Exempt vs. Non-Exempt Salaries for Engineers?

[80k]

For someone in my field with my experience, I can normally expect around 75K base salary (plus benefits). However, when I look for contracting jobs that charge hourly rates, I see rates all over the map.

For instance, at my last job where 3 of us had very similar skills and experiences, I knew someone making 25% less than me, and someone making about 30% more than me, per hour. When I have interviewed at other companies, I have seen hourly rates as low as $30 and as high as $60.

This has led to a lot of confusion on how to obtain the hourly wage that I am worth if I go the route of contracting through a contracting house.

Does anyone have any thoughts on how to properly negotiate an hourly wage? If I could make 75K per year direct-hire with benefits, what would a good hourly wage (where I have to pay my own benefits) target be?

Thank you very much!

 

[IRstuff]

Since you have to pay for benefits as well as taxes as well as adminstrative, e.g, billing, contracts, etc., your hourly cost is quite high. You might want to see how your own company structures its costs for bids.

There's typically a factor called the "wrap" rate, which is the multiplication factor against the direct labor costs. As with the numbers youv'e seen, they're all over the map. Expect to see 50% to 200% adders above direct labor. Aerospace is particularly expensive, because lots of indirect costs are included:
utilities
rent
business development
R&D
support functions

in addition to the aforementioned taxes, General & Adminstrative, benefits, etc.

TTFN

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[80k]

Thank you for the response.

In this case, I am talking about working through a contracting house (who will supply me my W-2), so administrative and tax issues are the same. The only difference is that I need to pay for my own benefits (vision, dental, healthcare), and I would not receive any holiday or vacation pay.

Is there a rule of thumb for this type of thing? For instance, if expect $75K direct-hire (with benefits and holiday/vacation), what would be a good hourly rate to shoot for if contracting?

 

[debodine]

I strongly recommend you consider joining CE Weekly (Google it, it is only $20 year...I did that for two years BEFORE I ever went into contract work) and participate in the contract engineering forums there. Prior to 9/11, with my experience I usually got contracts at either $50 or $55 hour, with time and a half over 40 hours per week, and some portion of that rate was considered per diem and therefore not subject to income tax as long as legitimately worked away from my home and did not stay longer than one year to meet IRS requirements. I considered $50 the bottom rate to cover all my living away from home and self-obtained health and retirement plans and still provide a living income for my family.

Of course after 9/11 rates were way down in aerospace (my field), and I went direct about three years ago because I now live close to my grandchildren.

Good luck to you. If you can be away from your family (if you are not single) for long periods of time, contract engineering can be lucrative.

debodine

 

[Ashereng]

80k,

Part of being a "contractor" means you are in business for yourself. This implies you also need to determine the worth of your services.

Aside from what you can do, what you have made, you now need to determine what others are willing to pay.

That is the bottom line.

If I am to hire you, I have a price. Your financial situation really doesn't concern me. All I care about is can you do the job for $XX/hr, for the duration of the contract. See what I mean?

So, you need to investigate what the rates are for what you do, both long and short term contracts. And I don't mean the going rate - I mean for each company you want to contract with.

You have already seen this. Some people are paid more - which implies that some people left money on the table for whatever reason.

Good luck with contracting.

"Do not worry about your problems with mathematics, I assure you mine are far greater."
Albert Einstein
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[kchayfie]

figure out what the health insurance etc will cost you when you pay for it yourself and figure out what "salary" you want to be earning and that'll tell you how much you want to bring in over the year.

figure out how many days you plan to work in the year (in the UK it would typically be about 230 - 104 days off for weekends, 8 days for public holidays, 20-25 days annual leave) and figure out how many hours per day you plan to work and that'll give you your hours per year.

income per year / hours per year will give you a rate per hour. add a bit for unforeseen circumstances and then round it up because you don't want to undersell yourself and you'll get a rate you should be asking for!

 

[GregLocock]

Well, that's one way to do it. It assumes you'll never be sick. It assumes there is no overhead in finding the next job. One bidding site I've seen suggests that >90% of contracts go to the <10% of engineers who charge >75 dollars per hour.

Think about that.

Cheers

Greg Locock

Please see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[KENAT]

Use an equation something like kchayfie had.

Remember to add an allowance for pension/savings since most directs get some kind of contribution from their employer. Also make sure you carefully consider the 'unforseen circumstances' to take account of the things Greg said about illness and potential gaps in employment.

