Reply to: Conversion to the dark side / perm salary calculations

[edison]

Apples and oranges.

There is a fair market rate for contractors and there is a fair market rate for permanents. I don't think one has anything to do with the other. If 'fair' was your consideration, I'd look at market permanent rates for what you do in your industry.

Erm, and that's it really.

You're right, it is a market and some roles may have more demand for contractors than perm or vice versa. However, there is a correlation. Let's say a BA contract rate was £400-500/day, it might vary up and down. A perm role is going to be in the £45-60k or so salary range. Again it will flex but no one will pay £80k for a perm or £700 for a BA (I'm excluding financial services here as it's typically an outlier.)

[simes]

Hi All

I didn't want to find myself in this situation but with a kid on the way we've decided it's best to take the bird in the hand for now at least for the better part of next year.

How does one go about calculating a reasonable figure from a contract rate (620£ per day for the last 4 years in my case ) to an acceptable figure on the salary side ?

The client is trying to push me to £101k salary but I can't help feel this is a huge cut to the knees. However I have got no arbitrary way of calculating what is fair. Does anyone have advice of what points to make when considering the circumstances around a perm off coming from a contract role ? I'm looking for some benchmarks to apply but falling short.

Apples and oranges.

There is a fair market rate for contractors and there is a fair market rate for permanents. I don't think one has anything to do with the other. If 'fair' was your consideration, I'd look at market permanent rates for what you do in your industry.

Erm, and that's it really.

[WordIsBond]

Good luck with it. Without knowing all the specifics of your situation, I'd lean heavily toward closing the Ltd, which once done almost certainly closes off any historical IR35 liability.

[kryten22uk]

Wow, £620pd going to £101k salary is an incredibly good conversion IMO! Got to wonder why you aren't already permie, as youre almost taking a hit being a contractor.

If using 220 days as the annualisation factor, then my permie-to-contract income hit would be 50%, rather than the 80% suggested above.

[northernladuk]

They want to pay you 100k to work in a BAU change capacity. F*** me.

If you are planning to keep your company open then I do think IR35 should be a worry.

When you say dormant. I don't think you mean that. You mean just not trading. It's different. Just being a pedant there.

Rest of it seems like a plan.

[BlueSharp]

Hi guys - really appreciate the valuable insights. It's easy to get a skewed view of the world after a successful run in contracting.

To be clear I've been at this particular client for 1.5 years in a change capacity and this is a BAU role to run what I delivered. So appreciate the IR35 slam dunk comments but that's not really my worry .

I particularly appreciate the comments on greed. I believe this is the main issue and I can't say it's a bad offer. There's pension and benefits, while I don't love the BAU component it could provide some good experience to talk about when I jump back into the warm embraces of invoices.

I've decided I'll take it but keep the LTD dormant, I'll keep a close eye on how the market settles next year with a view to jump back into contracting once the family is settled.

Seems like a sensible approach. If there is a war chest in the company it might be worth looking into closing it down and getting the cash out and paying only capital gains on the distribution. HMRC does not appear to have reopened a closed company for IR35 tax action but YMMY.

[Consultantman]

Hi guys - really appreciate the valuable insights. It's easy to get a skewed view of the world after a successful run in contracting.

To be clear I've been at this particular client for 1.5 years in a change capacity and this is a BAU role to run what I delivered. So appreciate the IR35 slam dunk comments but that's not really my worry .

I particularly appreciate the comments on greed. I believe this is the main issue and I can't say it's a bad offer. There's pension and benefits, while I don't love the BAU component it could provide some good experience to talk about when I jump back into the warm embraces of invoices.

I've decided I'll take it but keep the LTD dormant, I'll keep a close eye on how the market settles next year with a view to jump back into contracting once the family is settled.

[GhostofTarbera]

+ if you are going to be doing same or similar role and have being claiming you have been outside IR35 for last 4 years HMRC will be giving themselves high fives all round if they investigate you - and look for £300K+ in past taxes

You are slam dunked


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[edison]

Hi All

I didn't want to find myself in this situation but with a kid on the way we've decided it's best to take the bird in the hand for now at least for the better part of next year.

How does one go about calculating a reasonable figure from a contract rate (620£ per day for the last 4 years in my case ) to an acceptable figure on the salary side ?

The client is trying to push me to £101k salary but I can't help feel this is a huge cut to the knees. However I have got no arbitrary way of calculating what is fair. Does anyone have advice of what points to make when considering the circumstances around a perm off coming from a contract role ? I'm looking for some benchmarks to apply but falling short.

There was an almost identical thread on this a few weeks ago. There is no exact science to it and as pointed out, the current market is different to the norm with all the imminent IR35 fallout.

I've sometimes been given very thick and detailed contract and perm day rate guides from multiple agencies as I've overseen a lot of hiring in recent times. I've also seen benchmark data produced by specialist HR and Reward consultants. A lot of this data isn't freely available (especially from the consultants) and you do have to take agency data with a pinch of salt. Nevertheless it's a decent enough guide.

