Say that you’ve got two different job offers in front of you – one for a full-time tech position, and the other for a tech consulting gig. Do you know which one to choose? It’s a difficult choice, but comparing the two types of gigs by both their financial benefits and implications is one way to make this decision.
Looking at the offers, financially:
The salary for a tech consulting gig is going to be higher than that of a full-time position by as much as 40%. Companies pay consultants higher wages to compensate for the fact that there is a perceived increase in risk with a consulting gig, as well as a lack of benefits and paid time off.
There will be fewer benefits with a tech consulting position. The extra money in a consultant’s salary is there to help offset the costs of health insurance, 401 (k) and other benefits – the kind you’ll have with a full-time gig. Some recruiting firms will offer you a benefits package, but these packages tend to not be as robust as packages offered by large enterprises.
The values of these benefits can be calculated individually ….
With a company 401(k) plan, your employer will often match a certain percentage of your salary, oftentimes up to as much as 3%. This means that if you’re making $70,000 a year as a FTE, your company is contributing $2,100 towards your retirement. This effectively brings your FTE salary up to $72,100, which you can start to compare to, say, the $100,000 you may be getting offered for the tech consulting gig.
- Health Insurance
As a tech consultant, you’ll have to provide your own insurance. To figure out how this will impact your income, determine what benefits and deductibles you’re aiming for. Your situation may not require the ‘Cadillac’ health plan the prospective employer is offering, so it may be good to think about a high-deductive plan with a HSA.
Once you figure out what kind of plan you’re interested in, call an insurance company. Ask them to give you a quote for these services, and then deduct this from the amount you’d be making as a tech consultant. If, using the previous example, you’re making $100,000 as a consultant and the insurance will cost you $10,000 a year, you’re making closer to $90,000 which continues to get closer to the $72,100 you’d make in the exampled FTE role.
Paid Time Off
A full-time position is likely to have paid time off, so that when you’re sick or on vacation, you’re not being docked money. Consultants don’t get this kind of perk. While they can take sick days and vacation time, they have to do so on their own dime.
In order to calculate the value in paid time off as a contractor, take the number of hours you’d typically work in a full-time job, and multiply that by your hourly rate. For example, there are 2,080 billable hours in a year. Assume that you’re going to take 2 weeks off, and that leaves you with 2,000 billable hours. With a $50 an hour rate, this gives you a $100,000 dollars a year WITH two weeks off. You won’t get money during those two weeks, so plan ahead financially if you have big bills coming in during those vacation pay periods.
Of course, this assumes that you work 2,000 hours in both a FTE and consulting position. In some jobs, you may be working more than 40 hours a week. As a salaried FTE, you tend not to be paid for that time though as you would be as a paid contractor. You have to be honest and assess the number of hours you’ll be working in each scenario to calculate these numbers effectively.
While taxes aren’t a part of a salary/benefits package, they’re something you should consider when deciding between a FTE vs. consulting position. If you’re an incorporated consultant, you have the ability to write off some of your work expenses, something that you won’t have the ability to do as a normal, full-time employee. Specifically, for gigs requiring significant travel, these breaks can add up quickly. Many of these write offs will save you at both the federal and state levels. (For more information on taxes and consulting, speak with an accountant.)
The Employer Side of Social Security
In you are a consultant, working as a W2 in your consulting company, you can ignore this section. If you are a consultant with a 1099 or corp-to-corp relationship though, we have found that you should reduce your income by 9% to cover the employer side of Social Security & FICA, unemployment insurance, and payroll fees. 9% is a huge number. If we pick up the previous example, where the consultant is making $90,000 with health insurance, they are now making $81,000. Make sure you take that into consideration, or else you may find yourself in hot water.
In most cases, you’ll find that consulting brings you out ahead financially. However, some people don’t want to have to deal with the hassle of finding health insurance and such. If you’re still on the fence, take these things into consideration:
There are perks to a full-time gig. Sure, you’re making less money, but this is compensated for by company provided benefits. You won’t have to look for alternative health care and retirement options, and you don’t have to worry about taking those sick days.
This sort of position is especially ideal for someone who is the sole breadwinner or health-care provider for the family, as the costs associated with a family’s independent health care plan can be astronomical. It’s also ideal for those who have a hard time managing their finances. With a consulting position, you should put money away just in case you find yourself a couple of weeks between gigs. If it’s in the bank, and you spend it, it’s going to be difficult to support yourself as a tech consultant.
The idea of finding insurance and retirement options is a turnoff for many considering tech consulting. That being said, with the right planning and financial restraint, tech consulting will get you out ahead of where you’d be financially with a FTE position. If benefits aren’t important to you, consulting will get you even further ahead.
A consulting position is ideal for those with spouse provided benefits or those who don’t need the full plan offered by the company. If you have the ability to go on someone else’s health care plan, or on a lesser plan offered by usually over-insured companies, you’ll see more of that 40% increase in your pocket.
This sort of position is also ideal for someone with foresight and planning. If you’re able to budget and plan for sick days and vacation without breaking a sweat, this is a good option for you – especially since you’ll end up with more money down the line.
Choosing between FTE and consulting positions often comes down to factors like finances. A tech consulting position is more lucrative, even when you factor in finding and providing one’s own health care. A FTE position alleviates the stress of trying to find benefits, but gives you less money to work with. If you have two offers in front of you, you have to decide which is the better fit for you personally.