1099 vs W2 - diff in hourly rate?

On Tue, 07 Mar 2006 00:54:13 -0000, matt.TakeThisOut@mailinator.com wrote:
>i am pursuing an opportunity w/ an agency that is interested in hiring
>me as a FT contractor for one of their big clients. rather than go W2
>salary or W2 hourly, they are interested in hiring me 1099 hourly.
>i understand many of the differnces between the two, as far as taxes
>go, as well as the pros & cons of each.
>my question is just, what sort of difference per hour would you expect
>to see between the two? ie, how much more per hour would you bill for
>being 1099, over being a W2 employee?
>ive heard some say its a $5/hr difference, ive heard some some say
>they charge 40% more...
>the proper thing to do is work w/ an accountant on this, which i likely
>will have to do. but, i am interested in getting a ballpark from the
>research of others before me.
>thoughts? anyone experience w/ it?
>thanks! matt

1) 1/2 Soc Sec Tax less your deduction, so that will run you roughly:
assuming 28% tax bracket
(15.3%)/2 -0.28* (15.3%)/2 = 5.5% of your pay rate.

2) No health care benefits, so figure ~5-8% of your pay rate

3) No paid vacation, so figure 2 weeks/52weeks per year 3-4%

So roughly 13.5-17.5% increase over a fully compenstated W2 employee,
as a minimum figure of merit, and this doesn't include your cost of
doing busienss, like supplying your own equipment, but it also doesn't
cover you business deduction.
 >> Stay informed about: 1099 vs W2 - diff in hourly rate? 

wrote in message

>
> hello,
>
> i am pursuing an opportunity w/ an agency that is interested in hiring
> me as a FT contractor for one of their big clients. rather than go W2
> salary or W2 hourly, they are interested in hiring me 1099 hourly.
>
> i understand many of the differnces between the two, as far as taxes
> go, as well as the pros & cons of each.
>
> my question is just, what sort of difference per hour would you expect
> to see between the two? ie, how much more per hour would you bill for
> being 1099, over being a W2 employee?
>
> ive heard some say its a $5/hr difference, ive heard some some say
> they charge 40% more...
>
> the proper thing to do is work w/ an accountant on this, which i likely
> will have to do. but, i am interested in getting a ballpark from the
> research of others before me.
>
> thoughts? anyone experience w/ it?
>
>
> thanks!
> matt
>
>

Matt,

Typically, working as an employee (W2) in a full-time capacity means some
kind of benefits package. This usually includes some level of health care
insurance, paid sick time, and paid vacation time, and may include eye care,
dental care, matching fund retirement program (401K), educational benefits,
life insurance and other items. You have to determine how much of this you
need/deserve/want and price it out - and any form of insurance/care will
cost you considerably more than an employer. Next, you may have other
costs - including the fees you pay the accountant. You may need to have
liability insurance, and even errors & omissions insurance. Liability
generally doesn't cost very much for those of us who pound keyboards &
polish chairs for a living, but e&o is expensive - the more damage you can
do, the more expensive. In addition, there may be licenses and other
governmental requirements you must research and pay for. You may have to
maintain your own office and equipment, depending on how the prospective
client wants you to work. All of these add up - including the time you have
to put in to research and make decisions. Before someone points out that
these costs are (mostly) deductible for the self-employed, let me point out
that you have to pay for them before you can deduct them. Add in the cost
of a lawyer to review your contracts, some sort of profit margin (you're now
in business for yourself, remember, not just creating a job), book-keeping,
record-keeping, and you'll find out where you need to be, fee-wise.

So, do your research, see what it will cost you to replace the benefits
package - and administer it yourself - and see if the offer still looks
good.

Good luck to you in your endeavors.

George King
G.E. King Marketing.
 >> Stay informed about: 1099 vs W2 - diff in hourly rate? 

hello people,

thanks for the replies.

perhaps i didnt describe my situation properly. i already am a W2
hourly contractor -- i work via placement agencies, no benefits,
vacation, or insurance. i take care of those things on my own.

so for this new contract, they are offering 1099 hourly, rather than W2
hourly. so say for instance one worked W2 hourly $50/hr (nice easy
number), im trying to figure out what would be appropiate 1099 hourly.
since vacation, insurance, or benefits are not a factor, it would
appear its simply half of the Social Security/medicare tax; which in
the above posters calculation is:

(15.3%)/2 -0.28* (15.3%)/2 = 5.5%


sound about right..?

thanks!
matt
 >> Stay informed about: 1099 vs W2 - diff in hourly rate? 

so i guess what im saying is, apples to apples -- no vacation, no
insurance, no benefits.. what is the calcuable difference between W2
hourly, and 1099 hourly.

so say i was 55/hr 1099, and i wanted the company to switch me to W2
hourly, should i just do:

55 * (15.3% / 2) = 50.8

....so, going from 1099 hourly (no bennies) to W2 hourly (no bennies),
in this case is about a $4/hr difference.

sound right?


matt


thanks,
matt
 >> Stay informed about: 1099 vs W2 - diff in hourly rate? 

