Contractor Question - What they charge vs. what you make

jamthat

A few colleagues and I have been debating this. I'm sure it's been discussed, but am not coming up with anything that would make me feel confident in guesstimating this number. Can anyone give a rough range of what a contracting company (Robert Half, TEKsystems, etc..) might actually charge a client for you, vs the hourly rate you get paid? Especially for positions that are more difficult to fill, which I would assume might lower the gap. A coworker seems to think that up to a 4x markup for a 'senior(ish) security analyst' type position isn't uncommon for rates as high as $50/hr, and I just don't see how that's possible.

I always thought it'd be more along the lines of: if you're getting paid $50/hr, the company you're doing the work for is likely paying around a 30% premium on top of that..not 400%!

edit -- this convo ultimately ended up at 'if they pay me $xx/hr, I could do it independently and make up to 4x that directly'

devilbones

It really depends on what type of benefits the company offers. If they match 401k and have good health insurance the company would need to charge about 4x as much just to make a profit. All of the people that support your position (admin, managers, etc) that are not directly billed to the customer come from the company profits too.

iBrokeIT

jamthat wrote: »

I always thought it'd be more along the lines of: if you're getting paid $50/hr, the company you're doing the work for is likely paying around a 30% premium on top of that..not 400%!

I've never heard of a 400% markup and that seems absurd, did they present any evidence to back up that claim?

My last company I was at $50/hr straight 1099 from a locally owned contracting company and I accidentally saw their invoice to the company on the director's desk - they were charging $65/hr. We had self+spouse benefits through wife's works so it worked and made sense for me at the time. Really liked that job since it was usually 40 hours a week max and i could set my own hours but they were acquired and went the Cognizant route.

That's my anecdotal evidence...

jcundiff

agree with iBrokeIT, most companies are paying 1.5 to 2.5 times salary as their fully loaded FTE rate for a position. If a contingent staffer is charging more than that, it really doesnt make sense to go that route... more realistically is 125-150% of what the EE is making

Verities

In my experience with Gov contracting you make roughly 20-30% of what they(contractor) charge per hour to the Government. 30% being the higher end positions and usually with the PRIMEs on the contract. It also depends on how your work is charged and/or funded either direct labor or overhead.

tmtex

Normally double of what you make. So if your making 25 per hr the company is paying 50 per hour or more for you. I know this as I was on both sides or it Getting the bills and working a temp job. Back in Nov I was doing a temp Desktop job and saw the invoice. I was paid 25 per hour but they were charging 57.25. I was like WTF !

fmitawaps

At one recent contract assignment I was getting 22 an hour but the company was paying the agency 40 an hour. And I got no benefits, not even paid holidays. I don't know what some companies are thinking who do dumb things like this. They could have hired me directly for 30 an hour and saved money, while I got more money. And I didn't care about benefits, other than a fat paycheck.

gespenstern

In my experience it is around 30%. Never witnessed myself and never heard of 400%.

Real example from my career: I was getting $75/hour as a security engineer on a contract and the company was charged $110/hour on W-2. You know your rate, but knowing how much an outsourcing agency charges the company could be tricky, and it's unlikely that you can find this out upfront, but after a while you can find this out by asking right people right questions.

There are very fat especially govt contracts though, where percentage could be in thousands or even more, but it's never calculated on a per employee basis, it's an overall contract cost compared to a combined salary of all participating specialists. Maybe he was talking about this type of contracts? I don't see him winning such a contract individually though...

anhtran35

I may taken an opportunity to double dip on an easy contract. I know for a fact that this company is attempting to bill me out for $50. I'm friends with the PM. The contracting company recruiter tried to lowball me at $35 after initially offering me $38. I said NO THANKS. They said we are not making any money. I said what is your billing rate? They wouldn't provide. I said I'm friends with the PM. They sticking to $38.

