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What A Change! 
Want a REAL change for our country? Then forget the "alpha male" scandals, ego, spin, and deficit spending of the last 20 years and check this out:

"Harry Truman was a different kind of President. He probably made as many important decisions regarding our nation's history as any of the other 42 Presidents. However, a measure of his greatness may rest on what he did after he left the White House.

The only asset he had when he died was the house he lived in, which was in Independence Missouri.

His wife had inherited the house from her mother and other than their years in the White House, they lived their entire lives there.

When he retired from office in 1952, his income was a U.S. Army pension reported to have been $13,507.72 a year. Congress, noting that he was paying for his stamps and personally licking them, granted him an 'allowance' and, later, a retroactive pension of $25,000 per year.

After President Eisenhower was inaugurated, Harry and Bess drove home to Missouri by themselves. There were no Secret Service following them.

When offered corporate positions at large salaries, he declined, stating, "You don't want me. You want the office of the President, and that doesn't belong to me. It belongs to the American people and it's not for sale."

Even later, on May 6, 1971, when Congress was preparing to award him the Medal of Honor on his 87th birthday, he refused to accept it, writing, "I don't consider that I have done anything which should be the reason for any award, Congressional or otherwise."

As president he paid for all of his own travel expenses and food.

Modern politicians have found a new level of success in cashing in on the Presidency, resulting in untold wealth. Today, many in Congress also have found a way to become quite wealthy while enjoying the fruits of their offices. Political offices are now for sale. (sic. Illinois )

Good old Harry Truman was correct when he observed, "My choices in life were either to be a piano player in a whore house or a politician. And to tell the truth, there's hardly any difference!

How refreshing!"

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What To Charge? 
After I wrote this article, I felt inspired to cobble together a utility to do these calculations for us. So after reading the following, you can click here to try it out.

Note that if you use the tool, then a donation of $1 or so would be a nice way to say 'thanks'.

"What Is Your Rate?"

If you are entering the contract employment market for the first time, the most difficult thing to do is to set an hourly price for your services. Indeed, while we all know what it takes to keep our houses up and running when we work as full-timers, the farther we have to travel from home, the more important it is to understand how to set that all-important "all inclusive rate."

Step 1: Know Thyself

While it might sound more religious than real, the first thing to understand is how well you will fit into the situation at-hand. Indeed, while many inexperienced head-hunters ever press us for that bottom-line rate beforehand, unless we know how long we are likely to be working on a project, the less sense it makes to commit ourselves. If you do not feel comfortable with the work you are going to be paid to do, then even a rate of $1,000 per hour is pretty much meaningless. So even after you have won the work, listen to that "inner voice." It knows that the better our skills have been adequately represented, the longer we will likely be earing those wages.

Step 2: Know Thy Gig

I cannot tell you how odd it feels - when the rate, opportunity, ability, and client-interest is all there - to turn down work. Indeed, from bailing out companies who have paid peanuts and gotten monkeys, to clients who are merely looking for a scapegoat, from time to time we might also need to adjust our rate UP so as to steer far clear of an evil opportunity. -Certainly one that might be taking our efforts away from landing a more enjoyable and therefore typically a more lucrative opportunity.

In short, burn-out gigs require time-off to recoup your sanity. Make sure someone is paying you accordingly!

Step 3: Know Thine Market

Like it or not, no mater if we are tenured full time employees, new graduates, or interns, the Internet is working overtime to turn us all into commodities. But no matter if they call us fish eggs or caviar, we need to appreciate that some skills are are easier to find a profitable home for, than others.

While at the moment the tabloids "love to hate" the executive who describes their earnings in terms of millions rather than tens-of-thousands, know too that over the course of a 45 year employable lifetime, each and all of our households will earn inflation-adjusted millions. This means that the same million dollar executive often needs to wait years if not decades for his or her type of opportunity to come around again. Such is not the case for a Java Programmer.

Indeed, when I was working for the CTG Telecommunications Product Group, over two decades ago we documented that our top producers were not the group of PHD's who we billed out at $350 an hour, but surprisingly, it was the same number of those $55 / hour consultants that never changed jobs.

