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Ask HN: What's a reasonable rate for a contract software engineer to expect?

4 points by format997 ↗ HN
I'm trying to arm myself with some information as I'm headed into a new phase of my career. I was previously working full-time as a software engineer, and roughly know how much to expect there. I've decided to pursue contract work for the next while, and I have heard that their rates are higher for various reasons.

So, in the interest of being more informed in the process, I thought I'd ask HN what kind of rates are reasonable for contract software positions.

For a little more background, I was making close to $110k/year as a full-time software engineer out of Utah. When I first discussed salary targets with a potential employer, I mentioned $50/hour, since this sounded comparable. However, after getting the idea into my head that I might be low balling myself, I told the next recruiter I was shooting for $65/hour. Without much of a pause, they mentioned that would be just fine for the contract position they had in mind.

So, should I expect to ask for a higher rate with contract work? Just curious to get some feedback from any other contract software engineers in the HN community.

8 comments

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techjuice
I would highly recommend going in as a business instead, your rates can be even higher and you will already be prepped to higher people to help you complete your clients tasks so you can work on building your business. Being a solo contractor is nice but being a business always has the upper hand in the short and long term. If you do things right you might even be able to get government contracts as a sub contractor or a prime contractor. Good thing is it can still just be you as the only employee at the start, then as your business grows you can create jobs by hiring people to work on your contracts.

When going from employee to a contractor you will normally double what you made hourly as an employee as you will need to pay the full amount for what your employer was paying. So you will need to bring in at least $220,000/year or $105.77/hour to make what you were making as an employee. You will also need to factor in enough income in case a client ends their contract with you or you have a dry spell for a bit.

To break this down more you will now need to pay for the full price for medicare, social security taxes, state and federal taxes, life insurance, health insurance, vacation time your own bonuses/raises if you want and your 401k. Since your going solo you will need to also need to pay for contractor insurance, lawyer fees, accounting fees, financial adviser fees, regular training online (CBT training, ebooks, etc.) and offline (classes, certifications, etc.) to keep yourself sharp and ahead of your competition, upkeep of your hardware and software so you can run the latest and greatest software and modern hardware, secure website design and hosting if your not doing it yourself, secure email hosting, and furniture so your comfortable working.

One thing you may also want to look into is a business phone or number so when you want to offline from working you can actually do this and send any calls to an answering service (someone that can assist with a few things clients might call about and if it is an emergency if you have the customer on an instant access list transfer them to your cell phone for emergencies).

You will also need to be careful not to decrease your hourly rate too much or you will start running into troublesome clients that are slow to pay or very picky about what they agreed too and try to weasel themselves out of paying you what they are due. You can increase/decrease the rate I listed but insure that you plug in all the numbers and account for things your employer paid for on your behalf. Just remember as a contractor you need to make more than you did as an employee to cover your increased costs as most of what you make if it is equal or a little bit above your salary when you where an employee will be gobbled up by taxes, insurance, and keeping yourself up to date.

format997
If you go into business as a contractor, is there an easy target to pick for the contracts you'll go after? Known sources of contracts? Or do you typically branch out from opportunities you know of or learned about while in the industry?
techjuice
The largest source of contracts is the federal government domestic and foreign. In the United States there is fbo.gov that lists many contracts available and if you want to know what to charge starting out you can look at https://www.usaspending.gov/ and compare company size, time in business and the services offered.

You will need to make sure your business is registered - https://www.sba.gov/content/register-government-contracting and meets the requirements for the type of contract your biding on. There are some requirements depending on the type of contract you are trying to get setup - http://www.gsa.gov/portal/category/101791 but many businesses doing government contracting are doing very well now (Northrop Grumman, Lockeed Martin, Boeing, etc.) since their early days as a small business.

If you want to build up your customer base you can go with agencies or look for businesses that want to Business 2 Business which will typically pay the highest rates.

davismwfl
It depends. Contract work through contract services will generally pay a range from $40-$100/hr depending on your location and skill set. They do this because in the end they are charging $70-$200/hr, and they are spending money to find the jobs and place you.

If you instead go the "freelance" route, then your rate would be more along the lines of what a contract agency is charging.

Some advantages of contract services is that many times they will have health benefits if you need them and it only costs you a small amount of money. Also, they will work hard to keep you working and they deserve to be compensated for it. If you instead go the freelancer (independent consultant) route you'll be responsible for finding the work, doing the work and keeping yourself moving forward. Depending on your network the ability to find and keep work is either reasonably easy or damn hard.

Please just don't take your prior salary and divide it by 2080 and figure that is your rate. When you contract you will need more savings, you will have additional costs including taxes to pay etc. So make sure you keep all that in mind.

format997
Thanks for the insight. Good to know ranges and what goes into those rates. I think I'm liking the convenience of going through an agency at the moment, though if I get an itch for more money, nice to consider the freelance route.
liquidcool
Contract rates depend on location, duration, skill set, experience, and industry, and you've only given the first. So it's impossible to tell you what to charge (and I don't know the Utah market, assuming it's even uniform).

I recommend patio11's salary negotiation guide:

http://www.kalzumeus.com/2012/01/23/salary-negotiation/

If you move from contracting to freelancing (which is a pretty big move), check out http://doubleyourfreelancingrate.com/

Very good material.

RogerL
salary/1000 = hourly rate is a starting point if you are working more or less full time. What with taxes, down time, and health insurance, I personally wouldn't do it for that unless the life style change made it worth it.

I think my house cleaner gets $50/hour.