Danielm7

It depends on if you're a straight 1099 vs a w2 to the contractor, but still have never heard of 400%. Sounds like someone is either inflating their numbers to tell a story or they got seriously crazy lowballed.

dave330i

fmitawaps wrote: »

At one recent contract assignment I was getting 22 an hour but the company was paying the agency 40 an hour. And I got no benefits, not even paid holidays. I don't know what some companies are thinking who do dumb things like this. They could have hired me directly for 30 an hour and saved money, while I got more money. And I didn't care about benefits, other than a fat paycheck.

No. It's cheaper for companies to pay contract firm $40/hr vs. hire someone direct for $30/hr.

jcundiff

yep, the big hit on employee vs contractor is social security, then benefits and UI, its more than just benefits

volfkhat

Fun thread!
(although Purely anecdotal)

My last job was a 6-month contract-to-hire.

My pimp was paying me $30/hr (w2 + insurance).
They were billing $35.

Tekn0logy

You also have to take into account that some companies probably do not want the risk of a high salary FTE, especially when it comes time for paid leave or the unfortunate termination. Terminating a FTE without justification may land the business in court and damage to their reputation. A $5 ~ $10 an hour spread is peanuts compared to a wrongful termination settlement or having a FTE out on paid leave and having to hire another employee to cover.

jamthat

Good read! Thanks for all the responses..wasn't expecting to see this wide of a range, it was pretty eye opening for me

Trucido

It's a shame that we let this happen. Big money is always finding a way to weasel out of having to give anyone a decent pay. Not to mention tax exemptions and whatnot for buying a little hut it India and saying its their real HQ so they don't have to pay taxes. Makes me sick.

sj4088

dave330i wrote: »

No. It's cheaper for companies to pay contract firm $40/hr vs. hire someone direct for $30/hr.

In a direct sense you are correct. However I would argue from the other point of view that's often forgotten or not talked about. If someone is a contractor and especially if it's not contract to hire it generally assumed that person isn't going to be there long term whether it's the company letting him or her go or the employee moving on on their on. Well anytime one person leave and you have to replace them the amount of knowledge they are taking out the door with them honestly a lot of time you can't put a price tag on it. Especially if they have been at the company a year or year or longer. That's what a lot of managers and higher ups seems to miss. You can't just replace Jane who has been a network engineer at the company for two years with Sally without expecting a huge dropoff in productivity assuming Jane was a half way decent employee and network engineer. Sally comes in and screw things up or at the very least it takes her a lot more time to do things, that could be worth tens of millions of dollars to a company. Or if Sally truly can walk right in the door and replace Jane her rate is likely going to be so much higher than Jane that company wouldn't be saving anything. It's better for companies to have continuity with productive employees. But spreadsheet guys don't understand this. They just see $30 vs $40 on a spreadsheet and assume the $30 guy is cheaper. Well not necessarily when all things are considered.

I don't know about others but I would rather pay someone an extra $10k or $20K per year if it meant there is a greater chance it's going to keep my application that generate multi millions up and running.

MeanDrunkR2D2

For many companies the reason why they use contractors is a simple reason. Budgets. If they have a contractor, they do not have to list the rate that they pay the contracting company as an expense. When a company is especially trying to make themselves look as strong as possible on paper, and they don't have to chalk down 20 guys making 120k per year on expenses they can look more attractive to potential buyers/investors.

And really when it comes down to it for recruiters, I don't care what the company pays them. I only care what they will pay me and do I feel like I'm being fairly compensated. I'm currently in a negotiation with one right now and should be able to pull 45/hr. What they bill, I really don't care because I'm getting paid.

dave330i

sj4088 wrote: »

In a direct sense you are correct. However I would argue from the other point of view that's often forgotten or not talked about. If someone is a contractor and especially if it's not contract to hire it generally assumed that person isn't going to be there long term whether it's the company letting him or her go or the employee moving on on their on. Well anytime one person leave and you have to replace them the amount of knowledge they are taking out the door with them honestly a lot of time you can't put a price tag on it. Especially if they have been at the company a year or year or longer. That's what a lot of managers and higher ups seems to miss. You can't just replace Jane who has been a network engineer at the company for two years with Sally without expecting a huge dropoff in productivity assuming Jane was a half way decent employee and network engineer. Sally comes in and screw things up or at the very least it takes her a lot more time to do things, that could be worth tens of millions of dollars to a company. Or if Sally truly can walk right in the door and replace Jane her rate is likely going to be so much higher than Jane that company wouldn't be saving anything. It's better for companies to have continuity with productive employees. But spreadsheet guys don't understand this. They just see $30 vs $40 on a spreadsheet and assume the $30 guy is cheaper. Well not necessarily when all things are considered.

