Set Software Engineering Contractor Rates Right

Software engineers make a pretty good living, when working for an employer, according to the Bureau of Labor Statistics. Salaried computer programmers earn about $34.92 per hour on average. That’s roughly $72,630 per year.

But when employees look at how much their friends are making as computer programming contractors, consulting work can look pretty good. After all, consultants can earn $60 an hour and fees of over $100 per hour is not uncommon. Those hourly rates sure do sound like a lot of money!

But is it really that much? And if you’re considering a contract, what should you get for a rate?

Crunching the Numbers

Employees, in addition to salary, are getting a number of things:

  • Benefits: medical, dental, vision, 401k
  • Taxes: the employer’s share of social security taxes, plus any business taxes
  • Equipment: a computer, a desk, a mouse, maybe a cell phone or some test machines
  • Corporate infrastructure: email, internet access, phone, fax
  • Tools: books, software tools, libraries, services
  • Paid time off: vacation and sick time
  • Legal work: contracts, NDAs
  • Account work: billing, invoicing, collecting payments
  • Customers! (Don’t underestimate the difficulty and expense of finding customers)
As a general rule of thumb, your contracting rate should be somewhere around double your salary. That will allow you to cover your salary plus all the other benefits you receive.

Contracting – either directly or through an agency – is a viable career choice for software engineers. It’s possible to work as a career contractor, or a hybrid one, switching back and forth between contracting jobs and being an employee.

If you choose the software engineering consultant route, just make sure that any contract you sign has a high enough pay rate to cover all the benefits you would have gotten had you been an employee.

Have you done any contracting?  How do you decide what rate to charge?

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3 Responses to “Set Software Engineering Contractor Rates Right”

  1. Software Engineer

    I’ve done contracting. It pays well, but it’s a hassle. I prefer full time employee status now-a-days. Plus the contracting market is really flooded right now from what I’ve heard, hourly rates are dropping pretty quick.

  2. Contracting is great. Catherine is correct about pricing your rate. In certain markets the rates are low and in others high. Your rate really depends on your experience and if your talent is more specialized. For example, if you program in just PHP then you may find a flood of available resources in your market. If you focus on large scale cloud computing systems then your market may have fewer resources and thus your rate maybe higher.

  3. I agree that the market is flooded with consultants and competition can be fierce. I have customers across the US and when it comes to pricing, I generally price for the geographic area. The willingness to pay may not be the same for some area s and for me to capture new customers my pricing has to change but not low enough to make no profit. Im also looking for long-term relationship where I know repeated business will take place or service agreement.