Looking For Contract Rate to Permanent Salary Conversion Table

[TheFaQQer]

You misunderstand, my good man. You need a permie salary of £71034k (taking home £47,500) for it to be equal to what you would take home as a contractor on £300p/d, working 44 weeks a year, outside IR35.

Ah, of course.

I still think the figures are too high, considering what it says I would need from a permie job to break even. Of course it doesn't factor in things like travel expenses being paid by the contractor, which takes a fair chunk of my earnings. But you said that in your original post.

Maybe I should just go now, eh?

[Cheshire Cat]

How about the reverse calculation or conversion?
For me this is definitely more interesting. Given an average 220 per days in work what would be the matching daily rate for these figures

£70k = ?, £80k = ?, £90k = ?, £100k = ?, £110k = ?

You need to make some pretty flat assumptions when comparing contractor pay with permie pay. These are over-simplifications, but you can tailor to your specific scenario:
1) you will bill x days per year (say 220 for arguments sake)
2) you will net approx 70% of gross.
3) permie will net approx 60% of gross

So, if a permie is on 100k p.a. gross, he nets approx 60k
For you to net 60k in 220 days you need to net £272/day
For you to net £272/day you need to bill £390/day

So, formula (allowing for assumptions) to calculate the required daily rate R to match gross permie salary S is:
R = S/220 x 6/7
=> = (S x 6) / (7 x 220)
=> R = S/257
So, a 100k salary equates to £390/day

Similarly, to guestimate what your current daily converts to in permie-money, multiply by 257
So, £400/day = 102k, £500/day = £128k (i.e. this is what you'd need to earn as a permie to make it worth while ditching your contract).

Of course, a few weeks on the bench can change all that (try replacing 220 with 150 for a bleaker picture).
And the 60% permie net only really works for higher salaries. For lower ones the permie is obviously taking home a bigger slice.

[MrRobin]

I still think the figures are too high, considering what it says I would need from a permie job to break even.

Yes yes, plus in a permie job you will usually have other benefits that have an intrinsic value you would typically have to pay out yourself as a self employed - e.g. pension contributions, health insurance etc.

My rule of thumb would be a permie job with decent benefits would equate to at the very minimum (1,500 x hourly rate). Any possible bonus should be factored in too but perhaps only at a 50% of the total - i.e. £60k sal + 50% of £30k bonus = £75k so that's £50 per hour.

Hmm.. altho it's now less of a rule of thumb, and more like a rule of whole arm.

[Board Game Geek]

What would £30k a year work out at hourly rate, assuming no holiday ? (They moan when I take a day off and get nasty and threaten to replace me)

[Churchill]

What would £30k a year work out at hourly rate, assuming no holiday ? (They moan when I take a day off and get nasty and threaten to replace me)

If you're serious, tell them to stuff it and find another job.

[BrowneIssue]

Is there such a thing as an de-facto/official table that maps contract rates to equivalent starting salary?

It's amazing, isn't it?

Between us on CUK we know virtually everything there is to know about contracting and contract v permie.

Yet when it comes to working out tax, it's too hard.

Doesn't that say something about the government / Treasury / HMRC?

How on earth have we got ourselves into the situation where intelligent, interested, business-minded people cannot get their combined heads around the tax system.

It truly is an appalling state of affairs for a country to be in.

[Sockpuppet]

I just do:= daily rate * 240 = the permie salary that's equiv to.

Yeah you may be out of work but your higher take home should cancel that out. So on £300pd you'd see 72k permie salary. Of which you'd probably see 45-50k after tax so thats seems about right.

[NotAllThere]

If you're looking at what employers will actually pay, the hourly rate * 1000 works fine, in that a contract role at £40 an hour typically would relate to a permie role at £40,000 a year.

[VectraMan]

If you're looking at what employers will actually pay, the hourly rate * 1000 works fine, in that a contract role at £40 an hour typically would relate to a permie role at £40,000 a year.

Looking at it another way, the cost to an employer of a £40K permie is £48K (allowing for employer's NI) *13/11 (which allows for one month a year holiday and one month's salary per year as redundancy) = £57K.

The cost of a £40/hr contractor working 12 months a year is £78K, or 36% more than the permie (and the contractor gets roughly double the take home pay).

And for that the employer gets out of all the issues over employment rights and limits on redundancy and make the balance sheet look better by having less fixed costs. We're a bit of a bargain really.

[shoes]

If you're looking at what employers will actually pay, the hourly rate * 1000 works fine, in that a contract role at £40 an hour typically would relate to a permie role at £40,000 a year.

I think that's broadly true. I have wondered about that in respect to IR35 :

"The legislation ensures that, if the relationship between the worker and the client would have been one of employment had it not been for an intermediary, such as a service company or a partnership, the worker pays broadly tax and NICs on a basis which is fair in relation to what an employee of the client would pay."

So if you are IR35 caught you should not be treating all of your companies income from the contract as salary (less 5%, less vat), in the example above you should only be treating 40k of it as salary.

In an IR35 caught contract my 'salary' is greater than the salary I would recieve in the equivilent permie position, and therefore I pay more tax than the equivilent permie role. So why when IR35 caught are we paying more tax than a permie in the same role?

By HMRCs ridiculous style logic, this is 'not fair'.