Step 4: Know That Habitat!

There is nothing more sad to see a consultant in an industrialized, advanced country living like he or she is in Burma. By way of an example, I remember how, when I was consulting for IBM in Texas, that a coder was dismissed when the company found him sleeping on the grounds. (A mere week earlier they had banned him from sleeping in his office.) Ironically, not only was IBM paying for that person's expenses, but the company to whom they were paying them was not even passing the reimbursement on to their employee.

Digression: It remains a sad fact in America that while the middle-men are making thousands per-head per-week, many of their subcontract employees are loosing their life savings. IMO, Congress really needs to find a way to stop this type of wholesale exploitation of the American Worker. Even now, it is outrageous!

All Together Now!

In general, I have discovered that the more serious you are about staying in the genuine consulting game (yea, I know that your head hunter could not care less... but still!), the more money you need to have saved-up. In short, the more you need to consult, the more cash you should to be saving.

So what is the best way to satisfy that 20-something head-hunter who is pushing you for that "best rate"? For openerers, begin by using what you know about your habitat, market, gig, and yourself to calculate your expected utilization. After having done this myself over the decades, I can tell you that the less you know about each of the above Steps, the more likely you are to get that "rate thing" disastrously and embarrassingly w-r-o-n-g!

The Magic Calculator

So there are 52 * 40 working hours in a year. That means that (vacation included), any annual salary at-hand is easily divided by 2. This means that if your base salary is 80,000.oo per year, then at first blush, the initial hourly figure we are looking at is $40 an hour. -A nice start but - as every manager knows - there are far, far more costs to consider: From medical insurance to retirement, disability, and workers-compensation, add-on expenses can run from around $1,000 to well over $1,500.oo per month. -A fact that, even if you do not have a family, should add another $12,000 to 15,000 or so to the top of your annual salary. (Indeed, if you are newly self-employed in the US of A, don't forget that 15% flat tax - not just on your initial "social security wages", but on your income for the entire year. Ooooof!)

Sound fair?

Adding-up Steps 1-4

For illustrative purpose, suppose that you feel that your match is "iffy." Or suppose farther still that you feel that you will need time to recover from a churn-and burn-out "save my company" gig. What then? --Then you might well conclude that you will only be 'billable' for about 6 months this year. For those type of realizations, rather than 2080 hours, you may well be looking at a mere 1000 billable hours. Therefore, rather than a base of $40 / hour, in order to keep going you now need $80.

Make sense? (Yes, I know. -It is scary how those numbers can add up!)

Reality Check

Finally there are those e-x-p-e-n-s-e-s: In fact, what most head-hunters never tell you is that while $15 / hour works out well if you live here in Florida, that the same hourly amount will either put you out-on-the street in NYC, or in harms-way in LA. So while - before the "Indian Invasion" - companies more often than not were prone to pick up your reasonable COL (Cost Of Living) expenses for living in their fair city, much of that changed as offshore agencies began piling 5 and 6 people into two person apartments. In very deed, unless you are taking 3 or 4 OTHER workers with you, then check out what the IRS recommends as a reasonable allowance for each U.S. city. Divide that day-rate by 8, and plop it on top of your hourly rate.

The Bottom Line

So here we are back at that hypothetical annual salary of 80K. After adding a mere $10K to it (who needs to retire?), it is now looking a lot more like 90K. After factoring in a utilization of say 75% (hey, we are good - they are bound to renew that 3 month contract a few times!), the hours fall to about 1,500 for the year (rounded down: 36 hours sick time is reasonable - they want us to work up North!) -Will you need to deduct another $1k a month for social security taxes?

Your rate in now $60 / hour.

Lastly, lets not forget those expenses! According to our friendly-neighborhood IRS agents (Publication 1542 2008 example), the per diem for the location we are going to stay (Manhattan) turns out to be $280 per day. Dividing that by an 8-hour day equals $35 per hour.

