Salaried vs Contracting take home pay.

angryInch

I am currently in salaried employment but thinking of taking the leap into contracting (IT). However I have 2 questions that someone who has contracted for a while may be able to help me with.

Firstly, I am wondering what rate I would have to charge to give myself a comparable income. Currently my take home pay would be about €3k per month. What sort of daily rate would a contractor charge to get the same. Just looking for a rough idea of what I should be asking for.
I know this is all very vague and there are loads of factors to consider, but I am just looking for a very rough idea.

Also, I am currently negotiating with a company for a 6-month contract (this is the reason I am wondering what rate I should be asking for). I have read that to register as a sole trader (self-employed) then you really need to be working with multiple clients, is this true in anyone’s experience because it would make my tax return much easier if I could avoid setting up a Limited Company.

Finally, when a contractor talks about rates, are they generally quoted ex VAT?

Any help would be appreciated.

MonkeyWrench

angryInch wrote: »

I am currently in salaried employment but thinking of taking the leap into contracting (IT). However I have 2 questions that someone who has contracted for a while may be able to help me with.

Firstly, I am wondering what rate I would have to charge to give myself a comparable income. Currently my take home pay would be about €3k per month. What sort of daily rate would a contractor charge to get the same. Just looking for a rough idea of what I should be asking for.
I know this is all very vague and there are loads of factors to consider, but I am just looking for a very rough idea.

Also, I am currently negotiating with a company for a 6-month contract (this is the reason I am wondering what rate I should be asking for). I have read that to register as a sole trader (self-employed) then you really need to be working with multiple clients, is this true in anyone’s experience because it would make my tax return much easier if I could avoid setting up a Limited Company.

Also, when a contractor talks about rates, are they generally quoted ex VAT?

Any help would be appreciated.

I have been contracting for half a year now. Generally there are about 260 working days in the year so multiply your daily rate by this figure to get an indication of comparable salary. Some people say add another 1/3 on to this for security reasons as contractors can be let go at any stage and may not be able to work all year round. Personally I'd start with an umbrella type company like CXC in cork rather than going to the expense of setting up your own cause a few months down the line you may not want to continue contracting and as a result will have to pay close down fees for your ltd company...hope that helps. I'm new to the game myself..

angryInch

Thanks for the reply.

However I was wondering more in terms of take home pay. As in, I am earning 52k gross at the moment in my salaried job. That roughly translates to about 3k per month by the time tax etc is paid. What I was wondering is what rate would a contractor have to charge to get the same. I can base my own figures once I have come sort of a reference point.

What I'm looking for is some sort of info like "I am currently contracting at x daily rate and by the time VAT/TAX/etc are paid I have about y in take home pay” or “I take home x% of my daily rate, which is approx y per z”. Because the tax structure is pretty different, I have no idea roughly what percentage of that daily rate I would be taking home.

Eoin

MonkeyWrench wrote: »

I have been contracting for half a year now. Generally there are about 260 working days in the year so multiply your daily rate by this figure to get an indication of comparable salary.

There are 260 weekdays, but as an employee you get at least 20 days off a year, and 12 or so public holidays, so it's closer to 230 days to equal the current situation. You may want to factor in a day or two sick leave as well.

angryInch, I don't have a formula, but try and factor in PRSI, health care, pension and other payments that your employer is paying at the moment. On the other hand, you'll be able to write off a few expenses as well.

BostonB

My rough guide would be 3 times a regular salary. You've got to consider paying for your own training, sick days, holidays, downtime between contracts and pension. Consider how you are placed if you want a loan or a mortgage. You'll need evidence of regular savings and a steady income. So consider all that when you are working it out.

padser

Generally business people talk EX VAT as VAT doesn't really matter to them as they can claim back.

You are looking for €52,000 gross. Your Tax liability should be the same regardless of what you are getting paid.

If you are planning to work 260 days a year then its €200 per day charge rate. If you plan to work 230 days then its €227.

Its pretty simple maths really. Since your tax will be the same, you divide 52,000 by Number of Days you are going to work.

You may need to make assumptions about how many days work will be available to you - (IE are you going to have work all the time you want it) but other then that I don't see any real issues a calculator can't deal with.

EDIT: All the above assumes you just add on VAT - which shouldn't be an issue [as per first line]. Just quote your price as €X ex VAT.

Eoin

padser wrote: »

Its pretty simple maths really. Since your tax will be the same, you divide 52,000 by Number of Days you are going to work.

At a very high level, that's the way to work it out, but you have to cater in pension, PRSI, health care etc.

DublinWriter

BostonB wrote: »

My rough guide would be 3 times a regular salary.

Three times is a little on the steep side.

OP, there are various little gotchas you need to consider.

- you'll lose your PAYE allowance (about €1,600 at the moment), but you'll be only be paying the Employers portion of PRSI.

- you will basically have no entitlement to social welfare if you find yourself out of work.

- You will have to register for VAT, but this is a good thing as you can get the vat back on anything within reason that is used for business purposes

- Regarding being a sole trader, many agencies refuse to deal with any contractor who doesn't operate under a Limited Company. You really need to consider floating a Ltd. company

- You have greater options for administering your own pension.

