How Much Should IT Contractors Charge?
(Source: Creative Commons)
John Rossheim | Monster Senior Contributing Writer
It’s the would-be IT contractor’s $64,000 question: How much do I have to charge per hour to make a go of it as an independent professional? The pundits are ready with a pat answer: Divide your employment salary by 1,000, and that’s your hourly rate. So if you make $50,000 as a wage slave, you need to bill at $50 an hour to make it independently.
Is it really that simple? Hardly. You have dozens of factors to consider, and you’ll need at least a bit of professional help to come up with your final answer. We’ll break the problem down for you and help you set fees that make sense for your situation.
You Will Pay More Taxes
When you work for yourself, you double the fun of paying the FICA tax. “You’re paying the employer’s share of Social Security — that’s the big difference,” says Dorothy Rosen, a CPA who offers advice on BankRate.com as the Dollar Diva.
As an independent professional, you may have to pay other taxes and fees. For many IT contractors, these additional burdens are minimal, but be sure to ask your state and local authorities or your accountant about these levies:
- State and local taxes on business income.
- Business property and inventory taxes.
- Fees for business licenses.
“Bear in mind that half of your income is going to go away” to taxes, advises Rosen.
You Will Need to Buy Benefits
If you’re like most employees, your company has provided you with a number of valuable benefits, especially insurance. As an IT contractor, if you can’t hitch a ride on your employed spouse’s plan, it’s crucial that you figure in the cost of buying these services. Your fiscal and physical health depend on them. And being in business for yourself, you may need professional insurance. Add these items to your master checklist:
- Health insurance.
- Dental insurance.
- Life insurance.
- Disability insurance.
- Professional/business liability insurance.
- Retirement savings.
And don’t forget about time off. Many an IT contractor concedes every weekend to the business and doesn’t even entertain the idea of a vacation. But if you take this road, you will burn out faster than a middle manager in an 8-by-8-foot cubicle. Face the music: You will need to take time off, and this will reduce your billable hours. To save your sanity as well as your bottom line, budget for all of these time-off types:
- Sick days.
- Personal days.
- Medical/parental leave.