I don't know about others but I would rather pay someone an extra $10k or $20K per year if it meant there is a greater chance it's going to keep my application that generate multi millions up and running.

1. If Jane turns out to be an incompetent, getting rid of contractor Jane is a lot cheaper than FTE Jane.
2. What prevents FTE Jane from leaving for a new opportunity?
3. If you're a multi-million dollar company, Jane isn't the only network engineer on your payroll and you have pretty good documentation on current infrastructure.

dave330i

Trucido wrote: »

It's a shame that we let this happen. Big money is always finding a way to weasel out of having to give anyone a decent pay. Not to mention tax exemptions and whatnot for buying a little hut it India and saying its their real HQ so they don't have to pay taxes. Makes me sick.

Post is in English, right?

sj4088

dave330i wrote: »

1. If Jane turns out to be an incompetent, getting rid of contractor Jane is a lot cheaper than FTE Jane.
2. What prevents FTE Jane from leaving for a new opportunity?
3. If you're a multi-million dollar company, Jane isn't the only network engineer on your payroll and you have pretty good documentation on current infrastructure.

I don't follow you. In my scenario Jane is already working at the company. Yes it's true it's cheaper to get rid of a contractor than a FTE. And I acknowledged that. But what I also said and will stick to is if you are constantly rotating employees be it working at a fast food place or senior level IT professional you aren't getting to be nearly as good if you are keeping folks around that ALREADY mastered your environment and have the skill set.

You are correct Jane can always leave. Which is still rotating employees regardless of if she quit or was let go. The net result is still the same, a lot of knowledge is going out the door with her.

Documentation is fine. It's a great thing. But no one can seriously say documentation can take the place of an actual human being that's already ben there and done it and don't need to try to decipher the documentation. To me documentation is almost like a reference book or guide. It's great to refer back to for a refresher for something you ALREADY about or know how to do. But it's isn't so great for something that's brand new to you or you are clueless about.

And yes Jane isn't the only person on her team. So you are right, someone could spend the time and effort to get the new person up to speed. But there is a cost there. The other employees are going to have to spend time and effort getting the new person up to speed. Not to mention it's likely Jane knew stuff that no one else on the team knew. My engineering team going through that now. Someone is still trying to figure out something that an engineer that left the company two years ago worked on. And we hired some new folks and training is taking a burden on current employees. We have plenty of documentation. But we know documentation along isn't enough. Often times it isn't detailed enough, accurate or it's just plain outdated.

No matter how you slice it when you lose an employee and bring in someone new quite a bit is lost. Which is why some companies, and I would argue the best companies find the best people and pay them top of the line salaries and try to make them happy so they don't leave. Because they understand the cost of a high turnover rate.

Bokeh

Former recruiter here. We used to charge double the pay rate. So 25/hr to the temp/contract person gave us a 50/hr bill rate, etc. If and when the company wanted to hire the person on full time, we would charge a percentage of the first years salary to do the conversion. Usually 1% per thousand up to a max of 35%. So a 75k yr job the company would pay a fee of 26,250. Now, the individual recruiter may only see 7-10% of that.

Metaldave

Things are different in Ireland. I have a daily rate of E300 - E600 ($335 - $660) a day depending on what I'm doing (systems/ infosec). I have a number of friends that would be on similar standing and when they are contracted out for say InfoSec work the Companies sometimes double those rates, yes I mean up to $1250 a day! And they get it! It's even higher in London - some guys are out on £1000 a day so that's up around $1400 a day.

volfkhat

dave330i wrote: »

1. If Jane turns out to be an incompetent, getting rid of contractor Jane is a lot cheaper than FTE Jane.

Well... that depends on which State you work in.