- you can pay yourself mileage and substance as outlined by the current civil service rates

- don't expect your client to subsidise your career development. Under most contracts you're there to do a specific job, so career advancement in the long term is tricky. Most contractors ten years into it have been doing the same types of jobs over and over again and it's easy to get stuck in a rut.

padser

eoin_s wrote: »

At a very high level, that's the way to work it out, but you have to cater in pension, PRSI, health care etc.

PRSI should be exactly the same (from the Employees side)

Pension - add on whatever pension contribution (if any) was made by previous employer

Health Care - As with pension

mick.fr

Come on guys where in the hell did you learned to calculate your daily rate?
230 days, 52k current salary, bla bla., 200 euro a day.
Married, 200 a day will roughly get you 700 euro a week in your pocket, without expenses. Ridiculous for a good IT contractor.

The daily rate has to be based on experience/skills and market price.
Now if you are extremely skilled in something that everybody is looking for, 800 euro is a good price. Now it depends if you go through an agency etc.

So really it depends of your skills, if you are a good Win.Tel consultant, with Exchange/AD skills and experience, doing migrations, deployments, this is at least 400 a day.

Give us some info regarding your background, experience, skills, certifications, age, and I will tell you how much you can sell yourself.

DublinWriter

padser wrote: »

PRSI should be exactly the same (from the Employees side)

Nope. If you are trading under a Ltd. company then you'll be class S1 (Directors) which is a rate of 5% only.

mick.fr wrote: »

The daily rate has to be based on experience/skills and market price. Now if you are extremely skilled in something that everybody is looking for, 800 euro is a good price. Now it depends if you go through an agency etc.

I'd really love to know what particular area is paying €800 a day in Ireland right now.

The average range is between €250 and €400 per day.

Certain skills command a premium. Right now a good Oracle Financials consultant could get €600 per day.

It's all about supply and demand. SAP consultants used to be worth their weight in gold. These days the rate has bottomed out at €400. Same with Java when it first came out.

mick.fr

DublinWriter wrote: »

Nope. If you are trading under a Ltd. company then you'll be class S1 (Directors) which is a rate of 5% only.

I do not know where you saw this.
As a director I pay exactly the same as an employee and although I am also a employee of my own company I can not claim PAYE tax credit. This is where the difference is really. So I pay more taxes than an employee. Then of course you can optimise this with pension scheme, expenses, etc.

I'd really love to know what particular area is paying €800 a day in Ireland right now.

The average range is between €250 and €400 per day.

Certain skills command a premium. Right now a good Oracle Financials consultant could get €600 per day.

It's all about supply and demand. SAP consultants used to be worth their weight in gold. These days the rate has bottomed out at €400. Same with Java when it first came out.

Well 800 is what I have been billing to a few customers since the last couple of months, and they have no problem with that. And 800 is my nice "price", I have billed 1500 a day.

I know one Oracle consultant who makes 600 a day, but through an agency, I am sure the agency is actually selling him 800.

Regarding SAP consultants I do not believe they are at 400, everytime I see an offer, this is well more than that.
For 400 euro a day you got a good engineer, that's it, not even an architect.

DublinWriter

mick.fr wrote: »

I do not know where you saw this.
As a director I pay exactly the same as an employee and although I am also a employee of my own company I can not claim PAYE tax credit.

I really think you need to get a grip on your PRSI situation if you are still treating yourself as a Class A1 when you should be a Class S1.

http://www.fixmytax.com/prsi.html

mick.fr wrote: »

Well 800 is what I have been billing to a few customers since the last couple of months, and they have no problem with that. And 800 is my nice "price", I have billed 1500 a day.

My hat goes off to you if you can charge that much. What is your specialty?

mick.fr wrote: »

I know one Oracle consultant who makes 600 a day, but through an agency, I am sure the agency is actually selling him 800.

Regarding SAP consultants I do not believe they are at 400, everytime I see an offer, this is well more than that.

Specialists in Oracle Apps will get a hell of a lot more than an Oracle DBA, so it's always important to understand the difference.

As for SAP, I've seen contracts for ABAP and BASIS programmers go as low as €325. Again, obviously if you specialise in a particular module or have BW experience, then you can command a bigger fee.

mick.fr

DublinWriter wrote: »

I really think you need to get a grip on your PRSI situation if you are still treating yourself as a Class A1 when you should be a Class S1.

http://www.fixmytax.com/prsi.html


My hat goes off to you if you can charge that much. What is your specialty?


Specialists in Oracle Apps will get a hell of a lot more than an Oracle DBA, so it's always important to understand the difference.

As for SAP, I've seen contracts for ABAP and BASIS programmers go as low as €325. Again, obviously if you specialise in a particular module or have BW experience, then you can command a bigger fee.

Alright thanks for the link I will double check with my accountant.
Regarding the other stuff yeah you are right, for Oracle guys for example.
My friend is not only a DBA, he does cluster install, and plays a lot with Oracle Financial and other crazy Oracle software.

Regarding what I do, like the Masura Ibuka, SONY co-founder said in the past, "You never succeed in technology, business, or anything by following the others".
Let say that I focus on a specific IT area that nobody ever took seriously :-)