Hello all,

So I’ll try to keep this brief, but the company I have been with has basically done away my position yet they left open the possibility of going 1099.

They know they need someone and would prefer it to be me since I am familiar with the network and the applications they use. Basically I am a systems administrator running several servers, performing backups/restores, managing the Exchange server, creating the user accounts, troubleshooting client computers, responding to user help tickets, etc. etc. etc. I also happened to be the person that writes queries to pull data they need from their proprietary databases.

I’ve never done anything like this and I want to come up with a system that is fair to both them and me. So that is where I need some help. How do I come up with appropriate rates to charge?

If anyone would be willing to share what they do themselves, or if they pay someone like me, how they do this I would be greatly appreciative. Things like how much and structure (hourly, block, per incident, etc.) would be helpful.

Thank you!

23 Spice ups

I think this will be driven partly by what area your in (I am in south TX). When I had an IT company, we charged $125/hr for a qualified IT tech. In a 1099 position, you may not be able to get away with that much. Figure out what it cost the company to employ you per hour, double that would be a good starting point. Doubling your wage might sound like too much, but you will now have expenses and taxes to pay for, it might not be enough.

1 Spice up

IMHO, we are going to see more and more of your situation happening in SMB…especially one or two people IT departments. If they want to 1099 you and pay no benefits (HEALTHCARE), no taxes, no social security then it’s your responsibility to put monies aside for taxes, etc…

With that said, I suggest that you look at your recent pay stubs. Those deductions that your employer has been paying are now your responsibility when you go contractor instead of employee. Your rate should be enough to cover these expenses until you can gather more customers or find another company job.

One last comment…you have to look out for you and yours. Even if you go 1099, they are going to expect you to be there when they snap their fingers because you always have been. Get a written agreement on response times and responsibilities. And, most importantly, payment terms.

(jumping off the soap box now)

The way I’ve always done it is this:

Start with the annual salary you want (for example $100k/yr)

Now figure what your non billable material costs are going to be per month (Desktop Computer, Laptop Computer, Books, accountants fees, taxes, insurances, professional association dues, software, lets just say $20k/yr for simplicity’s sake).

So your desired Gross Income is $120k/yr.

Now decide how many hours you want to work per week for clients (lets say 20, the other 40-50 hours a week that you work will be hours that you spend doing administrative tasks of running your business, which is essentially what you are doing).

20hrs/wk = 1040hrs/yr

Figure in two weeks of vacation/sick time so your yearly billable hours = 1000/yr

Your hourly rate = desired salary / billable hours

So using the example numbers your hourly rate is $120/hr.

Just remember that actually hitting the desired salary requires that you actually work 20 billable hours a week (you probably won’t), and that your clients pay on time (not all of them will). So I usually figure out what my annual living expenses are, and then pad the shit out of that figure, and that is my desired salary.

Doesn’t mean you’ll get it, and you can always decide to do projects ala carte (one lump sum for a project), or give “good” customers a discount.

The key thing here is to know your value. If you are very good at what you do, and there are not a lot of others in your area that are even competent in that area, you can get away with charging much more than if you lived in Silicon Valley.

I would say that your company has made a very big mistake. Most SMB’s that do this don’t really understand the value of having a competent in house IT person, and see only the tangible costs.

I wouldn’t necessarily hold their feet to the fire, but they already know you can perform the duties they have at a level they are comfortable with. If they balk at your “exorbitant rates” all it takes is one bad experience with another contractor, and they would gladly pay you more than you are asking for.

I’ve seen it happen many times, and I’ve always felt it was a stupid problem to have ( In every instance that I know of, if the company had really known what they were getting into they would never have gotten rid of their internal IT people, it ended up costing them far more than the salary and benefits they thought they were saving).

2 Spice ups

Excellent suggestions so far guys. What do you think about selling blocks of hours? I’ve been recommended this type of billing scheme by a few people and just wondering if anyone has any opinions?

Hi beta, as philipmjr said starting with double what pans out to your former cost per hour to the company when employed should be a bit of a guide, remember that is cost, sick pay hiliday pay etc included. But as he says it could easily be more. Your time on site is going to be only part of your costs associated with servicing the client. You are basically becoming a Service Provider, this discussion about rates and charges comes up quite regularly in the IT Service Provider group, well worth having a look around there at some of the discussions on the subject, if only to become more aware of the things that need to be considerred when working out your rates, what other things should attract a charge, like support telephone calls etc. and find information about getting clients on agreements and contracts etc. The Consulting group has also seen some discussion you might find useful.

you might also set up a Crossloop account. I have a friend use this in the interim before he got hired in a full time job.

I would think if the company is going to 1099 you, you also need to let them know that you will have other customers so you may not be immediately at their beck and call and will need to set up service calls etc.

Whatever you do, don’t lowball yourself. It would be disappointing to take a small network setup job for $250 only to have to pass on a $5000 job because your time is already tied up with small projects. If you set your price to $125/hr (which is reasonable), make sure you can back it up with what you skill set it, your professionalism and the quality of your work.

Remember when you are setting your price that you are now not only paying for all of your insurance(if you had it before), but they were paying part of your SS and taxes and you are responsible for 100% of that now.