In Michigan, it is considered an "at will" state.
This means the employer can Fire you "tomorrow" for no reason at all.
(seriously)

The only protection from this are businesses that are Unionized (or you have signed some kind of agreed Contract).

mbarrett

volfkhat wrote: »

In Michigan, it is considered an "at will" state.
This means the employer can Fire you "tomorrow" for no reason at all.
(seriously)

That scenario works both ways - Jane can walk out the door with no notice.

aftereffector

I can't think of any state I've worked in that was not "at will". Actually, I just looked it up, and Montana is the only state that is not "at will" - so most everyone in the US should be well familiar with at will firing policies by now

dave330i

sj4088 wrote: »

No matter how you slice it when you lose an employee and bring in someone new quite a bit is lost. Which is why some companies, and I would argue the best companies find the best people and pay them top of the line salaries and try to make them happy so they don't leave. Because they understand the cost of a high turnover rate.

The employee being FTE or contract is immaterial to your argument.

sj4088

dave330i wrote: »

The employee being FTE or contract is immaterial to your argument.

I have to respectfully disagree. A contractor screams high turnover rate. That's the point of a contractor, it's not a long term commitment. Yes I'm aware some in fact do turn in long term assignments but that generally isn't considered the norm.

Yes I'm also aware of contract to hire but the fact remain many contractor never get hired. They either move on or have their contract terminated.

DatabaseHead

Industry standard in the midwest 3 years ago was 63%

volfkhat

dave330i wrote: »

The employee being FTE or contract is immaterial to your argument.

i have to respectfully Disagree as well.

I am currently in 3rd-round interviews for a long-term Senior Sys Admin position.
It's a contract position through a government contractor; the client is (obviously) a dept of Federal employees.
The contract-house will be making their final selection at the end of the week (probably).

Well, guess what?
I've recently come to the decision that i am turning Down the job (well, if they do extend me an offer).

Why the f#ck would i work at a Federal facility, supporting Federal employees, maintaining Federal servers/computers..... but I am just "the help"??
It's bullsh$t.
It's insulting.

If i were in a serious financial hardship... then i guess i Would take the Job.
But the minute i could find a DIRECT position somewhere else.... i'm outta there.

and THAT is where your "immaterial" remark fails.

For some people, the difference between FTE and Contract matters ALOT.

ramrunner800

volfkhat wrote: »

i have to respectfully Disagree as well.

I am currently in 3rd-round interviews for a long-term Senior Sys Admin position.
It's a contract position through a government contractor; the client is (obviously) a dept of Federal employees.
The contract-house will be making their final selection at the end of the week (probably).

Well, guess what?
I've recently come to the decision that i am turning Down the job (well, if they do extend me an offer).

Why the f#ck would i work at a Federal facility, supporting Federal employees, maintaining Federal servers/computers..... but I am just "the help"??
It's bullsh$t.
It's insulting.

If i were in a serious financial hardship... then i guess i Would take the Job.
But the minute i could find a DIRECT position somewhere else.... i'm outta there.

and THAT is where your "immaterial" remark fails.

For some people, the difference between FTE and Contract matters ALOT.

In my experience working as a contractor in the Federal space is totally different than as a contractor in a private company. Working for a large federal contractor you ARE a direct employee with full benefits. For all intents and purposes it's not different than working for any other Fortune 500 company(I've done that too, and speak from experience), except you go to a federal facility every day. Contracts come and go, you transfer around, but you always stay with the company. There was never any impression of being considered anything like the help. It's very different from how contractors are handled out in private industry, to the point that to even refer to them in the same way is misleading.

In large comany government contracts I always heard that the billing rate was roughly 400% of the employees actual salary. This can't be compared to contractors like TEKSYSTEMS or RH, they both are called contractors, but the employment arrangements aren't really the same. I know my employer has some contractors right now who we are paying alot more than 400% for right now.