Unless you're in a large city with lots of engineering there's a good chance that to make the best money/maximum employment by contracting you may need to work away from home or at least commute a good distance. Take this into account.

Rather than just looking at the 75k you think you could make direct you may want to calculate what you need/want to earn. This is especially relevant if you're currently unemployed and your unemployment benefit is about to run out or you've been forced to work a much lower paid job.

I'd then try and get a feel for what the market will bear as this may guide you to re-look at your calculations.

I tried to take account of all these things when I went contract for a while but still ended up not being as well of as I thought I was going to be!

 

[80k]

Thank you very much for all of the responses. My last job, I was bringing in about 20% more salary as a result of being a contractor, and it made up for the lack of healthcare and PTO/holiday.

This next job, however, it looks like they will offer only as much as I would normally get direct-hire. However, the intention of this position is to eventually go direct after a short-term contract. So perhaps if they see this as leading to permanent (this temporary contract is their way of paying the recruiting agency), they would fail to take into account the possibility of being out of work, and thus pay less.

Do the higher pays (say $75/hour) only for those that contract by themselves (i.e. no agency)? Because it seems that most recruiting agencies (which provide W-2 and minimal amount of benefits) I've run into only pay about half that in this area.

 

[ewh]

The title of this thread confused me at first. If you are going to be contract, chances are that you will be paid an hourly rate, not a salary.
If you can find out about a company that has a contract position open that you are well qualified for, you can often pick your shop. Some references may be required. Some shops do provide limited benefits, including holidays, 401K and group insurance. Vacation is usually added into your base rate. Be sure that any OT is at time and a half before you sign anything. Much is negotiable, depending on the demand for your particular skill set. Yes, the rates for the same positions will vary greatly, depending on many factors, not the least of which is ignorance of the upper limit that the shops are willing to pay. I agree with debodine that CEWeekly is an excellent source for contractor information. I still subscribe, after being direct for almost five years.

 

[KENAT]

Many places when they hire you direct, having been contract, actually expect to drop your pay. They assume that being permanent & having vacation, benefits etc makes up for this. Verify this isn't the case before you accept a contract rate that is approximately the same as you'd expect your direct rate to be.

This was what they planned to do with me, however my manager persuaded them that I was functioning at a level above my job description so I actually got a slight raise when I went permanent.

I would think the $75 was for people who contract direct. My pay through an agency was in the low $30s per hour last year and year before, in a very high cost of living area, although admittedly I had only 5 years experience and it was more of a designer than engineering position.

 

[civilperson]

Shops try for a 35-40% override on your hourly rate. The costs of 7.65% FICA tax and 2% unemployment tax along with fronting you a weekly paycheck and waiting thirty days for their invoice to be paid makes their business very lucrative. The best positions for job shoppers is AWAY from home, the per diem breakout is not taxed! This can be 25.00/hour, leaving 35.00/hr as your "salary" if you are at 60/hr contract.

 

[80k]

Kenat, it does look like low $30's/hour is not uncommon around here, as well. The problem with these contracting agencies is that they pay as if you are going direct, but their benefits are quite undesirable (expensive healthcare and very bad 401k program, and no holiday/vacation days). They advertise the benefits as a reason to get paid less, but when you finally read the fine print, it is not a very good deal.

civilperson, I have not yet looked at offers away from home, although the per diem does make it very attractive!

Thanks again for the comments!

 

[ewh]

Being willing to travel makes a huge difference in what your rate will be. Instead of fishing in a pond, you've got the whole ocean to fish from.

 

[KENAT]

80k, I'd been out of Engineering over a year and had resorted to working at a drug store for under $10 an hour (I'd just been promoted to shift supervisor, before that it was about 20C above minimum wage).

So for me, even with having to spend $1000 + a month to be away from home, $30+ an hour was a big improvement. The agency did offer benefits but as you say they were lousy. If I'd been there long enough I'd have started to accrue some vacation but not a lot.

The company I was contract at was always with a view to going permanent. The company itself actually has pretty good medical although 401 K is nothing special, however they also have profit sharing and I get vacation & public holidays. So you can see their argument about dropping the basic pay a little compared to the contract rate. However, because I'd still have been working away from home, with the related increase in expenditure, it wouldn't have been much of an option.

Depending on your current situation maybe low $30’s doesn’t make sense, for me it did.