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    Default Quantifying Benefits for Contractor vs Employee

    Someone in here was arguing recently about the actual cost of benefits and it got me thinking...

    What's the magic number for doing this Contractor-Employee compensation? For some reason, I believe it's about 16%. Does that sound right?

    I'm talking about how much more a contractor should be charging to do the same job as the employee beside her. So if employee is making $100k and has "standard" benefits, vacation and stats then the Contractor should be looking at $116k to cover their unpaid vacation/stats as well as source out some supplemental health/dental benefits.

    Let's say the employee gets 4 weeks paid vacation plus the 2 week's worth of stat's. Right away we know the contractor needs to make 52 weeks of money in the only 46 weeks she works. So we add 6/52=11.5% right there and our multiple is already 1.115 but I'm looking for a decent estimate of the remaining ___% and 4.5% seems high.

    How do we calculate/estimate the rest? What are your basic, standard (kind of shitty) benefits worth? They're not $4,500 are they?

    RRSP matching of 5% should just be counted as straight cash, shouldn't it? Or should it be ignored because it's not being shown in the employee's $100k? Or should it be added to the employee's $100k at the start of the exercise?

    Thanks for your expert Marth!
    Last edited by ThePenIsMightier; 10-21-2021 at 11:23 AM. Reason: Thanks, not "thanked"...

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    25 years ago my friend did accounting for a large company, the total average cost of benefits back then was around $9000/employee.

    Believe it or not RRSP/stock matching did not have a very high uptake. People are generally stupid.

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    Beyond the straight measures there is an intangible here. As a contractor you can be asked to stop working at any point, not as simple as a full time employee.

    Much like the old quote, you don't pay the prostitute to sleep with you, you pay so they to go away after. Much could be the same about higher pay for a contractor.

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    Local IT rate for some sort of development role (developer, architect, etc) was around $140/hr pre-pandemic. It's now around $100/hr.

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    I don't have detailed math to support this, but it'd be a hell of a lot higher than 16% for me to consider it if I was presented the option. I'd want 40% or more, and that's about what I'd expect for a normal cost differential to be in the Petroleum Engineering world.
    ...

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    Quote Originally Posted by Cagare View Post
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    Beyond the straight measures there is an intangible here. As a contractor you can be asked to stop working at any point, not as simple as a full time employee.

    Much like the old quote, you don't pay the prostitute to sleep with you, you pay so they to go away after. Much could be the same about higher pay for a contractor.
    Fair enough and very true. For the sake of argument, let's leave that "risk tax" out of these equations and assume each worker will receive full time hours with rock solid consistency.

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    Quote Originally Posted by ThePenIsMightier View Post
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    Fair enough and very true. For the sake of argument, let's leave that "risk tax" out of these equations and assume each worker will receive full time hours with rock solid consistency.
    That literally does not exist as a contractor. It must always be factored in. But employers account for it too.

    Also usually what happens is if they like you they offer you a FT job.

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    Quote Originally Posted by suntan View Post
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    That literally does not exist as a contractor. It must always be factored in. But employers account for it too.

    Also usually what happens is if they like you they offer you a FT job.
    I have had full time hours for every one of my contracts.
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    We have a few saying it's well over 16%...
    So let's look at it this way - if I'm hiring someone as an employee and last year, she made $125k as a Contractor, she should definitely accept an offer of $100k plus benefits as an employee?

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    Quote Originally Posted by Nufy View Post
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    I have had full time hours for every one of my contracts.
    Not 40 hours, I mean job as employee.

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    Quote Originally Posted by ThePenIsMightier View Post
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    We have a few saying it's well over 16%...
    So let's look at it this way - if I'm hiring someone as an employee and last year, she made $125k as a Contractor, she should definitely accept an offer of $100k plus benefits as an employee?
    That's more than reasonable for her. If anything it's an overpay.

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    My reasonably recent experience (5 years ago) is ~30%. This is an actual example with same company, same role.

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    Quote Originally Posted by ExtraSlow View Post
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    I don't have detailed math to support this, but it'd be a hell of a lot higher than 16% for me to consider it if I was presented the option. I'd want 40% or more, and that's about what I'd expect for a normal cost differential to be in the Petroleum Engineering world.
    This. 16% is not nearly enough. 40% would be my minimum target too.

    If you think about all the benefits an employer gives to staff:
    -6% for vacation (based on 3 weeks per year)
    - rrsp/pension - anywhere from 5-15%
    - training, $1500/yr
    - health benefits - mine are apparently worth about 7k/ year
    - time spent on non-work stuff like webcasts, personal development, goals/reviews, etc
    - ei and cpp premiums


    All of that adds up to more than 16%

    - - - Updated - - -

    Quote Originally Posted by ThePenIsMightier View Post
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    We have a few saying it's well over 16%...
    So let's look at it this way - if I'm hiring someone as an employee and last year, she made $125k as a Contractor, she should definitely accept an offer of $100k plus benefits as an employee?
    Ah ok, you’re talking about going the other way. I was thinking employee->contractor. In that case I think that’s reasonable

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    As a contractor I get to pay both portions of CPP. Whoo!

    The RoR for CPP is absolutely miserable.

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    More you make, the more it benefits you.

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    Contract was about 40% over salary in my experience. Just salary, not total comp.
    Originally posted by Thales of Miletus

    If you think I have been trying to present myself as intellectually superior, then you truly are a dimwit.
    Originally posted by Toma
    fact.

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    Quote Originally Posted by ThePenIsMightier View Post
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    We have a few saying it's well over 16%...
    So let's look at it this way - if I'm hiring someone as an employee and last year, she made $125k as a Contractor, she should definitely accept an offer of $100k plus benefits as an employee?
    Depends a little on the company, but if the company was paying health insurance, some kind of RSP match or contribution, and you had a reasonable expectation of annual bonuses, then that's a deal I'd take for sure.

    There's no single correct answer. Depends on individual, company, role and industry.

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    Quote Originally Posted by killramos View Post
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    Contract was about 40% over salary in my experience. Just salary, not total comp.
    The last time I looked at this, which admittedly was a long time ago, total comp was shockingly close between contract and employee. That was for a real country club place though, it may be different now.
    ...

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    That is my experience, except as employee you take more risk on that delta in exchange for more security on the base.

    It’s actually a funny way to look at it, but in some ways being an employee exposes you to more compensation volatility.
    Originally posted by Thales of Miletus

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    Most people can't handle being a contractor. Too much paperwork and the temptation to spend all your pre-tax money is too great.

    On that note I really need to get back to my accountant on some paperwork.

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    Quote Originally Posted by suntan View Post
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    Most people can't handle being a contractor. Too much paperwork and the temptation to spend all your pre-tax money is too great.

    On that note I really need to get back to my accountant on some paperwork.
    I let me bookkeeping get waay behind when I had my company. What a fuck-show that was. If I ever do that again, I'm buying software or hiring someone on day 1 to make that easier. Just the most annoying and frustrating bullshit ever.
    ...

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    When I switch from employee to contractor 14 years ago...I figured out my hourly rate based on salary / average working hours in a year.

    Then I doubled it for my starting rate as a contractor.

    Not sure how I would calculate an equivalent these days if I had to go back to being an employee.
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