This blog post takes addresses a common problem for technical workers - you have been offered a full time freelance gig and you don't know whether or not to take it based on its value versus your current compensation.
Note: Traditionally I have done a crap ass job at making these kind of assessments. I'm writing this post to hopefully do a better / more "adult" take at this.
What is Your Current Job Worth?
Your current job's worth can be reduced to an equation as follows:
Salary + Bonus + Vacation + Health Insurance = Total Package
The real problem here is that valuing health care is effectively a shite show. Health care packages are never directly comparable and when you leave an employer, to some extent, you get what you get.
This means that the equation become:
Salary + Bonus + Vacation = Total Package
Let's assume that you have this type of package:
- Salary: $103,000.00
- Bonus: $25.00 (yep; just laugh with me; some employers don't get it)
- Total Compensation: $103,025.00
- Vacation: 2 Weeks
- Weeks Worked per Year: 50
- Gross Salary Per Week: $2,060.50 (select 103025.00 / 50; 'coz sql is my favorite calculator)
- Monthly Salary: $8,242.00 (select 2060.50 * 4; )
- Hourly Salary: $51.5125 (select 8242.00 / 160;)
Now let's say that you were offered a compensation package of $10,000 per month -or- $120,000 on an annualized basis. The question then becomes is the difference between $10,000 per month and $8,242.00 per month sufficient to cover health care? And of course there are lots and lots of other things but let's talk about health care to start.
Fully Loaded Cost - An Alternate Way to Calculate Your Job's Worth
The example above really only deals with salary plus vacation but a full time job has a lot of other "compensation" things like:
- computer hardware
- office space
- sick days
The aggregate value of these non cash compensation items is what I have always referred to as the "fully loaded cost" of employing an engineer and my back of the envelope rule is that you need to allocate between 1.25 x salary to 1.5 x salary so that makes the original compensation package worth:
- 1.25 * 103,000 = 128,750.00; hourly salary equivalent: $77.25
- 1.5 * 103,000 = 154,500.0; hourly salary equivalent: $64.375
Hourly Rate - Another Way to Look at Your Offer
So the offer that we are looking at is for "full time" work at a rate of $10,000 per month or $120,000 per year. Let's assume that you are working 50 weeks out of the year and you are working 40 hours per week. That means that we are talking about 2,000 hours per year. So the hourly rate then becomes:
120,000 / 2000 = $60 / hour
As a consultant, I would argue that rate is low. My last consulting gig went out the door at $125 / hour. Now, on the other hand, bird in the hand versus bird in the bush. This is for a long term project and guaranteed long term work really, really counts. I suspect that most consultants never come close to making $120,000 / year.
The comparable hourly rates are listed above.
Health Care Overview
The bulk of this next bit of this came from a good friend, Lisa Meece, the Chairwoman of the local Star Base Indy science fiction convention. Lisa has been a freelance worker for over a decade now and actually understands health care in a way I don't. Oh and if you're in the Indianapolis area, consider going to StarBase Indy this coming Thanksgiving:
- I can guarantee it is a more fun time than your family weekend
- There are Klingons to spare including the ever popular singing Klingon aka "The Klingon Pop Warrior"; you haven't felt emotion until you've heard Pat Benatar in the original Klingon
- It is a damn good time
- With my wife Shelley, I'm running Engineering for the con and I'd love to see you there
So here goes for some stuff on health care that I didn't write:
For insurance, your best bet is the marketplace at www.healthcare.gov. (when you leave your current job you'll also have an option for COBRA for the first 18 months - the clock runs out at that point for you as an employee). Your HR department should be able to tell you what that will cost you - but even with the concerted efforts being made to kill ACA it's probably still your most economical option for coverage.
Leaving your current job (and therefore your current coverage) is what's called a "qualifying event" for new coverage. I believe that means you have 30 days from that time to elect coverage under the marketplace. If you wait longer than that you will need to wait until open enrollment, at which point coverage won't start until January, and you don't want that. (You've got 90 days to enroll in COBRA).
The sucky thing is that the plans available now are not necessarily the plans that will be available for 2020, so you'll have to elect now and then elect again in October for next year.
You'll want to pay attention to the covered physicians under each plan. This is something you should be able to tell by going to the insurer's website and looking up any physicians you want to be able to keep. That may be enough to make the decision around which plan (or at least which company) to select. Other factors are the premium / deductible / copays.
And that was her take on health care.
When I asked my current employer for Cobra numbers so I had something to go by, here's what they said:
- Family Medical $1147.54
- Family Dental $116.32
- Family Vision $25.63
This makes the monthly insurance premium: $1,289.49
Clearly some portion of personal expenses could be written off if I was a consultant. Specifically:
- New Computer
- Home office
- Internet (partial)
- Cell phone (likely all)
Thanks again to Lisa Meece for contributing also to this bit.
Money and The Big Question - Will You Be Happier?
So with the offer described above the previous monthly gross was: 8242.00 with insurance. The new offer is $10,000 but you have to subtract $1,289.49 to arrive at: $8,710.51. So technically there is a $500 bump in salary monthly but that is likely negligible given the loss of benefits.
So if the numbers are roughly the same then, to me, the big question is would you actually be happier being freelance? Or to paraphrase Shakespeare, "To freelance or not to freelance; that is the question".