another source for their health insurance coverage. That means they can underbid some of their competitors.
I don't know if this is a "rule of thumb" but there's a pretty cool calculator that let's you play with the numbers so you can see for yourself how one will affect you versus the other.
From the site:
The calculator below will help you compare the most relevant parts of W2 vs 1099 by looking at how the two options affect your income and tax situation, but it's important to note that this is not an exact calculation of your taxes because many other factors outside the scope of this comparison can affect your tax situation. The numbers are relevant only in relation to each other as a comparison tool.