I think (think) the number is around 35% to 45% of your salary, your employer generally pays in benefits. So doubling your last pay rate is a good place to start. That give both of you some wiggle room.

Also I changed my rates depending on the work time. If it was 40/hr a week for 6 weeks was a lot different than “we’ll call you when something breaks”

The first was around 75 - 100/hr, the later was usually double.

1 Spice up

Excellent suggestions.

Most of my vendors charge between $100 and $150 per hour depending on how many hours I can guarantee of work or not.

I have a little side business that I started but since I can’t provide support during business hours I have to charge a lot less.

Thanks for the Crossloop info. Looks very interesting and something I might be needing if I am not going to be on site as much.

First, sorry to hear that your employer is going that route…They will regret it in long term. By that time you will be on board somewhere else. Their loss…

In the sort term I would consider this as being ‘unemployed’ - even though technically I do not think you can claim benifits - and start looking elsewhere for employment. The 1099 thing will bite you at year end big time unless you are prepared for it, plus the Insurance costs and so forth. The suggestions listed have all been valid - $120/Hr is what I would go with plus a full contract spelling out response times, responsibilities and what they expect. Sad thing is they probably do expect you to be there/available 8-10 hours a day just as before…:-<

I would start getting your Resume’ out there and see what comes up. Crossloop does look promising and if (or ‘when’ in this economy…) I would start there also. Good luck!

beta wrote:

Excellent suggestions so far guys. What do you think about selling blocks of hours? I’ve been recommended this type of billing scheme by a few people and just wondering if anyone has any opinions?

I have sold blocks before and it worked out well. I would sell a block of hours that could be used between two visits for that month. I sold 10 hour blocks.

With one of my clients, if I went on-site and they only needed me for 3 hours each time they were cool with that (still paid me for the full block but only used 6 of the 10 hours). However if something big came up and they went over their 10 hour block, they paid me my hourly rate.

For me the advantage of selling blocks was that once someone signed on, I had a guaranteed income for that month of $800 per client, plus any potential hours over the 10 hours per client.

When you are picking your rate, I spoke to my HR person before I left my last company and asked what my weighted hourly rate was (what they really pay per hour to have me…includes insurance, health care, etc). Then I take 40% of that and figure that will be what I have to pay in taxes, then I take another 10% and figure that to by my company savings (pay for year end accountant, laywer, etc) the remaining 50% of the initial number is the hourly rate that I pay myself. So if I were charging $100/hr, I would be taking home $50/hr, with $40/hr being set aside for 1099 taxes, and $10/hr being set aside for overhead expenses.

Thanks for that Craig. That seems to be a common suggestion I have gotten from people. 10 hour blocks for $800 per block. Are you saying though, that after they used all of their 10 hours, you would offer the option of buying additional hours at an hourly rate instead of having to buy another whole 10 hour block?

Take your present wage (gross - before any FICA or Medicare Taxes are taken out) then add the amount of FICA, Medicare and Social Security that is taken out. Then add any fringe benefits you had, like Vacation Time, Sick Time, Healthcare, etc. and add that amount back in. Then divide this by the hours you work to get an hourly number. This is what you were costing the employer. I would then add between 15% and 28% to account for the fact that you will be responsible for your own taxes. This is a good starting point for negotiating with them.

Don’t be afraid of the high number, except for the 15% to 28%, this is what you were costing them in the first place. This is what I would do with your situation, and only with this client.

With other clients I would go to your local Staples and get a flier from their repair team. There you will find the middle of the road going price for IT services. I would use this flier to set my consulting prices. In my area Staples charges between $95 and $125 per hour depending on the service. That is what I charge my clients. And believe me they know they get more than they would from Staples, Geek Squad, or Office Depot.

Hope it helps,
Mario

2 Spice ups

If you plan on getting another job oboviously be careful of what you commit to.

But Thereal_Joe is spot on, just remember you aren’t getting Health, Dental and all the other things that come with working at a company that has 401k etc…

So that factors into your asking what may seem as an absurd rate.

So if they buck just assure them you are now NOT getting those benefits.

As well you can’t get unemployment.

You are now responsible for your retirement, paying into Medicare and Medicaid and FICA and State taxes.
As a 1099 (preferably a business for write offs) you should pay it every three months, trust me you don’t want to owe $5,000 at the end of the year.

And no more bonuses :slight_smile:

Great advice here. I’m going to refer your to one book your should read, Gurellia marketing (check the spelling on it). basically how to get your name out there on a budget.

Guerilla Marketing is a great read with lots of ideas. I would also recommend it. BTW rmuniz, you are a dead ringer in your avatar for Artie from Warehouse13.

artie.gif

One more thought. In some industries, it’s common practice to put a valued contractor on retainer - a certain monthly stiped that ensures you will address their issues ahead of other interests. Our marketing firm had several $1K, 2K retainer agreements that worked out to about a $20K monthly income stream. For that, we gave them immediate priority and didn’t nickel and dime them for calls and consultation, as well as a discount on actual hours worked. The client had the same benefits of an in-house person and we got an expected stream of income which kept us from having to hustle projects as heavily.

And one more note - its very possible your employer may want to negotiate whatever fee you propose, so make sure you know not only your desired rate, but also what it takes you to live on. Make sure you know what you can give away when you come to the table.