Should I Take A Pay-Cut to Move from A Temp Job to A Perm Job
Posted August 12, 2008 by Mister Knowitall
I’ve been temping in the tech industry and making some pretty good money, but I feel it’s time to settle down, find a “home” and start building a career somewhere. The problem is that recruiters keep trying to lowball me, telling me “perm” jobs pay less. Is this true? Should I take less or should I hold out for a perm job that pays the same rate as my temp gigs have?
The conventional wisdom in the employment industry is that the hourly rate for a temp job will be more than if you did the same job as a full-time employee because full-time employees get more benefits. But the real answer is that it depends on the benefits. Some are worth the pay cut, but some aren’t.
Every benefit has a dollar value that you can quantify.
Let’s assume you want to quantify the benefits on a job that pays $20 an hour as a full-time employee. We’ll assume you get 2 weeks paid vacation, 5 sick/personal days, and 7 paid holidays (New Year’s, Memorial Day, 4th of July, Labor Day, Thanksgiving Thursday and Friday, and Christmas). That’s 176 hours of paid time off which is worth $3,520. Let’s assume also that your employer pays for the first $350 per month of your health plan costs for $4,200 a year. And we’ll assume that you get a 401k match up to the first 4% of your salary, for $1,664 a year.
So your employer gets 1904 hours of work out of you and pays the equivalent of $47,464 a year, or $24.93 per hour worked. This does not include taxes or their insurance, just salary and benefits.
Now, let’s say that you went to work for a temp agency at the same employer for $20 an hour. The agency gives you 6 paid holidays and a week of paid time off, but no sick leave. You end up using the paid time off for 3 sick days and a 4-day weekend. That means you actually work 1992 hours instead of 1904. Now, if we assume that the agency adds 15% to your rate to cover taxes, insurance, and your 11 paid days off (which are worth 88.36 cents an hour), then goes for a 20% gross profit margin (which are both at the lower end of the range according to this article), the agency will bill the job at $28.75 an hour and their commission will be $5.75 an hour.
If we assume taxes and insurance are the same for the agency and the employer, the agency’s commission and the 88 cents an hour they’re paying in benefits come to $6.58 an hour.
The agency commission, plus your benefits, plus your pay come to $52,946.36 a year (not including taxes and insurance) for 1992 hours worked. As a perm employee, your benefits and pay come to $47,464 for 1904 hours worked. So the employer pays $5482 more for you per year via an agency than the cost of your salary and benefits at the same hourly rate as a full-time employee. Now, there is the fact that they get 88 more hours a year out of you (two weeks and a day more work), but that’s only worth about $2,000 in salary and taxes.
Now, a more generous benefits plan could easily eat up the remaining $3482. If the employer pays $650 a month toward a nicer health plan or to defray your costs of insuring you and your kids, you’re now costing $10 a month more than if they got you from a temp agency.
But let’s say that the employer’s costs for you as a full-time employee (due to a more generous benefits program) came in at $4,000 a year more than the cost of hiring you as a temp. Then you’re looking at around taking a cut from $20 to $18 an hour. But it really does depend on the employer and what their benefits are.
Basically, two weeks off, a week of sick leave, major holidays off, a good health plan that covers your whole family at a somewhat reasonable cost to you is worth a 5-10% pay cut from what a contract position would pay. If you go someplace like Microsoft where the benefits are outrageously good, it can be worth another 5-10% depending on how many you’ll use. If the health plan is super expensive and there’s no contribution to your 401k, then you shouldn’t take a pay cut.
Best of luck to you. Hope you find something that makes you happy.