A day rate of £600 would be comparable to about £80-85k salary, unlikely to be over £100k salary. That's not a like for like financial comparison, they're just typical rates that would be on offer for the same role. NB there can also be wide variation between sectors and companies for similar roles.

The higher up you go, I don't think there is really that much in it financially any more between perm and contract as such higher day rates tend to also equate with lower utilisation/days invoiced.

If someone is offering you >£100k basic salary, I would seriously consider the perm role in your circumstances. Also depends on your benefits package. I would expect with bonus car allowance, health care, pension etc to add on about another third at least.

[BlueSharp]

Hi All

I didn't want to find myself in this situation but with a kid on the way we've decided it's best to take the bird in the hand for now at least for the better part of next year.

How does one go about calculating a reasonable figure from a contract rate (620£ per day for the last 4 years in my case ) to an acceptable figure on the salary side ?

The client is trying to push me to £101k salary but I can't help feel this is a huge cut to the knees. However I have got no arbitrary way of calculating what is fair. Does anyone have advice of what points to make when considering the circumstances around a perm off coming from a contract role ? I'm looking for some benchmarks to apply but falling short.

It was mentioned some where that a HR department were using (Day rate * 0.8) * 220 (typical contractor working days) to work out a permie equivalent. No idea what 20% deduction from day rate signified, employers NI + pension + apprenticeship levy + permie overhead?

[jds 1981]

Have you also checked on salary review sites to see how it compares? What title will you get? You've been there for a while, do you have anyone you could tap up to get an idea of pay ranges? I'm in a similarish situation and people can be quite forthcoming about pay.

[WordIsBond]

It's probably a little bit low, but it depends on benefits, etc.

Contractor Calculator's IR35 calculator says £620 / day inside IR35 is equivalent to a perm salary of £112K. But what's the pension provision, and what other benefits are there? Obviously, that can make a big difference.

You have to remember it is a buyer's market -- right now, there's a lot of guys looking for a good permie position. Supply and demand. They don't have to pay as much as they would if the labour market were tight. Yes, it's pretty tight at the low end but contractors are bailing out of contracting now -- you aren't the only one. If you don't take the £102 because you want £112K, they can probably find someone else who will do it for £102K, maybe even less. Because there are so many other guys for the position, you probably can't bargain too hard unless you really are prepared to walk away from it. I'd be surprised if you can get more than £105K.

They've done their sums, based on what they believe it is going to cost them to have you as a permie, compared to what it cost them to have you as a contractor. They've placed a value on the benefits, calculated the ERNI, and used some kind of formula to value redundancy rights, etc. They arrived at a figure that is probably higher than £102K, looked at the market, and decided £102K will get the job done. That number they've calculated is an absolute ceiling, they aren't going higher than that no matter what. Between the absolute ceiling and £102K is what I'll call the flexible ceiling -- that's the highest they would go given the current market for people like you. It's possible that number is also £102K, but it may be a little higher, you might be able to charm a few more quid out of them.

What can you get elsewhere? If you honestly think you can get more elsewhere, with all the other people in your situation competing for those jobs, then negotiate hard, or just go get one of those other jobs.

[northernladuk]

I think you've got much more to consider than an amount to be honest. Looking at another post of yours you are 4 years in to a very risky client at a very good rate. You don't say what you do but I have to say you sound pretty blessed compared to a majority of us.

If the client suits you, you've a family to consider and you are fairly young I think complain over a 100k salary (+ benefits if imagine) that suits a young family is a bit, well, dunno the word really. Spoilt? (sorry)

I get you want to negotiate but you've got to realise the days of 680 a day 4 years in bank have gone. It's not like for like anymore.

Just saying a reality check may also be part of your decision process here as well.

[Maslins]

Your typical inside vs outside IR35 calculator should give you a reasonable guide (with the inside figure being equivalent to salary). They're not perfect, and in particular normally assume:
- that with outside option you'd withdraw everything,
- that with outside option you're 100% shareholder (eg if you have an otherwise low earning spouse involved, the savings can be larger).

Afraid what you might consider "fairness" isn't really relevant here. The rules have changed, and some of the corporates are making a call. You're free to walk if you don't like it...or potentially try to stay and argue your corner.

[cojak]

Hi All

I didn't want to find myself in this situation but with a kid on the way we've decided it's best to take the bird in the hand for now at least for the better part of next year.

How does one go about calculating a reasonable figure from a contract rate (620£ per day for the last 4 years in my case ) to an acceptable figure on the salary side ?

The client is trying to push me to £101k salary but I can't help feel this is a huge cut to the knees. However I have got no arbitrary way of calculating what is fair. Does anyone have advice of what points to make when considering the circumstances around a perm off coming from a contract role ? I'm looking for some benchmarks to apply but falling short.

We have absolutely no idea if it's fair as we don't know what it is you do.

Personally I would bite the hand off any employer who offers >£100K salary which I presume comes with benefits of some kind.

(PS - nothing to do with 'fair' in this situation, it's about negotiation and supply and demand...)