A day rate is not a salary divided by 260. A contractor pays for the days not worked, the benefits, the tax the employer would have paid, the time between contracts, and the insurance, and the rate has to cover all of it before it is comparable. The arithmetic below turns one into the other so the comparison is honest. After the arithmetic, the question is what you are buying: a contract buys freedom and variety at the cost of security and belonging, and a full-time role buys the reverse. Both are good deals for the right person, and the wrong one for the other.
Key points
- Multiply a salary by roughly 1.3 to 1.5 to get the yearly contract income that matches it. The exact number depends on the country and the benefits.
- Count 200 to 220 billable days a year, not 260. The gap is holidays, sickness, and the weeks between contracts.
- A contractor pays both halves of the social charges and buys their own insurance, pension and equipment.
- A full-time role's real pay is base plus pension match plus health cover plus paid leave plus the bonus actually paid.
- Contracting suits a strong network and a skill in demand. Full time suits a long project and a team.
The arithmetic
Start with the full-time package, all of it:
| Item | Example, in a currency unit |
|---|---|
| Base salary | 90,000 |
| Pension or retirement match, 5 percent | 4,500 |
| Health cover, where the employer pays it | 6,000 |
| Bonus actually paid last year | 5,000 |
| Paid leave, 25 days, already in the base | 0 |
| Equipment, training, the laptop | 2,000 |
| Full-time package | 107,500 |
Then the contractor's costs on top of living:
| Item | Example |
|---|---|
| Employer-side social charges now paid by you | 8 to 15 percent of income, by country |
| Own pension | What the match was, 4,500 |
| Own health cover | 6,000 or more |
| Insurance, accountant, equipment, software | 4,000 |
| Days not billed: holidays, sickness, between contracts | 40 to 60 days of 260 |
Divide the package plus the costs by the billable days. For the example, with 210 billable days and 12 percent social charges: about 107,500 plus 14,500 in costs, grossed up for the charges, divided by 210, lands near 650 to 700 a day. A day rate under that is a pay cut dressed as a raise.
A day rate that matches the salary is the salary times 1.4, divided by 210. Not 260.
What the employer is buying
A full-time hire is a bet on the next three years: training, a career path, a person who knows the systems. A contractor is a skill for a project with a date, with no obligation after it. Employers pay more per day for the contractor because they are buying the end date too. That is the premium, and it is why the rate is higher. It is not generosity.
Some roles are contract because the budget is a project budget. Some are contract because the company is testing whether it needs the role. Ask which. The second kind often converts, and the conversion is a negotiation the guide on salary negotiation covers.
The hidden costs
Contracting. The weeks between contracts, which are unpaid and which the arithmetic counted but the feeling does not. The admin: invoices, tax, an accountant. Being outside the team: no promotion, no review, no voice in what gets built. The skill gap that opens when every contract uses the same skill and nobody pays for you to learn a new one. In some countries, rules on contractors who look like employees, which can end a contract or reclassify it.
Full time. The pay that lags the market after two years, which the guide on how long to stay covers. The notice period that delays a move. The layoff risk, which is the employer's end date you did not agree to, and the guide on signs a layoff is coming has the signals.
Who each one suits
Contracting suits a skill in demand, a network that produces the next contract before the current one ends, a tolerance for the gaps, and a reason to want the freedom: a side project, a family schedule, a plan to stop. Full time suits someone who wants to build one thing for years, a team, a path, and the quiet of a monthly salary.
Many people do both across a career. The guide on freelance work on a resume has how to write the contract years so they read as one body of work rather than a list.
Questions
The contract rate is 20 percent above my salary divided by 260. Is that good?
No. Run the arithmetic above. A rate that only clears the daily salary by 20 percent is below the package once the costs are counted.
Can I negotiate a contract rate?
Yes, the same way as a salary: one number, one reason, from the market. Day rates are less visible on public data, so the reason is the comparable rates you know from your network.
Do I take a contract while searching for a full-time role?
Yes, when the rate clears the arithmetic and the contract has a defined end. It fills the gap, adds a role with a number to the resume, and the guide on employment gaps has how it reads.
Will contracting hurt a later full-time search?
No, when the resume groups the contracts and each one has a result. A list of six-month gigs with no numbers reads as drift. Six contracts under one heading with six results reads as range.
What about a fixed-term employee contract?
That is employment with an end date: salary, benefits, and the social charges paid by the employer. The arithmetic is the full-time one. The risk is only the end date.