Wages Drift Higher for IT Consultants

Techonomics chart for todayWith the national unemployment rate edging down and tech hiring rising — 2.4 percent year-over-year in February — full-time IT workers may continue to enjoy a faster rise in their salaries than their consulting counterparts.

Last year, the wages of full-time tech workers rose 5.1 percent to an average annual salary of $83,370, according to this year’s Dice salary survey. That was more than twice the rate of growth consultants saw — 2.2 percent — to an average of $103,977.

As the national unemployment rate fell from 8.3 percent to 7.8 percent in 2012, employers had no choice but to bump up wages. But just because more people are finding full-time jobs, don’t expect to see change so dramatic that contractors’ salaries slip down to the level of full-timers’. There’s no sign that companies plan to abandon the idea of swapping higher contracting fees for the added expenses of headcount, and many have become quite comfortable with the transfer of their overhead over to the checkbooks of those who can do the work, without expecting health insurance and a 401k.

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5 Responses to “Wages Drift Higher for IT Consultants”

  1. Great news for IT consultants. For someone that’s looking to start up an IT consulting firm what solid advice would one offer for a startup other than the obvious get a website, networking, registering the business etc. Essentially, I’d like to hear from heavy hitting consultants & consulting firms on how they started out, acquiring clients (assuming you’re not in heavy with who’s who within the firms you left prior to your startup) and how to whether feast/famine spells. I would also like to hear from HR/Talent acquisition/Recruiters on what they look for in consulting firms, what are the chances they’d go after a startup without a big portfolio and the processes involved. Any great advice is truly appreciated.

    • Don King

      I started my consulting practice in 1979. I had degrees and 7 years experience. Problem was, I was 25. Back then (and now – to a lesser degree), your age, and marital status, determined your credibility, salary, bonuses (if any), stability, and relative worth to a company. I didn’t have a difficult time getting clients, because of what I did for 1 client right after I left a multi-national computer company. All during the development period I kept telling my company that the products to be released should be at least loosely compatible with competitor’s products. After I left them, my forst client/contract, was to write software to do exactly that. Many more followed. So many, that 5 months later, I changed my practice to Management Consulting (one stop solution provider). Went well until I semi-retired 10 years ago.

      One of my major contracts, and claims to fame, was the pioneering/creation of Electronic Funds Transfer technology (EFTS). Got written up all over the world for that, and a lot of business followed. But… that was short lived, overall. Then it boiled down to marketing (myself), or subcontracts, or joint ventures. That meant cold-calling (telling companies the services you can provide), travel, 24 hour support, reporting, accountability, financial responsibility (for yourself, and your clients), customer relations, competition, etc..

      Sounds like you’re relatively new to the field (< 5 yrs.), that works as an employee for a company, that has consultants, periodically. You feel they are paid more than you, are doing better than you, and want to explore what it would be like for you to do the same. Is that about right? You see that they are making about 25% (on the books) more than you are, and you want to know why. Or, how can you jump in that game?

      Well, here's some reality. I've never been "employed" by a company since 1979. Projects I've had ranged from as low as $10K to $26 Billion, and everywhere in between. Consultants that you see that seem to be doing better than you, are just financially stupid. They don't get the things you take for granted (true consultants), such as: medical insurance, life insur., sick time, holiday pay, paid vacations, social security, spa memberships, etc.. All of those cost money. Typically, consultants don't purchase, or participate in those things, as they are no winning propositions for the participant, and profitable for the provider. You take these things for granted, because, generally, your employer pays for them. As a consultant, if you want them, you pay for them. Instead, a consultant has/should save for these things, like their own medical care, retirement, etc., just like any other business. Sadly, most consultants don't. Nor do they plan effectively for downtime. Most plan for 3 months downtime. That means 3 months with no revenues in the door. That's nothing. I say revenues, because there's an important point that IT employees don't understand, that is that an invoice amount, is not income to the consultant. There is overhead, regardless of whether or not there is revenues coming in the door. Even if the consultant doesn't have an office, there is communications (phones, internet, etc.), insurance (general liab., malpractice/professional liab.), advertising, accounting, taxes (corporate, muni., etc.), hardware, software (depending on the practice), and so forth. Things you don't see or consider. You have to plan for these things, and structure your business accordingly.

      If you're thinking about setting up a consulting practice, my advice, is plan on having a minimum of 1 year of financial stability. That means, add up all your expenses, as a consultant/company, and your personal expenses (mortgage, utils.,, food, etc.), you would need for a year, with no money in the door. Have that amount "in the bank" so to speak. Then, pre-build your client base, and go from there.

      Best of luck.

      • Don,
        Thanks for the great advice. You’ve really put things into perspective especially on the long term planning. Unfortunately more and more, your good old retirement, medical & benefits packages are slowly being deprecated especially within small – midsized and even large firms (Ford & GM workers can attest to this). Companies are having to do more with less and that usually means rising healthcare premiums, moratoriums on salary raises & 401K plans and expanded workloads especially during this recession are some the reasons I’m looking to expand my horizons.
        I’ve seen a dramatic surge of recruiting firms here in the U.S & overseas that are looking to place contractors on 6mth or more contract positions with some of those contracts going overseas for cost saving so I figured why not tap into this market and bypass the man in the middle? Thanks for your input & I’m looking forward to hearing from many more including solo contractors, HR/Recruiting/Talent acquisition managers and or CEO’s.