What's the typical pay difference when going from contract to perm?

August 27, 2009 6:15 AM

What's the typical pay difference when going from contract to perm?

I am in negotiations to go permanent from a contract position. How much of decrease in pay am I looking at? I've read about 30%, but I'd almost rather stay with contract if this is the case. I have insurance through my husband, so that's not a necessity. The only real benefit would be vacation and ST/LT disability and life.

I have never been in this position before, so I'm not sure how it works.

posted by mgarnhum to work & money (10 comments total)

about 15-20% in my industry.
posted by scruss at 6:16 AM on August 27

For me any pay difference was pretty much eaten away by going from an hourly person getting overtime to a salaried person that worked more hours but w/o overtime. My company also had profit sharing, things like stock grants and options, lots more vacation and holiday, 401k matching, and a ton of other stuff that made it worthwhile. In the companies I went from contract to perm for, you were also a little less likely to get laid off.
posted by birdherder at 6:22 AM on August 27

It depends on the length of the contract position (shorter term = higher temporary rates). A one-week contract could easily pay four or five times the same rate as a full-time position.

The longer the contract, the closer (less lucrative) to a full-time permanent salary it gets.

Comparing multi-year contract work to full-time permanent employment, I've still seen a difference much as half in creative fields (design, photography). In tech fields it seems to be less different, more like 25%.

Insurance, vacation pay, taxes and most of all job security are the advantages. They usually make it worthwhile, but in your case (if you have free insurance), they may not. One of the advantages of a contract is supposed to be higher pay, after all.

(My own anecdata based on creative, tech and media gigs in California and NYC.)
posted by rokusan at 6:31 AM on August 27

Are you a 1099 contractor (you pay both halves of FICA, pay estimated taxes quarterly) or a W2 employee of a contracting agency (submit timesheets to a contracting agency, but do work for their client)? This makes a difference in evaluating the pay.

If you are a 1099, you might think of your hourly rate as 1.5 * ( ( full-time annual salary ) / 2000). I've seen this elsewhere here on AskMe, but can't find a link. I thought it was a good rule-of-thumb. So, let's say your hourly rate is $60/hour. That would make a comparable salary of $80,000.

If you are a W2 employee of a contracting agency, then this is an apples-to-apples switch. If you receive from your contracting agency $35/hour and no benefits except that they pay half your FICA and withhold your taxes, then the switch to salary would be $35 * 2000 (assuming a 2-week vacation), or $70,000. You are moving from one employee situation to another -- if your current employer (the contracting agency) does not offer any benefits, well that's just a crappy employer and you've just been getting the short end of both sticks (you have the obligations of an employee, but none of the benefits of an employee).

However, the only importance is total value to you. Short-term and long-term disability insurance is pretty important to keep you financially afloat if you have an illness or disability, and it is cheap; life insurance is a good idea if you have children or are a main wage-earner in your family, and it is also pretty cheap. But if you don't want those, then it should not factor into your decision. Vacation is very easy to calculate, as you have vacation now, in a sense -- you can take time off without pay. Vacation pay is just spreading out that deduction in pay over the year.

A permanent position might also bring you possibility for regular increases (cost of living, raises, promotions to other positions), training in your field or for future positions, and the possibility of having primary and secondary health insurance for yourself and your spouse. So, you might want to factor those in your decision.
posted by Houstonian at 6:44 AM on August 27 [2 favorites]

Thanks for the great responses. I'm currently a W2 employee.
posted by mgarnhum at 6:52 AM on August 27

This is the exact opposite of my experience. I've only contracted twice, but I've gotten a pay increase both times when I became full time. Now, perhaps it was because of how they were structured (contract to hire), but I always assumed the extra "cost" the company paid went to the contracting firm. I personally wouldn't take a pay cut going from contracting to full time.
posted by [insert clever name here] at 7:17 AM on August 27

I took a 30% cut to go perm (but with a promotion). (IT industry)
posted by blue_beetle at 8:52 AM on August 27

What others have said above, and I will add the caveat that it really depends on the job / type of work. I was a W2 secretarial temp for 18 months at my current position, and when they hired me fulltime last fall I recieved not only paid benefits (wow, medical insurance!!) and vacation, but I also recieved a roughly 40% pay rise in my hourly pay (non-exempt). So I think the real answer may be "it depends"
posted by lonefrontranger at 9:41 AM on August 27

As a W2 you should push for a pay increase. The company is paying the staffing agency more than you're getting. You should be able to get a small increase and still be a deal for them.

Plus you'll probably be working more hours.....
posted by lumpenprole at 10:07 AM on August 27

My experience was the same as [insert clever name here]. I was making $70k as a W2 contractor for an agency. I was provided benefits by my agency but at a slightly higher (in my experience) cost to me than a traditional employment situation. I was hired by the company after a year at $85K plus benefits, 401k, etc.

My boss told me (AFTER I negotiated my new salary) the company was paying my agency about $110k for my position. He said he might have gone to $90k if I played hardball, but he thought the $85k I asked for was the right number.

Also, my contract limited me to 40 hours a week. Now I often stay late, do stuff from home and am expected to check my email outside of work.

I can't imagine why your pay would decrease after being hired.
posted by bda1972 at 9:13 PM on August 27