Do Contractors Earn More Than Full-Time Employees?

To contract or not to contract—that is the question. Whether ‘tis nobler to sit at a desk as a full-time employee, and spend your years interacting with the same group of people, or to sail forth as a contractor, and deal with a variety of clients of varying tempers and budgets…

Actually, let’s cut the Shakespeare: Do contractors make more money than full-time employees? That’s the only question on the minds of many tech pros, especially the ones who can’t stand working for a particular company anymore and want to try their hand as a gun-for-hire.

According to the latest Dice Salary Survey, the average salary for full-time employees is $93,013. Meanwhile, the average salary for contractors employed by a staffing agency is $98,079; those contractors who work directly for an employer (i.e., without an agency as an intermediary) pull down an average of $94,011.

Yes, contractors earn (on average) a bit more than full-time employees—but contracting comes with its own set of issues. For example, full-time employees (hopefully) have a range of benefits and perks to supplement their salaries, including health insurance and paid vacation; contractors, unless they work for a staffing agency that provides insurance and other good stuff, must cobble together their own benefits.

That being said, many agencies offer health and dental plans, along with retirement benefits, paid vacation, and other perks. With the tech industry’s unemployment rate notably low, and companies hungry for tech pros with the right combination of experience and skills, staffing agencies are more willing to negotiate with contractors who want these perks.

Contractors who aren’t affiliated with a staffing agency could still have the opportunity to negotiate for benefits and perks with their clients, although this is often a trickier process. Some clients are more than happy to give contractors access to some of the same perks as full-time employees, such as use of the corporate cafeteria; negotiating for something like paid time off, however, may require a lot of time and effort (not to mention delicacy), if only because it often means contracts will need to be re-written.

Key to such negotiations is documenting performance. Whether they work for a staffing agency or operate independently, contractors must have a clear SOW (statement of work) and take care to document their achievements and attributes. If you prove yourself a vital part of the client’s operations, it’s easier to leverage that for benefits and perks. Documentation is the foundation from which all future negotiations rise.

For a handful of skilled, lucky contractors, it’s possible to pair the flexibility of the contracting lifestyle with at least some of the perks and benefits assigned to full-time workers. But as the Salary Survey shows, even contractors without benefits can still expect to make a very healthy amount of money, provided they have in-demand skills.

10 Responses to “Do Contractors Earn More Than Full-Time Employees?”

  1. The term “salary” for contractors is terribly misleading. Most contractors work on an hourly basis (aside from benefits, that IS the main difference between “FTE” and “Contractor”). Hence, is this “salary” computed based on 1920 hours/year (given 2 weeks vacation and 10 holidays) or what?

    Then there is the breaks between assignments, while contractor is searching/negotiating a new engagement.

    Rule of thumb is that contractors hourly rate should be between 1.5 to 2 times the salary of an FTE divided by 1920 to account for the breaks, and the loss of benefits.

    Unfortunately, contractors are not being paid accordingly – mostly the ratio is 1.1-1.2 to 1.

  2. Rubin Murray

    My experience has been that the difference in salary runs about 20%. So if you work as a Contractor, you earn about 20% more at the end of the day. But as a perm employee, you get about 20% more in benefits.

    However … this doesn’t take into account the benefits you could be offered from a growing, successful company. My last company not only offered free shares (depending on your years there), but 10-25% bonus that bought my manager a new luxury vehicle. Their insurance was top of the line, and paid 100% for some very expensive sunglasses, as well as $2500 hearing aids.

    Sadly this wonderful company laid me off last spring, as they are moving to outsource 80% of all their employees. But even the severance was very generous, and actually bumped me into a higher tax bracket this year. Point of the response is that there can be “hidden” benefits from a perm company that override any extra cash you pick up as a contractor.

  3. Dennis

    The tax implications of contracting are not addressed here. An independent contractor is responsible for at a minimum 100% of FICA, where as an FTE the employer pays half of that. A contractor is also responsible for unemployment insurance.

  4. Scott Lee

    An additional detail to consider is that a contractor is paid for every hour they work, and salaried employees can and frequently do work 60 hours per week or more with zero additional compensation.

  5. As a contractor, I do make a fair amount more than the normal employee…one a really good year, almost double. However, I do not have any paid health care, paid time off, or any retirement. Also, I just went through about a year with only very short part time assignments and therefore pretty much no income. Fortunately I budget and save well during the plentiful times in preparation of the lean ones. When work is plentiful, being a contractor is a great thing. When work gets tight, it pretty much sucks.

  6. This article is a joke. I make double the money of my fulltime employee peers. This piece is probably true for contractors charging less than 50 dollars an hour, but those are newbie, bottom-feeding wages. For anyone who is any good, 100 to 125 is the rate. That’s what I charge and I’m busy all year. I pull in roughly 250K a year and I get tax benefits that employees don’t get , so I keep more money than I would in an equivalent salary as an employee.

      • A contractor who can find clients without an agency can certainly make more than the average FTE. Plenty of small business tax software out there that can handle the taxes piece and the significantly higher contribution amount of SEP IRA (3.5x) certainly makes going it alone enticing. But, there is of course more risk involved if the economy starts contracting, health plans increase significantly, etc.