I have worked as both a IT contractor and also as a full time member of staff. I found there are benefits with each form of employment.
To me, some of the benefits of being a contractor are:
- Ability to change projects more readily;
- Shorter term commitments to work; and
- Networking opportunities working across various companies/contracts.
To me, some of the benefits of being a full time member of staff are:
- More stability in times of turbulence;
- Greater continuity of work;
- Greater ability to borrow money from banks;
- Availability of professional development and career opportunities;
- Employee fringe benefits (shares/bonuses/insurances); and
- The feeling of belonging and providing value to an organisation/team.
A lot of people I meet prefer contracting because they think it pays more. I am personally not convinced that contracting is much more lucrative. Let’s compare the same theoretical IT job as both a contractor and a full timer.
Job Details
Hours of work: 7.5 hours per day
Public Holidays: 11 public holidays per year
Annual Holidays: 4 weeks (20 days) per year
Sick Leave: Assume we take 5.
Professional Development: Attend 1 course and 1 conference per year. 5 days off work and $5000 in attendance costs.
Work Days In Year: 52 weeks * 5 days = 260 days
Days Off From Work (see above): 41 days
Actual Days Worked: 219 days
Actual Hours Worked: 219 days * 7.5 hours = 1642.5 hours
Full Time – $80,000 year base + superannuation (9%)
Total Salary Package = $80,000 + $7,200 super + $5,000 courses = $92,200 p.a
Effective Rate per hour: $92,200 / 1642.5 hours = $56.13 per hour.
Contracting – $60 per hour net including superannuation (and agents fees and insurance already paid)
Gross Amount Received: 1642.5 hours * $60 per hour = $98,550
Effective Base Salary: $98,550 – ($8,136 (Super) & $5,000 courses) = $81,412.84 p.a
You can see that the financial difference between earning a salary of $80,000 per year and earning $60 per hour as a contractor is nominal.
But what if you worked, and billed, much longer hours as contractor? You could earn more, but that’s not really comparing apples with apples is it?
In conclusion, it does pay to think about what a full time salary means and what an hourly rate means. $60 per hour might seem like a lot but when you take into account all the extras that full time employment provides (continuity, superannuation & career development) you may not be getting a bad deal as a full timer after all.
Photo by jsarcadia (creative commons)
I like these comparisons – I’ve always just done something rough in my head, never as complete as this. I would, however, debate whether $60/hour is really ‘apples’. From my experience (here in NZ at least) the contract equivalent of $80,000 would realistically be $80-100/hour.
Don’t get me wrong Jason. I am not saying someone who earns $80,000 base salary should go and ask for $60 per hour as a contractor. What I am saying is that an $80,000 base salary is financially roughly equivalent to $60 per hour contracting. You would want to add on more per hour for lack of continuity of work and less stability, so $80-$100 per hour would be more realistic.
I am trying to highlight the fact that $60 per hour can seem like a lot of money per hour, when in fact it isn’t really when compared to a full time salary that also has other benefits associated with it.
Ahhh… and now I appreciate and understand. Good work.
Excellent comparison. I am myself an FTE and was looking for a contracting position but was unable to find sufficient information in this regard. Your blog gives me some idea about the other aspects of contrasting. I would say grass always looks greener on the other side.
Thanks for the good and hard working blog!
I looking forward to see more posting from you!
Hi,
I’m coming from the UK where the contract rates are a lot, lot higher than perm jobs. EG: a senior developer could earn 45k a year in a perm position, or that same person could be getting 400-500 a day (92k -> 115k). Similarly a top notch project manager might get 100 – 150k a year, or on a contract 650 – 800 a day (150 -> 194). I’ve asked many people why the exact reason the difference is so high, but it seems like ‘that’s the way it is’ over here (yep, if you get a contract, you can make quite a bit in London).
I’m coming back to Australia now, and was wondering if the situation is similar… do you have any resources which might be able to help me out?
Thanks!
Sorry, I don’t really know of any resources besides word of mouth. All I know is that full timers don’t do that badly in salary in Australia.
IT contractors in Australia have an average hourly rate of $50, however the spred is very wide. One can find programmers from 20 to 128 dollars per hour (see http://www.freelance-market.com.au/c/IT which lists 38 of them).
I have been a Disaster Recovery specialist for 20 years in the UK. I have a very strong IT background, having being an engineer, then configuring and DR testing server environments for a 3rd party DR supplier.
These days I design DR solutions, project manage their implementation, testing and documentation – end to end, concept to hand over to support.
I’m currently doing this as a contractor in the UK, defining standards for Global Operations, Global IT infrastructure designs, Database standards, DR Testing standards and implementing DR as a BAU process by improving Global IT project management processes. But it’s not just “thou shalt do”, I also have to demonstrate that it works by managing the DR component of every new and major change project for this major gas/oil company in exploration and production and gas markets and trading. I verify the solution designs and manage the pre-go live DR tests.
This is not only well within my skill-set, I’ve also been appointed as “Technical Liason” to the team charged with a datacentre migration, to ensure DR capability is built into the new DC.
I’ve now been asked by my boss to apply for a role in Australia as their only DR consultant. There’s a huge IT development in progress to support a huge multi-billion investment in the business there.
If I’m lucky, I may get the chance to negotiate a new day rate but I know the cost of living there is different to the UK. What do you think I should ask for before I accept?
Cheers
Vitch
Sorry I have no idea.
$800 maybe?