Contract versus Permy rates.
Discussion
Hey all, has anyone worked out what kind of money you would have to earn as a subby paying himself as a ltd company plus dividends, versus a being permanent member of staff receiving a salary and benefits?
I guess what I'm looking for is something kind of equivalency figure; eg a permy earning 40k gross @ 40% tax would be better off as a subby at £30 p/h on a 40 hour week type of thing.
Does this make sense?
I guess what I'm looking for is something kind of equivalency figure; eg a permy earning 40k gross @ 40% tax would be better off as a subby at £30 p/h on a 40 hour week type of thing.
Does this make sense?
Google 'Contractor Calculator' - there are millions out there.
Some people say a gross pay (not including benefits) of £xxK = xx Contract Hourly rate, so if you have a salary of 35k+bens+pension then you would need to make 35 per hour as a contractor.
That massivly underestimates the contractor take home (if outside IR35), but it all depends on the benefits package you are getting with the salary, and your personal cirumstances. If you tried to replicate a final salary pension on contract then that would cost a fortune to buy privately, family health insurance value depends how much family you have, life insurance depends how much you need it etc. And of course how much holiday/sick time you take makes a massive difference.
The big difference is that the money is there for you to spend (or not) as you like - if you get a good few years contract run without any sickness or time off you could have paid off your mortgage (maybe
). You won't have any pension rights, but some might say that the future of pension rights is uncertain anyway....
Some people say a gross pay (not including benefits) of £xxK = xx Contract Hourly rate, so if you have a salary of 35k+bens+pension then you would need to make 35 per hour as a contractor.
That massivly underestimates the contractor take home (if outside IR35), but it all depends on the benefits package you are getting with the salary, and your personal cirumstances. If you tried to replicate a final salary pension on contract then that would cost a fortune to buy privately, family health insurance value depends how much family you have, life insurance depends how much you need it etc. And of course how much holiday/sick time you take makes a massive difference.
The big difference is that the money is there for you to spend (or not) as you like - if you get a good few years contract run without any sickness or time off you could have paid off your mortgage (maybe
). You won't have any pension rights, but some might say that the future of pension rights is uncertain anyway....Thanks for that Mick - I really should have turned my computer and brain on and gone to >>>> http://www.contractorcalculator.co.uk/
as that explains it all.........
as that explains it all.........
The /000 th works reasonably though as £35K permie isn't potentially out of work in six months time, or however long the contract is. Chatting to a former contractor he had earned 50% more than his previous wage but then had 2 months between contracts eating up the money he had earned extra.
Engineer1 said:
The /000 th works reasonably though as £35K permie isn't potentially out of work in six months time, or however long the contract is. Chatting to a former contractor he had earned 50% more than his previous wage but then had 2 months between contracts enjoying a long holiday whilst being supported nicely by the money he had earned extra.
EFAHorses for courses.
Depends what type of contractor you are.
If you've effectively been offered a full-time job, but on a contract (naughty, but hey) there's not going to be much difference between the day rate and 1/260th of a permie incl. on-costs. Why would there be? In fact, quite often it's less.
If you're freelance and having to grab a day's work here, a few day's work there, then you need to run a little maths.
Briefly:
1. Decide what annual salary you'd like. Let's say £50k for arguments sake.
2. What business costs will you have? Accountants, stationery, marketing etc. Say, £5k
3. So you need an income of £55k.
4. How much time do you think you can be actively employed? I used to use a notional 50%; if you're the 'go to guy' the percentage goes up; else it could go down'.
5. So, using 50%, you need to earn that £55k in 130 days = £423 per day.
If you manage to get more than 130 days work, you're into profit!
Obviously, you should know what your market will tolerate. No use having a rate of £423 per day if everyone else is on £150. So you either have to up your rate of securing work or you have to realise that you can't make your desired income as a contractor.
Rather simplified, but you get the idea?
If you've effectively been offered a full-time job, but on a contract (naughty, but hey) there's not going to be much difference between the day rate and 1/260th of a permie incl. on-costs. Why would there be? In fact, quite often it's less.
If you're freelance and having to grab a day's work here, a few day's work there, then you need to run a little maths.
Briefly:
1. Decide what annual salary you'd like. Let's say £50k for arguments sake.
2. What business costs will you have? Accountants, stationery, marketing etc. Say, £5k
3. So you need an income of £55k.
4. How much time do you think you can be actively employed? I used to use a notional 50%; if you're the 'go to guy' the percentage goes up; else it could go down'.
5. So, using 50%, you need to earn that £55k in 130 days = £423 per day.
If you manage to get more than 130 days work, you're into profit!
Obviously, you should know what your market will tolerate. No use having a rate of £423 per day if everyone else is on £150. So you either have to up your rate of securing work or you have to realise that you can't make your desired income as a contractor.
Rather simplified, but you get the idea?
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