Reply to: FTC - Equivalent Day Rate

[LondonManc]

Oh, nothing really. I was just wondering if all the disagreements was worth it as the question I had been adequately answered - i.e., you cannot do a comparison between FTC and day rates and hence politely indicating that this thread be moved to a hidden section...

I now realise that the easiest way to do this would be to stop responding to this thread. :-)

Welcome to CUK; where people disagree when there's nothing to disagree on.

FTC is, potentially, the new way of engagement for contractors. Your costs can still be ringfenced as part of a project, like your contract costs could be. Difference is that you now get holiday pay and you're not a contractor. You're an employee of client co; if they get discounts on stuff, you can do too. In fact, you get to behave completely the opposite to how you would if you were in an outside IR35 contract. Get along to the freebie team-building sessions, etc. You could well find yourself closing your company and just going with FTCs and umbrella companies for the long-term. Massive plus is that it saves a lot of hassle and means that whatever you get at the end of each month is yours to do with as you please, be that spend, save, etc.

Don't get too hung up about the "good old days" of regular outside IR35 work - that's now gone for most. I think you're in a great position and can get on with closing your company and out of the way of HMRC who will be looking into those on inside contracts still come 2021.

[northernladuk]

Every thread where we try compare to complete different income methods like this end up this way.

[MagicMovies]

Archive?

Do you mean move to general?

Oh, nothing really. I was just wondering if all the disagreements was worth it as the question I had been adequately answered - i.e., you cannot do a comparison between FTC and day rates and hence politely indicating that this thread be moved to a hidden section...

I now realise that the easiest way to do this would be to stop responding to this thread. :-)

[BrilloPad]

What have I started?

I have signed the new contract and starting work on Wednesday. Can the mods please archive this thread? Thank you!

Archive?

Do you mean move to general?

[MagicMovies]

What have I started?

I have signed the new contract and starting work on Wednesday. Can the mods please archive this thread? Thank you!

[jayn200]

FTC is not a contract, it's a permanent position with a fixed duration. As for your own numbers, a contract is 47/52nds (on average) of a salaried role in terms of earnings, all else being equal - which it isn't.

And, just for the record, it was my analysis so I don't think I misread it: and it was cross checked by qualified people at the time.

As Eek points out the tax landscape has changed since I did it, but since we are only looking at approximations rather than precise numbers - which would be meaningless anyway - it's a workable algorithm to compare roles and to provide a basis for negotiation.

However if you are asking for a direct comparison between any perm role and any contract role, you really do not understand the business you are in.

Why don't we let everyone else read your posts and then read my posts and see if I'm the one who doesn't understand.

I backed up my numbers.

Im not trying to be rude but a lot of people read these forums even if they don't post. Your misinformation will be read by a lot of people.

[malvolio]

FTC is not a contract, it's a permanent position with a fixed duration. As for your own numbers, a contract is 47/52nds (on average) of a salaried role in terms of earnings, all else being equal - which it isn't.

And, just for the record, it was my analysis so I don't think I misread it: and it was cross checked by qualified people at the time.

As Eek points out the tax landscape has changed since I did it, but since we are only looking at approximations rather than precise numbers - which would be meaningless anyway - it's a workable algorithm to compare roles and to provide a basis for negotiation.

However if you are asking for a direct comparison between any perm role and any contract role, you really do not understand the business you are in.

[jayn200]

Purely from an academic / learning point of view, how are you able to calculate the day rate as £565 inside IR35 for 200 days?
Feel free to ignore if that is intellectual property. :-)

Income tax rate for umbrella is basically same as it is for permanent employee salary. So you just basically need to add the employer NI and the umbrella company fees.

Employer NI is (100,000 - 8632) * 0.138
Employer NI = 12,609

Umbrella company fees let's just say are 100 * 12
Umbrella company fees = 1200

inside contract through umbrella company equivalent to 100k full time salary = 113,809

So just divide that by 200 and you get 569.

