ClientCo offers 90k to go permie. What is the equivalent day rate?

[TonyF]

Hi Tony,

Thank you very much indeed. This is absolutely what I was hoping to hear. One question if I may - please could you advise how £84k comes in at £725?

(btw my 84000 is 90 salary, 3000 benefits (there are very few here), and 11000 Employer NI less a 20% deduction for corporation tax on the staffing costs)

You said "For permie, I calculate the Employer NI, pension, medical and bonus less corp tax deduction for staffing costs to be 84000.. " so I added £84k to £90k and then divided by 48 weeks and 5 days a week.

Now that I look at it, you've said that £90k plus benefits only costs the employer £84k in reality, which doesn't seem right to me at all.

Work out what it costs to pay you, plus the benefits etc. Every day you take off costs the company £360 (90k divided by 251 working days), so if they give you ten days holiday plus the public hoidays then that already costs £3600.

Ignore the tax that they pay when you are working out the costs of employment - start with the 90k plus 11k NI plus holiday plus 5% pension plus 2% bonus etc etc and the costs of your employment add up pretty quickly.

Ultimately you just need to work out what you are comfortable earning rather than comparing it to what you earn each day as a contractor who pays for all the benefits and days off yourself. Finally, if you have kids and are getting child benefit then you can kiss goodbye to that once you're on 60k.

[northernladuk]

Discussing the finite details of 550 a day vs 90k is a complete waste of time and a red herring if you ask me. Both options provide an enviable income. There are other important decision points to consider. Park the money look at other aspects.

[SillyPerson]

You said "For permie, I calculate the Employer NI, pension, medical and bonus less corp tax deduction for staffing costs to be 84000.. " so I added £84k to £90k and then divided by 48 weeks and 5 days a week.

Now that I look at it, you've said that £90k plus benefits only costs the employer £84k in reality, which doesn't seem right to me at all.

Work out what it costs to pay you, plus the benefits etc. Every day you take off costs the company £360 (90k divided by 251 working days), so if they give you ten days holiday plus the public hoidays then that already costs £3600.

Ignore the tax that they pay when you are working out the costs of employment - start with the 90k plus 11k NI plus holiday plus 5% pension plus 2% bonus etc etc and the costs of your employment add up pretty quickly.

Ultimately you just need to work out what you are comfortable earning rather than comparing it to what you earn each day as a contractor who pays for all the benefits and days off yourself. Finally, if you have kids and are getting child benefit then you can kiss goodbye to that once you're on 60k.

All understood and that gives me what I need.

Thank you very much indeed.

[SillyPerson]

Discussing the finite details of 550 a day vs 90k is a complete waste of time and a red herring if you ask me. Both options provide an enviable income. There are other important decision points to consider. Park the money look at other aspects.

Both options provide an income but one is as a permie. I will never be a permie. If IR35 is moved to the private sector I'll be able to put my rate up and even if I can't then UK PLC will need to trundle on without me.

Other aspects to consider are of course entirely subjective and in my case I simply want to best convince my Client to keep me on as a contractor. I believe that will be easy now I can see a permie will (a) cost them the same or more and (b) be very difficult to find at the level they need in the location they are.

Reasons I've always contracted - in 20 years (since my later 20s) I've had a blast. Worked all over the world, taken entire years off to spend time with the children and fly around foreign parts. All whilst having a party, keeping my qualifications at the highest level, doing a relevant MSc at Oxford and best of all working with fantastic committed and energetic folks. Wouldn't change a day. Such a shame if the route is closed for younger IT pros but I think there will be demand for people with the in-demand skills.

Thanks all.

[uk contractor]

ok this is going to be less fun replying too...

Firstly, I'm not greedy. I'm a director maximising profit. I could give it all to the Corbyn fan club afterwards but I've never met a contactor (or a permie) who's said 'please pay me less'

Secondly my Ct600 figure is not relevant to my ClientCo.

