If you are negotiating salary..and this is a part that could be negotiated.. what kind of $$ difference would you be expecting to make as a 1099 employee to make up for not having benefits? Would you rather take more cash and do the rest on your own? Or would you prefer to be employee with wages?

Do the math on what your total compensation would be with all benefits and then add some percentage on top of that to account for the fact that you'll be the first one shown the door if anything goes wrong or slows down and you'll get no unemployment benefits.

Be sure to add everything, this includes any paid vacation and sick leave that you would forgo as a contractor.

All things considered, I would rather be an employee. It makes you a little harder to get rid of, and you can always leave if you want to.

Most PTO is about 10%. Employers W2 tax is about 10%. How much 401k do they match? Medical, depending on deductible, coverage, quality, etc is worth about $10,000-$15,000 per year.

Direct salary burden is about 30-40% of W-2 salary, but they will probably try to offer you only a 20% bump. Hey, they're trying to negotiate a good deal for themselves. Just do your homework and let them know that you know these numbers. Actually, it's better to list it all out for them before they give you a low-ball offer and then are too entrenched to be honest.

If you get the 30-40% bump, you will likely have more net at the end of the year if you're creative about writing off business expenses against gross revenue. But be careful not to claim too much home office deductions, because that's an audit trigger with the IRS.

The biggest drawback will be longevity, contractor perception, promotions, limited corporate responsibility, annual contract and rate increase negotiations, etc.

Good luck.

Not in HR, but an accountant. I have gone to HR before to get actual employee costs so we could determine an employees actual hourly cost for international contracts. In domestic contacts you typically cannot bill the entire actual cost, just wages and a few other things.

The poster above is correct that depending upon the company and benefits the company have your burden rate is going to be around 30-40% if you work contract versus W-2 for a major corporation.

I wish there was a website where you could plug in these values and see the equivalent. For example, I make $150K/year salary, 50% 401K match up to 6%, full medical/dental/vision, 15 days PTO, 6 paid holidays.

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Your equivalent W-2 hourly rate is _____.

PlanoAg98 said:

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I wish there was a website where you could plug in these values and see the equivalent. For example, I make $150K/year salary, 50% 401K match up to 6%, full medical/dental/vision, 15 days PTO, 6 paid holidays.

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Your equivalent W-2 hourly rate is _____.

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Its not that hard of a spreadsheet.

Take your salary, add 3% for 401k, add 15.3% for FICA taxes, however much it would cost you to get a comparable health insurance package, plus any other expenses that you'll be covering your self that they would otherwise cover.

There are 2080 hours in a regular work year. So, 6 paid holidays takes out 48 hours, 15 days PTO is 120 hours. Divide the total from above by 1912 hours and you'll get your hourly rate. I'd try to get more than that, because if they lay you off (and they will lay you off first) you aren't getting any unemployment benefits.

Google Sheet

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There are 2080 hours in a regular work year. So, 6 paid holidays takes out 48 hours, 15 days PTO is 120 hours. Divide the total from above by 1912 hours and you'll get your hourly rate. I'd try to get more than that, because if they lay you off (and they will lay you off first) you aren't getting any unemployment benefits.

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This is not uncommon, but not always true. I was 1099 for a small company that was heading towards bankruptcy and they laid off virtually every W2 and kept me until about the very last. Why? Because, I had a relationship with a customer that had business at the company because of me.

At another large company I rode through some downturns while a few W2's in the department were laid off. Why? Because they were "hangers-on" you might say, and their customers valued what I could do for them more than the W2's.

Also, several W2's bolted for greener pastures without giving their manager more than a 2-weeks notice. By then they'd already accepted another position and it was basically a done deal that the manager couldn't reverse easily. However, I foster a relationship with people and won't commit to bolting from them without first discussing the situation and giving them a say. It should work both ways like this, but being a W2 is no security that it will actually work like on either side. Real business relationships are built on real trust.

I find it odd that my relationship with the IRS would change the trust that we have with each other about working together in the future.

Granted, there are some managers at big companies who don't have a say in how their staff if put together and will be told to eject contractors first, but these are the types of discussions that need to be had in any job situation. Many managers have the freedom to do what's best for their department and their company and if the best person for the job chooses to only work as a contractor per the IRS rules they're okay with that.

Of course, there is also the question of legality. A lot of 1099'ers should legally be employees.

Your FICA includes both the employee and employer contributions, but switching from W2 to 1099 only saves the employer the half that they're paying directly on behalf of the employee, so that's would should be "factored" into the rate bump when going from W2 to 1099.

Also, your medical premium seems to only be what is deducted from the employee's check. However, the net change to the employer when switching from W2 to 1099 is the premium the employer pays to the insurance company on the employees behalf. This is typically about 2/3rds. That is, the insurance company charges the company about $1200/ month of which they pass $400/month onto the employee as premiums and then cover the extra $800 a month without the employee ever seeing it. So, the employer gains $800 per month by switching from W2 to 1099, which should be the "bump" in the 1099 rate.

Also to Swimmer, be aware that the IRS started cracking down on employers who hired too many 1099's a few years ago (what Sorrell said), so many became weary of doing this and would prefer the worker either incorporate or go through a staffing agency.

The difference isn't your relationship with the IRS, its your relationship with the state employment commission,... They don't have to pay you unemployment benefits or banked PTO. Contractors are the easiest to lay off.

Win At Life said:

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Your FICA includes both the employee and employer contributions, but switching from W2 to 1099 only saves the employer the half that they're paying directly on behalf of the employee, so that's would should be "factored" into the rate bump when going from W2 to 1099.

Also, your medical premium seems to only be what is deducted from the employee's check. However, the net change to the employer when switching from W2 to 1099 is the premium the employer pays to the insurance company on the employees behalf. This is typically about 2/3rds. That is, the insurance company charges the company about $1200/ month of which they pass $400/month onto the employee as premiums and then cover the extra $800 a month without the employee ever seeing it. So, the employer gains $800 per month by switching from W2 to 1099, which should be the "bump" in the 1099 rate.

Also to Swimmer, be aware that the IRS started cracking down on employers who hired too many 1099's a few years ago (what Sorrell said), so many became weary of doing this and would prefer the worker either incorporate or go through a staffing agency.

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I threw it together in about 5 minutes, the rates can be changed. I haven't had to calculate employee withholdings for a few years, so I googled.

I don't know what kind of plan costs the employer $1200 for an individual, but I don't think its normally that high. I've never had to pay that much as an individual, and the employer contribution for spouses and children tends to taper off pretty significantly. $450 is what I was paying for mediocre individual coverage on the open market. I currently pay about $20/month for myself. You can choose to go by their actual contribution (they'll usually have the benefit of a larger pool of employees), or you can find a comparable plan and factor in what it will actually cost you.