> Right off the top of my head I can think of about 8% for the employer half
snip
> federal and state if your state has an income tax. You can check with your
> pesonal home/auto insurance company for an umbrella policy on Liability.

....i found out the agency gives me .50/hr (fifty cents) which they then
take out for workmans comp and liablity; wont need those. unemployment
insurance ill need to look into from my insurance company.

odd, my other replies didnt make it to this thread.

> Typically, working as an employee (W2) in a full-time capacity means some
> kind of benefits package. This usually includes some level of health care

not in my case. as a W2 contractor i have never recieved any benefits
and have always provided for my own insurance. im only interested in
hourly rates, sans benefits.

so the fellow's computation regarding half of 15.3% does seem work as
far as converting between W2 hourly contracts and 1099 hourly contracts
(no bennies in either). only additional cost is the accountant for
doing taxes quarterly; which i would hire out at least in the
beginning.


thanks,
matt
 >> Stay informed about: 1099 vs W2 - diff in hourly rate? 

Add workers comp. insurance and unemployment insurance to that figure. That
is part of your W2 'wages' as well that you are giving up with a 1099.

Also, you may need to figure carrying liability and E&O insurance.


---
f
 >> Stay informed about: 1099 vs W2 - diff in hourly rate? 

f wrote:
> Add workers comp. insurance and unemployment insurance to that figure. That
> is part of your W2 'wages' as well that you are giving up with a 1099.
>
> Also, you may need to figure carrying liability and E&O insurance.

the workmans comp and liability ins is included in an addition .50
payment they added to my rate (and then take back), not a cost to me.
UI is an additional cost on my own.


matt
 >> Stay informed about: 1099 vs W2 - diff in hourly rate? 

On Wed, 08 Mar 2006 00:31:33 -0000, matt.DeleteThis@mailinator.com wrote:
>hello people, thanks for the replies.
>perhaps i didnt describe my situation properly. i already am a W2
>hourly contractor -- i work via placement agencies, no benefits,
>vacation, or insurance. i take care of those things on my own.
>so for this new contract, they are offering 1099 hourly, rather than W2
>hourly. so say for instance one worked W2 hourly $50/hr (nice easy
>number), im trying to figure out what would be appropiate 1099 hourly.
>since vacation, insurance, or benefits are not a factor, it would
>appear its simply half of the Social Security/medicare tax; which in
>the above posters calculation is:
>
>(15.3%)/2 -0.28* (15.3%)/2 = 5.5%
>sound about right..? thanks! matt

Previously the employer paid 1/2 of SS/Medicare tax. Now you'll have
to pay all of it, but you can deduct that amount. So, that's about
right as a minimum under the assumption that you are in the 28% tax
bracket.

Just be aware that when you switch from W2 to 1099, you are no longer
entitled to things like Workman's Compensation and Unemployment
Insurance should you get laid off, so you'll hae to provide these
types of converage yourself and these costs should be factored in to
the equation, which is why the above number is an absolute minimum.
Business liability insurance is also a good idea, but errors &
ommission insurance is likely to be expensive and really depends upon
the details of what you are doing.

Switching from W2 to 1099 can give you other savings as well:
You'll be better able to take advantage of a number of adjustments to
Income, under lines 23-36 on IRS Form 1040, specifically:
line 25 if you have high deductible medical insurance and an HSA
line 27 (1/2 self-employment tax from schedule SE
line 28 self employment SEP or qualified plan.
Note: Check out Fidelity's Solo 401K. It'll boost your
plan contribution $15K over a SEP
line 29: health insurance premiums

Also, if you can justify a "home office" you'll get additional home
office deductions and then can deduct the mileage that you drive to
clients sites, (assuming your home offices is your primary work
location). Depends on the details of your work situaiton.
 >> Stay informed about: 1099 vs W2 - diff in hourly rate? 

wrote in message

>
> hello people,
>
> thanks for the replies.
>
> perhaps i didnt describe my situation properly. i already am a W2
> hourly contractor -- i work via placement agencies, no benefits,
> vacation, or insurance. i take care of those things on my own.
>
> so for this new contract, they are offering 1099 hourly, rather than W2
> hourly. so say for instance one worked W2 hourly $50/hr (nice easy
> number), im trying to figure out what would be appropiate 1099 hourly.
> since vacation, insurance, or benefits are not a factor, it would
> appear its simply half of the Social Security/medicare tax; which in
> the above posters calculation is:
>
> (15.3%)/2 -0.28* (15.3%)/2 = 5.5%
>
>
> sound about right..?
>
> thanks!
> matt
>
>

That sounds ok, Matt, if you check the numbers on your payroll stubs.
However, you will also be moving into self-employment status, so you may be
in a position where you need to pre-pay your income tax. Talk with your
accountant, to be sure. If so, you will need to crank in cost-of-funds on
the tax for each quarter, to make things balance out.

Good luck.

George
 >> Stay informed about: 1099 vs W2 - diff in hourly rate?