Anyone considering using a consultant needs to know their total outlay of expenses. There are also different methods of payment for consultants. I am a sole proprietor, for tax purposes. This means all payments are 1099-misc., and you are contracting with a small business. It also means you are not responsible for FICA, additional social security, workman’s compensation, insurance, retirement, office space, utilities, recruitment fees or 3rd party add on fees.
To compare a 1099-misc. consulting rate to a full time employee salary, a good general rule of thumb is to take what the base salary would be and divide by 1000. Let’s say you believe a skill set is market value @ $120k/yr, FTE. Then, the corresponding 1099-misc consulting rate would be $120/hr.
I give different rates for different projects, skill sets and time lines. Bear in mind, Consultants must be their own sales, marketing , accounting and tax advisers. So for each new client, there is a period of negotiation and discussion where the consultant is not actually being compensated by the potential client. All of these costs are small business expenses and should give a little insight as to why a consultant is not equivalent to a permanent full-time employee. The reality, for a typical corporation in terms of total business expenses, the consultant can be less expensive or equivalent.
For those used to thinking in salary terms, these differences are critical to realize. While one may perceive a consultant is highly compensated, in reality they are earning, in net income terms, probably the same as a full time employee or less. More importantly your total expenditure outlays are the same or less.
Here is a employee true cost calculator which can assist in seeing these hidden expenses for those who think in terms of salary and not CFO/COO overall business costs.