You are now looking at $95 per hour. (Even in Florida, it would still be $75!)

Then there is the airfare: While not important if you do not have to travel back-home to see you wife and kids, most feel that two weekends home per month is not too much to ask. Since today's headhunters are likely to remove and stare at their Plantronics headset in disbelief if you ask him or her to help you see you family once in awhile, you might also want to toss in another 3 or 4 dollars an hour. --Certainly if you want to come home to a hearth as eager to greet you as when you left it.

So lets just round it up to $100 / hour.


If you are amazed at how, given our location, utilization, and expenses, your rate went from $40 - $100 an hour, it is nothing to how your body-shop will feel when they learn that they have to give up their 50 - 100% markup. --But be assured that, in their defense, that these calculations also work in reverse: Specifically, if someone wants to pay you $50 an hour to go work in NYC that - unless you have a friend you can live with (or 4 ;) - if you accept the job, then you have just proven that P.T Barnum was right.

Good luck!

R.A. Nagy

(Here is the link to the PHP utility that will do these calculations for us.)

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Who are they paying for, anyway? 

Bleeding U.S Dry?

If you are a subcontractor you might have asked yourself a very common question: When the place where I work each day is paying for MY skills, how oh why is someone else able to take 30 to 75% of my wage?

No, I am not talking about the Government. While the 30% the 'Fed adds on top of that skim cripples us to taking home only about .25 - .40 on the dollar, every contractor who has had to scrimp and save to work hard while others bask in our earnings knows how much it hurts. How did this happen?

Who Ruined It for Us All?

Many years ago, a bunch of sub-contractors sued their contract employer (IBM) for benefits. To the horror of all genuine consultants, these secretaries actually won the lawsuit. From that dark day to this, in order to avoid those legal entanglements, every company in the U.S of A now uses "Shell Companies."

Shell Games

You know how the shell game works - Some 3rd party company contacts you. They tell you about a great contract job. You give them your resume, you win the interview, and you report to work. When the work is done, you are out of a job. In exchange for merely getting you an interview with a decision maker, you fork over many, many, dollars an hour to the middle man. How is that fair?

According to the U.S. Government, loosing full quartile percentages of our hourly wage *would* be fair if our employment continued after the sub-contract work was ended. Since it doesn't, the shell company should be either paying us as 1099 or W2S (statutory) Employee. That is what federal tax law says.

Taxing Terms

The difference between 1099, W2-S and W2 is a matter of ensuring that you can keep things like health insurance and other business deductions working the same way from contract to contract; Avoiding loss of benefits for pre-existing conditions.

When we work W2, United States Employment and Tax regulations assume that a shell company is taking care of us - after that single contract is over - as employees. For far too many of us independent contractors however, our shells just dump us back into the job search game again. A clear violation of the intent behind that W2 "employee" status, today most shell companies do not even reimburse employees for their travel and living expenses. It's a nightmare.

To The Rescue!

While we cannot deny that having head hunters can be valuable when we are out of work, we need to change the legal system so as to encourage our real employers to use us directly. To cut out the middle man.

In order to re-kindle the entrepreneurial American spirit, we need to ask our lawmakers to let contractors enjoy the fruit of our own labors. Moreover, rather than allowing a rare breed of idiotic consultants to terrorize our would-be employers with legal nightmares, we also need to ask the government to step in to protect companies from gratuitous would-be-employee lawsuits.

Let companies choose to hire U.S. without fear; Let good subcontractors once again reap the reward for our ability to keep our *real* employers happy. Most of all, we need to liberate our long-term earnings from a host of do-nothing middlemen. After all, is the company where we show up to work each day paying for our ability to get the job done, or the ability of someone else to find our resume on or

Dumb & Dumberer-er

The mere fact that modern human resource professionals are actually forbidden by their legal departments from using Internet resources to locate their own employees underscores the foolishness of where our country has arrived today. In the spirit of competition; in anticipation of rekindling the genuine supply-and-demand mentality, if we want to keep America competitive in the world labor market, don't we need to cut out as many middlemen as possible?

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