Are you employed in a full-time, permanent position but interested to find out how much you could be paid as a contractor?
The decision to move from permanent employment to contracting can be motivated by a number of factors; greater flexibility, being able to select which projects you work on or rate of pay.
A regular question that professionals in permanent positions ask is “How much could I be earning as a contractor?”.
There is a simple 4 step formula that you can use...
Step 1: Calculate your yearly ‘worth’
Add together your permanent annual salary (for example $100,000) with the monetary equivalent of the benefits you receive each year (for example $3,000).
$100,000 + $3,000 = $103,000
Note: This formula works the same whatever currency you are paid in!
It is important to include the value of your benefits in this sum because those in contracting jobs do not receive the same level of benefits that permanent employees do, so their rates are often inflated with this in mind.
Not sure how much your benefits are really worth in terms of money? With a little bit of research, you can find out pretty easily.
- If you have medical, dental or vision insurance, it would be the annual price of the plan you’re on.
- For annual leave, it is the number of days you are allowed to take multiplied by your daily pay.
- Your employer’s contribution to your pension can be found by contacting the pension provider - while it can vary monthly, see how much it adds up to over the course of a year and that will give your figure.
- If you have a company car or receive another form of travel compensation, it would be the yearly cost of that transportation.
You can use our Salary Guide Calculator to look at contract rates for your profession and see how they compare to permanent salaries.
Step 2: Divide that annual worth by how many days worked in a year
For the permanent employee, there are around 250 working days in a typical calendar year - taking into account weekends, bank holidays and annual leave.
This figure isn’t so straight forward to pin down for contractors. The specific assignment they are working on will last a certain duration, but the length of assignment will vary from one to the next.
Add to this the fact that many professionals turn to contracting jobs for greater freedom and that they are able to take more time off than the average permanent employee is allowed every year, and the amount of days worked by contractors will typically be less.
But for argument’s sake, on average, contractors will work 230 days in a year. So you divide the total of your permanent salary + monetary equivalent of benefits by those 230 days.
($100,000 + $3,000) ÷ 230 = $447.83 per day
Step 3: Work out what your inflated ‘contractor rate’ would be
Due to the nature of their work and the fact they are perceived as highly-skilled and possess the correct specific skills and experience, contractors can typically demand a higher salary - the figure is roughly reported as being 15% more in comparison to a permanent employee. So…
$447.83 x 115% = $515 (daily contractor rate)
Step 4: Multiply your daily rate by the number of days worked in a year
Now you have the amount you would be charging each day of your contract assignment: $515.
The final step in the calculation is to simply multiply that figure ($515) by the number of days worked in an average year (230).
In this example, $515 per day equates to $118,450 on an annual basis - significantly more than your permanent position of $100,000 base salary, plus monetary value of benefits, pays!
Could you increase your earnings by becoming a contractor?
So there you have it. A quick way to work out how much you could be earning as a contractor. It’s not an exact science, but it will give you a rough figure.
Use our Salary Guide Calculator to find out what the industry average contract rates are for your profession.
Has this got you thinking about becoming a contractor? Or are you already a contractor but on the lookout for your next exciting assignment? Have a look at the various contracting jobs that we are hiring for at the moment.