Question for people who own a business and pay employee salaries

[shmokes]

My wife applied for a job that asked for salary requirements, to which she said $50k/yr.  The employer sent her an email asking for a freelance rate.  Any idea how much extra an employer is paying to have her as a permanent employee?  Let's assume that it is a small employer with fewer than 50 employees, if that affects things like Workman's Comp insurance, and that the employer also does not provide any benefits beyond salary for its regular employees.  One of the main questions I have is how much taxes the employer would pay on an employee making $50k (because if she's contracting she's paying all of the employment taxes herself).

I know that there are other considerations, like the potential that the work would not be steady, lack of health and retirement benefits, and so on.  But I'm mainly curious about the direct, immediate costs of bringing her on full-time.  I want to make sure that whatever she quotes them for a freelance rate will make it attractive to them to bring her on full-time instead.  But I want it to be within reason, so that if they don't want to bring her on, they still will hire her for freelance, and pay a wage that will make everyone happy.

For what it's worth, $50k is ~$25/hour.  So I'm thinking Freelance should be at least like $40-$50.  Also, this is for a graphic designer position in Washington, D.C. and my wife has a bachelor's in graphic design and about six years of good post-grad experience.

[Donkey_Kong]

While I can't give you any exact numbers on your wife's profession of graphic design, I can say that work comp runs on a percentage of the employee's wage and can fluctuate an insane amount like between 10-100% of wages paid. I'm going to venture a guess that graphic design will fall into a lower percentage bracket...probably one of the lowest. That's if I'm correct in assuming that the fluctuations are still dependent on job description and risk of injury, statistics, etc.

I used to be a general contractor in the field of construction and we specialized on roofing. The rate for work comp was something god awful like 85%. Which meant if i paid a guy $1000 in a week, I paid work comp $850 over and above the $1000! YEA, I know. Our typical work around was to not hire employees, and just sub contract.

Anyway. like i said before I would have to assume a free lance graphic design risk of injury are fairly low. I remember looking at a chart and seeing percentages for all different professions, you might want to try and google work comp rates. Other things to consider are the employer having to deduct for fed and state tax, social security as well. Those of course come out of they employees pay and are not over and above the regular wage like work comp. however, this was another reason we liked to avoid ever paying an employee, because of the additional accounting involved. It was a major burden to a small construction company and the final reason most small timers will avoid having an official employee like the plague. Free lancers or subcontractors are paid a set amount of money for the job, then at the end of the year you send them a 1099 form for the total amount on the year and voila! That's it.

One more thing to consider here though is that the subcontractor or freelancer (your wife) may be required in some cases to carry her own general liability and or work comp. This may be only in extreme cases, or more dangerous professions. Sometimes on a construction site if you aren't covered on someones liability or work comp policy...even if you were the water boy, you might get sent down the road.

 

[MonMotha]

I don't have any salaried employees, but I've worked both sides of the full-time/contract for services coin.

The general rule of thumb for contract vs. full time with all benefits for professional services seems to be that you take what you'd make on salary, convert to an hourly rate (assuming 40-45hr/wk) and roughly double it, then round down to the next "nice" hourly rate (usually a multiple of $5).  This varies a lot with market, the kind of benefits you're comparing with on salary, etc.

A good "freelance" rate might be $45-50/hr to end up comparable to a 50k salary with full benefits (group health insurance, PTO, "other half" of FICA, etc.).  This not only reflects the additional expenses the freelancer incurs but also puts a small premium on the services due to the supposed lesser certainty as compared to a full time hire (though people hire/fire so quickly these days that may or may not be totally relevant, anymore) which would encourage a full time hire and the corresponding "steady paycheck" if they actually want full time.

This also corresponds to what it would cost for a company with several full time employees to provide similar services on a contract basis.  They obviously have to pay their employees, including all benefits, and then they still want a little profit on top of that.  A company with lots of resources ("highly paid consultants") will want more, but they'll also probably bring some real resources (equipment, vast past experience, etc.) to the table that you can't match as a freelancer.

Obviously this will vary somewhat by region and with the labor/services market in your area.

[drventure]

My wife did freelance technical writing for a while, and she billed out at 50$/hr 1099. I usually took 30% of those checks and held back for quarterly taxes, which was generally just about right, maybe a tad on the low side at the end of the year when I put everything together. But a typical salary in her field is 75-80k, not 50.