In the original post I didn't include the umbrella fees and that's why I had 565. Regardless, it wasn't meant to be exact, I'm just trying to quickly show how far off 800 day rate is.

Remember that an inside ir35 contract through an umbrella company with no deductions is the highest tax obligation you will have as a contractor so it would produce the maximum equivalent day rate.

200 is also quite a conservative number of working days. It is 40 weeks a year, most calculators online actually use a standard 44 weeks as the calculation. I used 40 weeks to be a little more conservative and that is to the benefit of Malvolio.

I'm just saying I really can't see any justification for a 800 day rate equivalent from the contractors point of view.

Again, I get it from client point of view because they have additional costs to consider. Like for example the client would have to keep full time staff employed for any down time between projects, they likely would expect a longer period of training and they likely would have a longer recruitment period which might delay their project and result in additional business costs. There are all sorts of other costs you could roll into the cost of a full time staff / contract staff but that's really just about the business case of using a contractor and at what day rate vs a full time employee from the perspective of the client. As a contractor you shouldn't care about that. You need to think about what you're taking home and that's all you need to care about.

As a contractor you can always take days on the bench into the calculation and costs associated with training, getting new contracts, other risks, etc. But FTC is still a contract and all of those costs still exist for you as a contractor so it doesn't make sense to include them in any comparison of FTC vs Day Rate. It only makes sense when comparing contract roles (whether ftc or day rate) vs perm employment.

[jayn200]

Garbage? Really?

It's an approximation, but it is based on a detailed analysis of the true costs of employment vs contract rate. It is intended as a guide to a rate that will return the same net income after all the relevant factors have been considered on both sides. The original study was to compare full cost of employment with contractor charges (including agency costs, inter alia) so the then client could judge which was most cost effective for a range of roles (the contractor is, by about 15%).

It's held up pretty well over the last 15 years or so. It is not hard and fast, your tax code will affect it, as will higher rate tax bands and things like Child Allowances. So it's an approximation, no more no less.

So before dismissing it out of hand, and quoting your own approximation, at least understand what I was trying to demonstrate.

Nah it isn't. You are either not remembering correctly or you didn't understand the original analysis you read. I am confident of that. The only way you might have seen an analysis showing an equivalency between 800 day rate and 100k (most likely salary not ftc) would have been from the client side. It was likely analysis done from an agency showing a client what day rate they need to pay for equivalent 100k perm salary. The equivalency would have been from client cost perspective and would have included hiring costs, training costs, etc. There is absolutely no way it was from the contractor perspective. All those costs are speculative by the way and the analysis is intended to produce a high day rate because agencies make money relative to day rate so it's always in their best interest to get highest day rate possible, who knows what day rate they would have passed onto the contractor for that position anyway.

There is absolutely no way to arrive to the same net income on 800 day rate vs 100k salary. 100K salary is 5,545 take home per month. You would normally work 227 (260 - 25 holiday - 8 Bank holiday). To earn the equivalent take home at 800 day rate (inside using an umbrella company) its about 700 after employer NI, maybe deduct another 5 for umbrella fees and you are 695 day rate inside. You would only work 144 days to reach the same take home salary. If you worked the same 227 days a year you would take home 7,888 a month.

You could literally work 29 weeks during the year (inside using an umbrella company) at 800 day rate and earn the same take home salary as someone on a 100k ftc.

Again that's only dealing inside.

Even if you take into account other benefits they aren't going to make up the difference (57,765) in salary (after employer ni, 33 days off, and umbrella fees are deducted) between the 2.

I just can't come to an equivalency between the 2 from contractor side. Especially when you're talking FTC and not perm employment, so you can't add time on the bench or any type of employment risk into the calculation since FTC is still a contract role.

I know plenty of contractors who don't even take 33 days off a year by the way and most operate outside and will continue to for the next year, so even the numbers im presenting you are quite conservative compared to how much higher 800 day rate really is in reality.

