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If you are considering, or are offered, a contract position for a certain period of time, it is important for you to know the factors to consider before accepting a contracting offer. Contracting can be very lucrative, as the pay may be higher to compensate for a lack of benefits, perks, etc. Contract opportunities may share the following characteristics:
If you are offered a contract role that fits these characteristics, then you must decide on an acceptable hourly rate. Here are some general guidelines to consider when setting your rate:
Salary – Use your most recent annual salary, and divide that by 2080 (40 hrs/wk x 52 weeks). This is your baseline starting point.
Adjustments/Additions to consider (if not provided by client or contracting employer, or if on a 1099 basis)
Medical/Dental – Health care costs can fluctuate and can be substantial, so if you must provide your own healthcare coverage, consider converting the cost of the premium to an hourly rate and add to the baseline salary amount.
Vacation & Paid Holidays – You can calculate this using your baseline hourly figure above. For example, if you receive 2 weeks of paid vacation each year plus 10 paid holidays, and your salary was $75,000.00 year, the hourly adjustment would be $3.33 per hour.
Annual Bonus – This can be a bit dicey, as bonuses can vary widely from year-to-year. If you consistently received a bonus each year for the past 3-5 years, then consider using the average amount paid out, convert that into an hourly figure, and add to the baseline amount.
These are some components to consider in determining your contracting rate. You can certainly factor in other benefits and perks, but keep in mind that the more you include, the greater chances could be pricing yourself out of consideration.
Sometimes, contracting opportunities can lead to full-time, regular employment with the client company, so you may want to set your expectations accordingly... as it is possible that the salary offered will be less than your annualized hourly contracting rate; but the benefits/perks could be a whole lot better, and at a much lower participation cost to you.