Need Opinions! Big career change 1

[FunWithMoney]

FunWithMoney (Programmer) Feb 7, 2006
I am looking for some advice on what I am worth to my company. I have been a programmer for 3 years now (plus a BS in Comp Sci), and the last 2 have been spent with my current company. I am a programmer for Oracle Forms, Reports, Portal, and numerous PL/SQL programs.

When I took the job at this company I took a salary that was WAY low in my opinion but the experience was going to make up for the bad pay. Now I am moving out of state. I decided to be a good employee and give my boss as much time as possible for making the transition. I was not really expecting to walk out of the meeting with a job opportunity.

My company would like to keep me working for them as an independent contractor. There is plenty of work to be done and it will most likely be a long term gig (6mo - 2yr). My boss (also the CFO) of the company has stressed the need to keep me with the company for the long term. Now I have to come to terms with my current pay status with the company.

I started at 32K and then bumped up to 36K with bonuses. in 2005 I made 40K for the year with bonuses. I did some research and still think this is low for a Programmer II. A salary.com salary report estimmated my base salary should bee around 51K.

Finally.... for the question. I realize that being a contractor requires all the normal things to come out of my pocket like SS, insurance, sick time, etc.... I have read that the benefits should be about 25% of the base salary to cover those expenses. So what should I charge my company? I was thinking that the bare minimum that I would take is $32 and hour. This would put my base pay around 50K. But with the extra risks involved in being a contractor am I justified in asking for more money? If so please give me your opinion.

Also the pay will not be based on hours persay. A project will be defined and a estimate on the number of days will be given to that job. Then if I complete it earlier then good for me, if it takes me longer then bad for me (This is one of the risks that I am talking about)

 

[Sheco]

With 3 years of experience and a marketable skill like Oracle you should get at least $32 from a headhunter that will will pay you weekly for every hour worked, withhold income tax, and pay the "employeer's matching half" of social security.

So yeah, $32 is not greedy... especially considering that if a headhunter is paying you $32 they are billing you out at at least $50/hr...

The amounts will vary widely depending on the locations.

 

[BocaBurger]

Years ago I worked as a contractor for one of those HH companies. I was paid $35/hr minimum. One company president told me he was being charged $125.00 per hour for my services, so he wanted me to shorten my lunch to 1/2 hr or less.



BocaBurger
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The pen is mightier than the sword, but the sword hurts more!

 

[chiph]

I have read that the benefits should be about 25% of the base salary to cover those expenses.

That's about right. Take what you think you should be making as an employee (which is probably not what you've been paid there), then multiply by 1.25%.

Will you be a 1099 or an hourly W2 employee?

If 1099, you have to pay both halves of the Medicare/Social-Security contributions. You'll also have to make quarterly estimated payments to the IRS and your local state government. You should get a CPA to help you with this. He'll tell you what expenses you can deduct off your taxes.

Which sounds like a lot of hassle, but in return you get paid for every hour you work, as opposed to being expected to work overtime for free as a full-time employee.

Also, if you don't have too many monthly bills to spend that extra 25% on, you should save it. As a contractor, you have even less job security than before, so you'll want at least 6-months fixed expenses in savings. Having 6-month's salary in savings would be even better.

And... as a contractor, one of the most important things you should do is keep in constant contact with the client. You should be writing weekly status reports, so that there aren't any mis-matched expectations over what you're working on.

Chip H.

____________________________________________________________________
If you want to get the best response to a question, please read FAQ222-2244 first

 

[spamly]

Years ago I worked as a contractor for one of those HH companies. I was paid $35/hr minimum. One company president told me he was being charged $125.00 per hour for my services, so he wanted me to shorten my lunch to 1/2 hr or less.

I don't understand. You billed out your lunches?

 

[FunWithMoney]

Thanks for all the comments. It has been very helpful.

I have decided to shoot for about $40-$42 an hour. My current employer may have a heart attack at this number based on my current salary. But I think my reasoning is sound and will at least be concidered.

i.e. I am the best programmer the company has (not ego, unfortunatly true)
I am the only person that knows the whole Oracle system
I will be taking on significant risk, such as downtime, and mistakes in job estimation.

Does anyone think that $40-$42 is unreasonable for a programmer with 3 years of experience, and the best programmer in the company?

