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I noticed being a contractor earn 40% to 50% less, and no 401K, no ESPP, no insurances, no vacations

sunflower profile image sunflowerseed ・1 min read

So who wants to be a contractor really?

I noticed there are some cases but beyond that I don't understand:

  1. Programmers who hop from job to job for 4 months and sometimes 6 or 8 months... but by the time they are familiar with the system, they move on. (and why does the company not want to keep them longer?)

  2. Apple hires many contractor programmers, maybe perhaps programmers don't mind getting paid less but having the Apple name on their resume? But after 1 year of being paid 50% less, do you still want to work there? It can be like taking away $50,000 or $60,000 away from you.

I noticed I should not say "no vacation, holidays, sick days, bonuses, stock bonus"... that's because all those already got factored into the salary difference already. Actually, I guess holidays do... because contractor and Full Time Employee both take them, with the final salaries being compared. But vacation and sick days... if contractor decide to take 3 weeks off, then no pay -- meaning a pay cut. But if Full Time Employee take them, it is included as part of their package every year and there is no pay cut.

So the final version should be: 50% less pay, and also no 401K, no ESPP, no insurances (health, life, vision, dental), no vacation, no sick days. (about 3 weeks or 120 hours each year).

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Discussion

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In the UK most contractors work through a separate legal entity which acts as a circuit breaker between what you earn in fees and what you take as salary. Any profit (excess of fees over salary) can be taken as dividends and you pay less tax (national insurance). Corporation tax is 19% compared to higher rate income tax and national insurance if 53%. Also you can claim additional costs like travel and food as business expenses, plus your computer's, applications and even your phone are business expenses, so it can be much more tax efficient that employment even if the top line number is the same. Typically contract rates are about 20-30% higher than employment; and can be double if you have niche skills.

 

In Silicon Valley, I remember 10 to 12 years ago, contractor salary can be 50% more then regular full time employee, and then, they can deduct the expenses depending whether they are on 1099 or W2. If on 1099 they can deduct more, but they also have to pay their own FICA and medicare tax I think.

But 6, 7 years ago, I already felt contractor salary falling maybe 20 to 30% below regular full time employees'. Today, full time regular employee salary has gone up close to 100% to 150% from 10 years ago, but contractor rate has gone up 0%, or just 20% or at most 30%. So being contractor nowadays earn a lot less than regular full time employees can.

 

I wonder if this is a SV phenonomen. In my markets, contractors are specialists with skills not needed on a permanent basis. In SV, I expect the top skill levels are actually business as usual requirements and the contractor market is more aligned to commodity work to release the perms to do the high-value work. The question then is how to make the leap from generalist to specialist to land a perm role

I think sometimes, it is true. Sometimes, it is the contractor rolling the boat, while the FTE merely "look at the code" and not have to do that much. I also have seen the manager's friends in past company being hired as FTE. Some of them went to 3rd or 4th rated university. And then, the programmers who are non-friend, but went to 1st or 2nd rated university, became contractors. Sometimes it happens because the programmer wanted to work at one of the big companies such as Google or Apple, but the resume just sunk like a rock in the ocean, but an agency contacted them to be able to work in them, so they take the job even knowing it seems a lower pay.