In the current job market if you think maximising profit is ALL there is to being employed hope you have an almighty bank balance as most clients think the exact opposite! Just because they want to employ you now what makes you think in a few months they will not just get someone cheaper? Finally I suspect your probably not currently paying the proper personal income tax level as if you were then it would not be a good idea to post what you did on a public forum that HMRC are known to frequent! Rates above £400 a day tend to be the contracts HMRC look at more closely than others.

[WordIsBond]

You guys don't quite have this nailed. If he's a salaried employee, holidays don't mean an increased cost to the company. They are included in the salary. They have to be factored in when computing the appropriate day rate for a contractor, but not in the permie cost to the company.

The following includes a miscellaneous cost of £5K, to cover costs like providing a computer, HR costs, telephone costs, facilities cost, legal fees when the girl at the next desk accuses him of being a creep, and all the other unknown costs that eventually hit a company that hires employees. Stuff happens, costs hit.

Costs:
Base salary
£90K
Pension
£3K
Other benefits (using the OP's number)
£3K
NI on £93K (assuming the other benefits are BIK)
£11.7K
Misc
£5K

Total cost to employer:
£112.7K

These costs reduce the employer's CT by 19%, £21.4K. That's a net cost to the employer of £91.3K. So you're looking for a net cost to the engager of £91.3K. Guess what? That's impacted by CT, too. So where does the gross cost of the contractor end up? £112.7K. If they spend that much on a contractor, it saves them just as much CT as spending that much on an employee. So just leave CT out of it and quit confusing yourself. Gross contractor cost, if it is going to be the same, is £112.7K.

The employee gets a total of 30 days of bank holidays and paid leave, plus let's say 5 sick days a year that he doesn't work. Sorry, it isn't 48 weeks, there is a statutory requirement to give employees 5.6 weeks (28 days) of annual leave, so even if there are no sick days at all it is going to be 232 days. On average they probably do not exceed 225 work days per employee, so they should be looking for 225 work days out of you for that £112.7K. That comes out to £500 pd. Seems like there should be some value put on employment rights, severance package, bonus, maternity/paternity pay, etc, etc. That's stuff that might cost them sometime and isn't really included above (unless you think the £5K misc covers all that, but I doubt it). So I'd guess the net cost to the client at £90K annual salary is probably close to £525 / day.

This does NOT factor the net benefit to you. Taking your word for it that you are outside IR35 (I hope you know what you are talking about), you can easily afford to do less than that and still be financially ahead vs permie, in terms of after tax income. But you don't have the security / protections of being an employee, either. You have to decide whether you want and value those protections, or whether you like the independence and the freedom to leave after a year or whatever. How you view those things, and how much value you put on them, would be the biggest factors in your decisions, I'd guess.

But purely in terms of the engager's cost, compared to a £90K annual salary, you are looking at somewhere around £525 per day. If the company is stable, I'd probably recommend taking the salary and forgetting about IR35 and accountancy fees and other hassles. But I didn't mind permiedom, I did it for decades.

[SillyPerson]

In the current job market if you think maximising profit is ALL there is to being employed hope you have an almighty bank balance as most clients think the exact opposite! Just because they want to employ you now what makes you think in a few months they will not just get someone cheaper? Finally I suspect your probably not currently paying the proper personal income tax level as if you were then it would not be a good idea to post what you did on a public forum that HMRC are known to frequent! Rates above £400 a day tend to be the contracts HMRC look at more closely than others.

Ok...

They can’t get someone cheaper because they need someone st a certain level and they know that. It’s a client and legal driven necessity.

Please cite where or how the hmrc over 400 inspection likelihood is ‘known’. It’s new to me.

I pay the ‘proper’ income tax. I avoid all I can and evade not a penny.

That’s all I’m saying on this.

[SillyPerson]

You guys don't quite have this nailed. If he's a salaried employee, holidays don't mean an increased cost to the company. They are included in the salary. They have to be factored in when computing the appropriate day rate for a contractor, but not in the permie cost to the company.