If not then I will be making a stand and be prepared to walk away if my demands are not met. That's the scary part I guess.

 

[BocaBurger]

No, I worked an 8 hr. "day" and was paid for 8 hrs. This included 1 hr. for lunch: 9AM to 5PM. No overtime allowed.

I normally didn't work for $35/hr , but this company had been so badly shafted by their VARs that they were almost non-operational. Turned out the VAR sold them a pirated Novell license, was running on a 386 motherboard in a brandname case that normally had a 486 in it, etc.

I got them straightened out hardware and Novell wise, and put them in touch with a local VAR who I trusted. They eventually hired the VAR's engineer as their IT manager.

BocaBurger
<===========================||////////////////|0
The pen is mightier than the sword, but the sword hurts more!

 

[chiph]

I have decided to shoot for about $40-$42 an hour.

$42/hr is roughly equivalent to $70k/year for a FTE.

For someone who's been in the industry ~3 years, I would consider this to be high. But your area of the country may have higher cost of living than mine (Raleigh-Durham).

But you'll never know unless you ask. Just be prepared to negotiate, and give valid reasons why you deserve that rate.

And, it wouldn't hurt to send your resume around to some local contracting shops, just in case. Make sure they know not to send your resume to the company you're currently negotiating with.

Chip H.


____________________________________________________________________
If you want to get the best response to a question, please read FAQ222-2244 first

 

[Sheco]

One thing is they don't have to pay a middle-man.

If they go through a headhunter to find his replacement they'd pay the $42/hr just to get someone that is willing to work for $25

 

[SQLSister]

Chip, I disagree. I've done a lot of costing out of things and the company cost per employee is roughly twice the hourly wage not 25%. It's not just your benefits, but the cost of operating the business admin (Admin employees, office space, equipment, etc.) for each employee which is calculated into hourly wages. By the calc I've used the suggested hourly rate is roughly the equivalent of someone making around 43K per year and seems quite reasonable.

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[chiph]

After reading SQLSister's post, and Matthew's in the other thread, I'm changing my advice - a 25% premium is way too low.
Go with 75%.

Chip H.


____________________________________________________________________
If you want to get the best response to a question, please read FAQ222-2244 first

 

[cupid11213]

It all depends on how much you believe you are worth. On the other hand they might not want to pay that, but will more than likely trying to negotiate with you. So go ahead and ask for that it can't hurt, the worst that can happen is they will say no. It's surely worth the shot, you never know they might easily agree on that sum.

Some people make things happen, some people watch things happen, while others wonder what happened.

 

[mharroff]

My understanding is that on average a person would need an additional 47% to maintain their income level when they move from Full Time Employee to Self-Employed.

This 47% will pay for things like health insurance, life insurance, business insurance, taxes.

Therefore if you were making $50k ($24/Hr) as a FTE you would need 73.5K ($35/Hr) to maintain your lifestyle.

 

[bigtee959]

There are 2,080 work hours in the year per most HR. departments

2080*42=85k
2080*35=72k



Terence Phillips
Telecommunication Specialist

 

[pansophic]

For anyone considering working for themselves, this is what you need to consider.

There are indeed 2080 working hours in a year, but if you account for sick leave, vacation and holidays, that number is closer to 1850 hours. If you include any downtime that you will have between contracts (and you have to plan for this) you are lucky to bill 1600 hours in a given year.

A good rule of thumb for calculating your hourly rates is to take your current hourly rate and multiply it by 2 - 2.5. It is the only way that you will survive.

I've seen many people try to make it as independent contractors over the years, and it is the only way that I have seen any of them survive.

The math is really pretty simple. If you are making $42K a year now, you will need approximately $42/hr to survive ($42000 / 2080 * 2) with a little rounding.

$42 * 1600 = $67,200.

You will probably do a little better than this, since you are going into a long-term contract. But now that it is you who is the businessman, it is you who will receive the benefits of any additional work that you put into your job. True you will only get straight time for any overtime that you put into the job, but you can feel justified in charging for every hour that you work.

You also will be well served by getting an accountant and an insurance broker. They will help you navigate the complex world of the IRS and Insurance Companies.

BTW, I've been on my own for more than 10 years now.


pansophic