Maybe she was billing out too low, but as far as I could tell, 50-60/hr was pretty much top end in that field for contracting.

40-50might be a little high for conversion of a 50k salary, but I'd say no less than 35-40/hr, considering her background, etc.

And finally, I am not a tax attorney, so take all this with a grain of salt.

[ChadTower]

The general rule of thumb for contract vs. full time with all benefits for professional services seems to be that you take what you'd make on salary, convert to an hourly rate (assuming 40-45hr/wk) and roughly double it, then round down to the next "nice" hourly rate (usually a multiple of $5).  This varies a lot with market, the kind of benefits you're comparing with on salary, etc.

My experience in the software field was right around the same as that.  I haven't been a contractor in 8-9 years now but I don't think much has changed.  Some employers like to take a shorter calculation and cut the yearly figure in half, make it an hourly (so $80k down to $40/hr) and round it either up or down depending on their situation.

[shmokes]

Thanks for the info.  She told them her typical freelance rate is $50/hr, but that she would reduce it to $40/hr for a client giving her steady, full-time work.

[ChadTower]

It's changing but for the worse.  Here in MA, where we have the Romney version 0.1 of Obamacare, part of the package was that insurers had to make affordable individually available plans.  MA now requires health insurance for all individuals or you have to pay a (surprisingly low) fine on your tax return.  The downside to those packages is that while the documented coverage is pretty good the process for approval of anything is so onerous that the plan is functionally useless except basic ER coverage.

When I was a contractor on my own I was paying $1500/month health insurance for my family.  I couldn't sustain that so I ended up working for a contract agency.  That limits your options because they raise the rate about 50% and keep the extra cash in return for the lousy benefits they give you and the W2 processing.  Their health insurance was expensive, but acceptable, while every other benefit was either stupid or had contradictory rules that made them impossible to use.

[MonMotha]

Individuals are pretty much going to be limited to high deductible plans in the USA.  Individual premiums on $3000 deductible plans seem to run about $100-200/mo depending on coverage provided and total yearly max out of pocket.  Obviously add more for full family coverage (you do get a SLIGHT discount on the per-person as you add peeople due to risk pooling).  No lifetime max on these, anymore; Obamacare did away with that.  Many states also force the insurers to not exclude pre-existing conditions if you can show a few years (varies by state) of continuous past coverage.

$3000 may seem like a high deductible, but you'll hit it instantly in the event of a hospitalization or other major event.  The rest you just figure you're paying for your own basic healthcare.  It really is *insurance* against major, unexpected events, not a managed healthcare system.  You would also be eligible to establish an HSA, where you can drop a fair chunk of change (I believe equal to your yearly deductible, but check with a tax professional) each year tax free, kinda like an IRA.  The money in the account can be spent on just about anything health related from paying your insurance deductible (but NOT the premium - however you can deduct that on your tax return separately if self employed) to buying band-aids.

[drventure]

What's really annoying about the high deductible plans is that providers charge one set of rates when you pay cash, and a totally different set of rates (usually significantly less) when you go through an insurer.

And don't even get me started on that whole "Pre-existing conditions" non-sense. 

If you go to your doctor for a cold, then try to apply for insurance a month later, you could get denied coverage.  And if you don't disclose your visit to the doctor and they find out, they'll revoke coverage. I believe some of those rules changed with the health bill as well, but still.

[MonMotha]

The network/insurance rate for an office visit with my doctor is actually slightly LOWER than the cash rate.  The statement I receive discloses both rates, and I've confirmed them with the office staff.  This is in general true of cash payers vs. those with "insurance".  They bill the cash payers more (at least initially, you can and always should attempt to negotiate since the insurers do) since they 1) are less likely to pay, and 2) have less bargaining power.

(Even with a high deductible plan, you pay the "insured" negotiated rate, just just pay ALL of it until you hit your deductible)

As for "preexisting conditions", they're not supposed to act like you described, though I'm sure many do.  They're supposed to exclude things that are actually related to a preexisting condition (and they're often pretty broad in determining what's "related"), but you should not be denied coverage for an infected toe because you saw your doctor for a cold 3 months ago.  Doesn't mean that your insurer won't TRY, but they're not supposed to do it.  Of course, they can always decide not to offer coverage in the first place for any reason.  You're not their customer yet, and they have no obligations.  If you live in a state that prohibits exclusions based on preexisting conditions and meet the requirements necessary, none of that should be a problem, though.