Re: salaries

[Elna Tymes <etymes -at- LTS -dot- COM>]

Kenny Cherry wrote:
>
> Just thought I'd drop my thoughts on the salary thing since people are =
> starting to post notes that mention both hourly and yearly rates in the =
> same message without really explaining the translation.
>
> My belief is that a $22,000 per year salary equates to about $11 per =
> hour, even if you consider benefits and Social Security, and all the =
> other perks that consulting firms like to throw at you when they're =
> explaining why they can't possibly pay you more.

Let me give you some hypothetical figures from an employer's point of
view.  If I pay someone $50,000/yr. as a salary, and he/she doesn't have
dependents or real estate or other deductions, their net paycheck is
going to show a deduction of about 33% for state and federal taxes.  In
addition, I'm going to pay approximately 11% more for the employer part
of FICA (social security), 3% more for California unemployment
insurance, and 1% more for FUTA.  Let's assume this person gets paid
semimonthly.  That means the gross paycheck is going to be about $2083,
the net check is going to be about $1400, and the difference will be the
employee's share of taxes.  The employER will be paying an additional
$189 for FICA, $62.50 for SUI, and $20.83 in FUTA.  In addition, most
employers pick up a share of the employee's health insurance costs - in
our case, we pay the premium; let's say that's another $100 per
employee.  So right there, with no other factors, the employer is out an
additional $372.33 for this employee, or approximately $4.65 per hour
(assuming 80 hours in a semimonthly period - I know, some are 88, but
this is round figures).

In addition, the employer has to pay rent, utilities, equipment costs,
insurance, and all the other things that figure into "fixed overhead."
Add to that the cost of marketing - where the company has to pay someone
else to actually land the work that results in the money to pay the
employee - and you can see why a company's markup might be warranted.
Additionally, remember that most employees get paid sick leave and
vacation time - and that the company can't bill for that time.  And
finally, there's that wonderful period between paying contracts, where
the company keeps the employee on the payroll while trying to land the
next contract.

Consider all of the above the "supply" side of the equation.  Now figure
in the "demand" side.  Suppose that the market rate for this person's
set of skills is about $50/hour.  For comparison purposes, let's use a
semimonthly billing.  At that rate, the company can get $4000 per
billing period on an 80-hour period. The employee's gross salary plus
taxes and health insurance is going to cost the company $2455.33 for the
same period.  That's 61% before you figure in any of the fixed overhead
costs, vacation/sick time, marketing, etc.

If you want to use the same assumptions Ken used (hourly rate = annual
salary divided by 2000), the $50,000 salary translates to $25/hour.  If
the company bills at that rate for this employee, it gets $2000 for the
same 80-hour period -- which is less than the salary+taxes costs alone.
Do the math, folks!

Elna Tymes
Los Trancos Systems

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