Comparing contract to perm rate / salary

[Olly]

Hi, I know this topic has had a reasonable airing over the years but wanted to hear any new opinions folks may hold or for that matter the opinions of folks that are new.

My current perm roll pays just over £80K (if you include base + bonus + benefits) and £6K ish pension.
It's a fairly relaxed 35 hour week in Hampshire with 28 (+ 3 lieu days for extra hours) holiday.
I joined to specialise but that's not really happened, it may, but it hasn't yet. I am getting reasonable exposure to new areas though in the same way I might not as a contractor - just not quite what I'd hoped.

Now, the crunch, I've been offered £650 a day at a London investment bank in the specialism I'm focussed on. The thing is that's probably £200 over the going rate and when that ends I'd be back to £400 - £450 p/d (and would of course have to contend with any bench time).

At £650 I'd say it's a no brainer to take the contract but knowing that's likely to be temporary, £80k perm seems to stack up well (i.e. better overall) against £450p/d.

What say you please?

P.S. I'm reducing my taxable income to the 20% band by contributing a lot of additional voluntary pension contributions. Next tax year, when the max pension contribution is £40K that's not (quite) going to be possible.

[SpontaneousOrder]

i think £450 p/d still beats 80k (using your taxation approach), not by too much though, assuming you work a similar number of days (which *could* be a big assumption).

What do you do? I'm an 8-ish year Java guy and £450 a day in London would be a minimum. Especially in a bank/financial gig. Perhaps it wouldn't be as bad as you reckon?

[jamesbrown]

If you worry too much about the details of contract-to-perm rate conversions, you'll miss the overriding differences between contracting and being a permie. As you know - or should know - there are important differences that cannot possibly be captured by rate alone; indeed, I would say that rate is a secondary factor (at least, for me). I suppose you're aware of the rule-of-thumb that hourly rate * 1000 = permie salary, but this has important limitations that don't need to be re-hashed here. You'll note the symmetry between 80k and 650pd.

In my subjective opinion, an 80k perm job is a pretty good situation, financially speaking. Based on the numbers alone, I wouldn't touch a 450pd contract in that situation, and probably not 650pd (to some extent, it would depend on travel costs etc.). However, I also wouldn't touch a permie position full stop, hence my point above.

[SpontaneousOrder]

I suppose you're aware of the rule-of-thumb that hourly rate * 1000 = permie salary, but this has important limitations that don't need to be re-hashed here. You'll note the symmetry between 80k and 650pd.

Is that the assuming then only about 6 months a year of invoiceable work?

[jamesbrown]

Is that the assuming then only about 6 months a year of invoiceable work?

It's based on the imperfect rule-of-thumb that I cited. The limitations have been done to death (try a search), but it would be equally silly to rely on a 1:1 conversion. One contract is just that; you can be canned at any point, including immediately, take a rate cut, have extensive periods without work for which a warchest is required etc. And, according to the OP, the "going rate" is substantially less than 650pd. But insert whatever rule-of-thumb you prefer, as they're all pretty useless IMHO.

[jamesbrown]

ps. although not a rate conversion tool, the NW calculator is quite clean and informative:

https://www.nixonwilliams.com/net_pay_calculator.asp

[Olly]

i think £450 p/d still beats 80k (using your taxation approach), not by too much though, assuming you work a similar number of days (which *could* be a big assumption).

What do you do? I'm an 8-ish year Java guy and £450 a day in London would be a minimum. Especially in a bank/financial gig. Perhaps it wouldn't be as bad as you reckon?

I suppose you could call me a Technical Business Analyst. I don't have a deep specialisation but IT security has taken my eye and I think I'll start an MSc in it next year as well as looking into some of the industry quals.

I've contracted for 9 years and am well aware of the "differences" but IMHO the majority of posts here over-egg their importance/relevance.

Hmm....I think I should maybe stick with the perm role a bit longer. The chance of being able to sustain £650p/d is slim now but maybe with 4 or 5 further years specialism + quals it could become a the norm.

Would still be interesting to hear further from the panel.

[Olly]

ps. although not a rate conversion tool, the NW calculator is quite clean and informative:

https://www.nixonwilliams.com/net_pay_calculator.asp

It's handy. Maybe they should consider a version in which you don't stray into the 40% tax band and allow the retained profit to build in the Ltd and the take it as lump sum (hopefully subject to 10% capital gains) through Members Voluntary Liquidation.

On £650p/d with £23Kish expenses + salary and using the method above I calculate retention at about 78%. On £400p/d it's 82%

[malvolio]

The rule of thumb is actually about what you need to earn to get roughly the same net income a month, allowing for the additional costs and the greatly reduced earning time for a contractor. Obviously, this will vary with all sorts of factors so is only ever going to be an indication, or perhaps a start point for a sensible rate negotiation, but is only really useful for answering the standard permie question of "how much is a contract worth".

However, as others have said, you don't go contracting for the money, especially not if you already have a well paid permie role. There are many better reasons for taking the leap.

[Olly]

However, as others have said, you don't go contracting for the money, especially not if you already have a well paid permie role. There are many better reasons for taking the leap.

I've been contracting for 9 years up until recently and it was virtually ALL about the money for me. Perm roles on offer were around the £50K mark tops, I stumbled upon a "good-un" though and took it.

Returning to contracting is a leap only in so much as if I want a perm role like I have now then I may not be able to find that again in the short to medium term future and future contract rate(s) and duration(s) may mean financially alone I'd have been better off staying perm.

Hmmm....decisions decisions...