The following includes a miscellaneous cost of £5K, to cover costs like providing a computer, HR costs, telephone costs, facilities cost, legal fees when the girl at the next desk accuses him of being a creep, and all the other unknown costs that eventually hit a company that hires employees. Stuff happens, costs hit.

Costs:
Base salary
£90K
Pension
£3K
Other benefits (using the OP's number)
£3K
NI on £93K (assuming the other benefits are BIK)
£11.7K
Misc
£5K

Total cost to employer:
£112.7K

These costs reduce the employer's CT by 19%, £21.4K. That's a net cost to the employer of £91.3K. So you're looking for a net cost to the engager of £91.3K. Guess what? That's impacted by CT, too. So where does the gross cost of the contractor end up? £112.7K. If they spend that much on a contractor, it saves them just as much CT as spending that much on an employee. So just leave CT out of it and quit confusing yourself. Gross contractor cost, if it is going to be the same, is £112.7K.

The employee gets a total of 30 days of bank holidays and paid leave, plus let's say 5 sick days a year that he doesn't work. Sorry, it isn't 48 weeks, there is a statutory requirement to give employees 5.6 weeks (28 days) of annual leave, so even if there are no sick days at all it is going to be 232 days. On average they probably do not exceed 225 work days per employee, so they should be looking for 225 work days out of you for that £112.7K. That comes out to £500 pd. Seems like there should be some value put on employment rights, severance package, bonus, maternity/paternity pay, etc, etc. That's stuff that might cost them sometime and isn't really included above (unless you think the £5K misc covers all that, but I doubt it). So I'd guess the net cost to the client at £90K annual salary is probably close to £525 / day.

This does NOT factor the net benefit to you. Taking your word for it that you are outside IR35 (I hope you know what you are talking about), you can easily afford to do less than that and still be financially ahead vs permie, in terms of after tax income. But you don't have the security / protections of being an employee, either. You have to decide whether you want and value those protections, or whether you like the independence and the freedom to leave after a year or whatever. How you view those things, and how much value you put on them, would be the biggest factors in your decisions, I'd guess.

But purely in terms of the engager's cost, compared to a £90K annual salary, you are looking at somewhere around £525 per day. If the company is stable, I'd probably recommend taking the salary and forgetting about IR35 and accountancy fees and other hassles. But I didn't mind permiedom, I did it for decades.

What a great post - and very great thanks for the effort.

Agree re taking the salary for your situation but for me it doesn’t work. Certainly job security is something I’ve always almost feared (in a way). I prefer the illusion that I’m running my own business. (I’ve twice had companies when I hired staff and sold products rather than just consultancy and the stress was a killer. Went back to disguised permie).

[SillyPerson]

In the current job market if you think maximising profit is ALL there is to being employed hope you have an almighty bank balance as most clients think the exact opposite! Just because they want to employ you now what makes you think in a few months they will not just get someone cheaper? Finally I suspect your probably not currently paying the proper personal income tax level as if you were then it would not be a good idea to post what you did on a public forum that HMRC are known to frequent! Rates above £400 a day tend to be the contracts HMRC look at more closely than others.

Also...'your' current job market isn't necessarily 'my' one, is it? For me is seems axiomatic that the IT contractor market as a whole doesn't fluctuate for 'all' skillsets. Never has. The market for my bread and caviar has been booming for years and will get bigger not smaller. I know this based on experience, colleagues and contacts' conversations and my day rate.

[SillyPerson]

Also...'your' current job market isn't necessarily 'my' one, is it? For me is seems axiomatic that the IT contractor market as a whole doesn't fluctuate for 'all' skillsets. Never has. The market for my bread and caviar has been booming for years and will get bigger not smaller. I know this based on experience, colleagues and contacts' conversations and my day rate.

Also, and I really do hope you don’t take his as anything other than helpful advice because it’s well meant (honestly) but...’you are’ contracted is ‘you’re’.