[eek]

Which is a meaningless comment unless you provide the numbers...

Not that I care anyway, we're trying to compare apples to elephants. the real answer is "Whatever you want it to be".

well you figures of Salary / 1000 = hourly rate was last true in about 1998 so I’m not sure who is more out of date here.

given that you retired years ago why do you even post your old information as accurate is something I’ve never understood.

[ladymuck]

Purely from an academic / learning point of view, how are you able to calculate the day rate as £565 inside IR35 for 200 days?
Feel free to ignore if that is intellectual property. :-)

As you can see, there's little consensus on how to compare permie rates with contract. There's no intellectual property at stake, just differences of opinion.

[malvolio]

yet your figures bear zero resemblance to the figures I saw for a large bank this week.

Which is a meaningless comment unless you provide the numbers...

Not that I care anyway, we're trying to compare apples to elephants. the real answer is "Whatever you want it to be".

[eek]

Garbage? Really?

It's an approximation, but it is based on a detailed analysis of the true costs of employment vs contract rate. It is intended as a guide to a rate that will return the same net income after all the relevant factors have been considered on both sides. The original study was to compare full cost of employment with contractor charges (including agency costs, inter alia) so the then client could judge which was most cost effective for a range of roles (the contractor is, by about 15%).

It's held up pretty well over the last 15 years or so. It is not hard and fast, your tax code will affect it, as will higher rate tax bands and things like Child Allowances. So it's an approximation, no more no less.

So before dismissing it out of hand, and quoting your own approximation, at least understand what I was trying to demonstrate.

yet your figures bear zero resemblance to the figures I saw for a large bank this week.

[malvolio]

Can you please justify the £800 day rate vs 100k ftc?

Obviously it depends on what you're comparing it to from a day rate perspective.

An inside ir35 contract working 200 days a year would Be £565 day rate.

That is the highest day rate you can make a logical comparison too.

A more realistic one would be £505 which is 225 days worked because that's what approximately you'll do on a 1 year ftc + employer nic. Guess you could add £5 for umbrella fees but still that's £510.

If you compared it to outside ir35 and looked at take home then it would be quite low, probably somewhere around that £400 mark OP mentioned but I am too lazy to calculate that.

Anyway point is your £800 day rate comparison is absolute garbage. Even if the FTC pays pension contribution it will likely just be 3% so even then that's only gonna add another 15-20 onto the day rate.

Garbage? Really?

It's an approximation, but it is based on a detailed analysis of the true costs of employment vs contract rate. It is intended as a guide to a rate that will return the same net income after all the relevant factors have been considered on both sides. The original study was to compare full cost of employment with contractor charges (including agency costs, inter alia) so the then client could judge which was most cost effective for a range of roles (the contractor is, by about 15%).

It's held up pretty well over the last 15 years or so. It is not hard and fast, your tax code will affect it, as will higher rate tax bands and things like Child Allowances. So it's an approximation, no more no less.

So before dismissing it out of hand, and quoting your own approximation, at least understand what I was trying to demonstrate.

[MagicMovies]

Can you please justify the £800 day rate vs 100k ftc?

Obviously it depends on what you're comparing it to from a day rate perspective.

An inside ir35 contract working 200 days a year would Be £565 day rate.

That is the highest day rate you can make a logical comparison too.

A more realistic one would be £505 which is 225 days worked because that's what approximately you'll do on a 1 year ftc + employer nic. Guess you could add £5 for umbrella fees but still that's £510.

If you compared it to outside ir35 and looked at take home then it would be quite low, probably somewhere around that £400 mark OP mentioned but I am too lazy to calculate that.

Anyway point is your £800 day rate comparison is absolute garbage. Even if the FTC pays pension contribution it will likely just be 3% so even then that's only gonna add another 15-20 onto the day rate.

Purely from an academic / learning point of view, how are you able to calculate the day rate as £565 inside IR35 for 200 days?
Feel free to ignore if that is intellectual property. :-)