Salary or Contract
How do I compare amount offered as full employment salary with full benefits versus employment contract? More interested in tax consequences rather than insurance and other things. Thanks Randy Kopplin Generally a salary includes about an additional 30% for benefits. As to the tax consequences of contract work, talk to your tax guy. In simple terms, you will have to pay taxes on what you receive. Tess Generally speaking, the salary offered to full-time employees is going to be lower than to contract employees because of the value of the benefits that full-time employees receive that contract employees usually don't. Benefits can be worth anywhere from 25% to 35% of the salary, so you have to add that on to the salary to be able to look at the total value of the compensation package verses the contract amount. Income is taxable regardless of how it's received. What you really need to do is talk to your accountant or CPA and discuss your personal situation. There are too many variables for anyone to be able to give you reliable advice here. Hope this helps, though. Paul W. Barada The Negotiation Expert Strictly from a tax perspective, there are two differences. As a contractor, you pay the employer's share of social security and medicare taxes (approx. 7.5% of your pay) in addition to the employees share. The other difference is that you may be able to deduct certain employment related expenses which will lower your taxable income. Chet, if you're a contractor through an agency (i.e., an employee of the agency), you do not pay your extra 7.5% SS taxes. If you are a freelancer or consultant, you pay those additional taxes yourself. While some companies utilize "independent contractors" (who are really freelancers) directly, I think most folks today, when they say they are a contractor, mean they contract through an agency. For a true independent contractor, from a tax standpoint, the other big difference is that you can deduct from your income the amount you pay for health-insurance premiums. I think it's now up to 100%. For a true contract employee, if you receive a per-diem rate because you either commute a long distance or you have to have temporary housing while on contract, your per diem is not taxed. This is good because it's extra cash in your pocket, but can be bad when you have to apply for a car loan, home mortgage, etc., because only your base rate shows as income. (Though some lenders will consider per diem as part of your total income if you can show pay stubs and your employer will verify that it is a guaranteed amount.) But check with your tax advisor to get a far more complete picture of the tax considerations than you can get here! | |
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