How to work out equivalent permy salary?

**Fungus** · 27 January 2006, 23:51

Originally posted by dang65

This must have been asked before but I can't find anything by searching...

I've been asked to name an acceptable salary figure for switching from contract to permanent at the place I'm working at the moment. It's a good place to work and I'd be very happy there with the same take-home pay in a permanent position, but how the hell do I work out what my gross salary before tax would need to be?

I don't need a precise figure or anything, just some sort of calculator where I can put in my annual take home and it will say roughly how much the gross needs to be.

There's been quite a bit of argument over this. Most people seem to disagree with me, though colleagues at work take my view point. (Yes I work with crawlers.!

) I would say that £70K contract maps to £55K permie, but others would say much lower permie. Part of the argument depends on how long you are out of work when contracting. Another aspect is quality of life. Staying in one place for a long while is nice as you can get to know people. I found that out when contracting for 5.5 years in one place.

Fungus

**VectraMan** · 27 January 2006, 23:59

Depends as well if you include stuff like company pension schemes and other perks.

If you don't dodge the old IR35, then very basically your permie salary is your contractor salary minus employers NI.

**malvolio** · 28 January 2006, 09:30

Accepted wisdom (by those who can count, that is

) is that hourly rate x 100 is the annual salary equivalent as a permie (to within 10%, depending on how many perks you get). So £40 an hour is £40k pa for example. You're not costing your take home, you're costing the money the employer has to shell out to cover your salaries and employment overheads.

**Churchill** · 28 January 2006, 09:37

Originally posted by malvolio

Accepted wisdom (by those who can count, that is

) is that hourly rate x 100 is the annual salary equivalent as a permie (to within 10%, depending on how many perks you get). So £40 an hour is £40k pa for example. You're not costing your take home, you're costing the money the employer has to shell out to cover your salaries and employment overheads.

Hourly rate * 1000 = permy salary

Surely.

**dang65** · 28 January 2006, 10:58

Originally posted by VectraMan

Depends as well if you include stuff like company pension schemes and other perks.

If you don't dodge the old IR35, then very basically your permie salary is your contractor salary minus employers NI.

Thanks for the various answers. I need to do some sums. :-(

Although pension and other perks are useful, the thing is that I don't pay for them myself at the moment, so I don't want to discount them from my salary, I just want to end up with the same take home pay and then divvy it up between all the millions of things I pay for at the moment.

There will be obvious advantages like paid flights and hotels which I have to cover myself at the moment, so I guess I can accept a small drop in actual take home without losing out.

**Francko** · 28 January 2006, 11:09

Most people seem to disregard the age factor.

If you are 30 or less is quite likely you will be accepted in any team, but if you are 40 and over, unfortunately, you might be rejected in many teams because the average age is 25 and the boss might be 27-28 and they feel uncomfortable with someone with a long experience. Sad as it is, unfortunately it seems to be true (at least to my experience). So if I was you I would give a big factor to your age too. Everybody seem to have forgotten the year 2002-2003 where if you were unlucky you might have had to wait 6 months on the bench to find the next contract, but anyway... you will learn that with the experience.... (that you can't count 250 working days as an average).

**ASB** · 28 January 2006, 11:49

The problem here is that Fungus and Malvolio are both right.

In terms of actual cost to the employer take your hourly rate, multiply it by 1680 - This is about the avearage working year assuming 25 days holidays. Now multiply this by 0.89 and your rate.

So, if you are a contractor on £40 an equivalent salary is 59k. [i.e. cost to employer <> 66k]

Now it starts to get difficult. You say you want the same take home.

If you are currently in IR35 then it's simple. Take the salary above.

If not it's a bit more difficult. Your actual yield from your rate is probably in the order of 80%. Thus for a given average year on 40 ph your actual take home would be in the order of 53k. This would need around 70k to achieve.

[IME this understates things. Over 20+ years contacting I would personally tend to work about 2300 chargeable hours but I'm a sad git. Now I'm permie they get those they have paid for only]

However, most salaries will come with an assortment of benefits. These may be of no interest to you but are of cost to your employer. A reasonably commmon set of benefits is something like a car, health insurance, life insurance and about 10% of salary into a money purchase pension. [Of course it's common with pension to be expected to make a contribution yourself in order to get the employers].

This translates into a salary of approx 45k.

45k + 6k car + 4.5k pension + 0.5k health + 0.5k life. [Offer/not of a car is generally a bargaining ploy by employers to reduce costs of salary related benefits, personally I take cash not the car but this reduces cost to employer of some benefits being based on base salary].

So overall, rate * 1000 is a reasonable approximation of you costing the company the same. Assumes the benefits are of reasonable value to you.

Rate * 1500 should give you the same take home if you are in IR35.

Rate * 1750 if you are outside.

The later two assume the benefits are of no value to you (apart form holiday).

**dang65** · 28 January 2006, 12:51

Interesting stuff. I'm 40, so I guess being offered a full-time position is an opportunity not to be missed. In my last contract, which lasted for several years, I was well within IR35. I stayed like that for this contract in the assumption that it was long term. It's also through a French company which complicates things a little on the contract side, but the permy position would be via the UK company of the same organisation, although still being controlled by the French management. A permanent position is very tempting therefore, I just need to make sure I keep the same money coming in each month. I'll get onto those sums then.

**ASB** · 28 January 2006, 13:15

Dang65.

It's a personal choice of course. FWIW I had been contracting since I was 23. I'm now 45. Last year I accepted a permanent position. In strictly financial terms I'm worse off. I now work for approx 38 hours a week for about 45 weeks a year rather than 55-60 for 40 weeks a year.

Part of the motivation was that I have no mortgage on my main residence and only a small mortgage on the other properties I own. Thus the income I get is adequate to pay the bills comfortably. There is then the ability to take leave without worrying about the business I previously ran. There is also a good chunk going into the pension (although I am fortunate in that it was pretty well sorted prior to that anyway). It's mainly an easier life.

How to work out equivalent permy salary?