Negotiating Job Offer – What 70% of People Fail to Do

In part 1 of our talk with Executive Author, Jane Lin, we discussed the Best Secret to Finding Your Dream Job.  Assuming you have a job offer, now what?  Should you negotiate? We will have on average seven jobs in our life time.  Knowing how to negotiate job offers and initial salary at each new job can means…

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Should I Negotiate Salary: How I Almost Made a $6,000 Mistake

“Should I negotiate my salary?” This is a question we will ask ourselves every time we get a job offer, especially for a job we want.    I recently had to go through this decision-making process, and I want to share my thoughts and what I learned with you.     I think many of us…

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Contract Rate – How To Negotiate

Many job seekers are considering doing contract work as an alternative to full time employment.  It sometimes give us more flexibility and an ability to continue working that full time employment may not allow.  When you do transition from full time employment to contract work, you will be paid by the hour instead of a…

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How to Convert Salary to Hourly Rate

In today’s tough job market, many companies are reducing their full time employment job openings which are paid by annual salary in order to save headcount cost and be able to adapt more quickly to changing market conditions.    Instead companies are hiring more contractors who are paid by hourly rate and has a defined contract period (e.g. 6 – 18 months).   As a result, many job seekers are also seeking contractor positions in addition to full time employment in order to increase their chances.

For these job seekers, a question naturally follows “What should be my hourly rate in a contract position?”  The answer is it’s not as simple as converting your salary directly to an hourly rate.  For example, if you make $80K in annual salary and works full time (which is about 2000 hours per year), does this mean your equivalent hourly rate converted from your salary should be ($80K/2K hours) $40/hr?

The answer is NO.  If you only ask for $40/hr, you would have undersold yourself.  This is because your hourly rate as a contractor should account for 3 factors that are different from a full time position who is paid a compensation package.

  1. Full time compensation package includes salary and benefits vs. hourly rate contract jobs do not have benefits – As a full time employee, your company will pay for the majority of your insurance premiums and the rest of the premium is paid with pretax dollars from your salary.  In a contract situation, you are self employed and therefore would have to find your own health insurance.  Individual health insurance cost at least 3 times more and has less coverage.  Therefore, your hourly rate needs to account for that.  The best scenario for you is if your spouse is a full time employee and you can get your health insurance there.
  2. Hourly rate contract jobs also incurs self-employment tax vs. full time employment do not – When you work as a contractor, you are considered self-employed and the government will charge you a 15% self employment tax in additional to other income taxes.   Therefore, your hourly rate should be at least 15% more than your salary converted hourly rate.   One way to offset the additional self employment tax is to deduct business expenses (e.g, computer used for contract work, % of your rent that is office space dedicated to working your contract, etc..) against your contract revenue.  You should contact a tax consultant to find out all the legitimate business expenses you can deduct
  3. Down time cost between contractsContracts are typically from 6-18 months and many companies forces contractors to take a mandatory break after a set period to distinguish them from full time employees (e.g., must take 6 months off after contracting for 18 months at a company).  Given contract job are typically shorter than full time employment, you need to account for that period between contracts where you are without income.   To get around the mandatory break rule, you can always try to get a contract from another company during that time and switch between two or more companies to avoid any down time.  To achieve this however requires you to network more and find work for yourself efficiently.  In general,  you have to look for contract work much more often than a full time job.

Therefore to convert your annual salary to an adequate hourly rate that takes into account the above 3 factors, you need to multiply your salary to hourly equivalent by a multiplier.  This multiplier is somewhere between 1.5 to 2.5 depending on the industry and your skills in selling yourself into a contract.  With the tough market, the multiplier is closer to 1.5 lately given there are many more people applying to contract work.  With the example above, the salary hourly equivalent is $40 per hour.  Adding the multiplier at 1.5, then the hourly rate you would want is at least $40 x 1.5 = $60 per hour to offset the risks and additional cost of working as a contractor.

I hope this helped.  Best wishes in your job search and negotiations.

Like this post?  Then help me share it on Google+, Linkedin, Twitter and elsewhere.  For more advice to support your career success, sign up below for my email newsletter – How to Succeed like an Executive

Your comments: Did these tips help you figure out your fair hourly rate?  I look forward to your comments below.  Thanks.  I am always in your corner.


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How to Answer – What is Your Salary Requirement?

The “what is your salary requirement” question is always a tricky and awkward one to answer.  The best way is to avoid answering it tactfully for as long as possible.   I recommend the following strategies in address the salary requirement question.

  1. Try your best to not provide any numbers – because you want to avoid either being too high or underselling yourself. Most recruiter friends always tell me “don’t be the first to draw blood”
  2. Re-focus the discussion on how the company reward above average performers, whether this company is the best fit, etc…This signals to the company that you believe you will be a top performer and that you can more about this role than just compensation
  3. Re-direct the question back to find out what the salary range is for this position? Therefore, making them show their cards first.   This is always a great way to deflect this question as well as find out if what they had in mind fits within what you expected.  If it does, you can respond vaguely and say “let’s focus on whether I am a good fit first and then hopefully we can talk about the right compensation based on my experience and skillsets”
  4. Tell them you are excited about the company – this subtly negotiates on your behalf, and if the company likes you and they don’t know your salary requirement, they may make you a salary offer on the higher end to make sure they can secure a positive response from you.

Here are some examples of salary requirement answers that have worked for me or my clients.

  • “Salary is only part of the picture. My number priority is finding the best fit for my career. I am very excited about this opportunity. I think I can be a valuable addition to this company. What is the salary range that the company is looking at for this position?”
  • “San Francisco is an expensive city to live in so starting salary is important, but what is also important to me is how this company rewards high performers. What is the bonus structure? How will compensation progress in a year or two?”
  • If pressed to provide a number, then try this “I hate to overshoot and be disqualified for this position, but if you need to know then the minimum I would accept for an ideal position is … ”

This last one give you room to negotiate since rarely is any job ideal.   Surprisingly the first two answers above usually work to deflect this question without providing a number.  If you have other suggestions that work, please share in the comments.  Thanks.

Good luck out there!  I am always in your corner.

– Lei

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Try Low, Sell High

A true story! A good friend of mine just received a nice offer to a great job. How he got this offer was somewhat unusual. I thought I share it in case it can inspire you to look at opportunities in a new light. Given the economy, he decided to be more open minded and…

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Salary Negotiation Advice from a Senior Headhunter

This is the second post in a series of three based on my interview with Steve Meyers, a Senior Headhunter with 20+ years of experience in executive search. To see my first post on general Job Search Advice from a Senior Headhunter, click here. I want to write about salary separately since it’s such a…

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