In a coaching session today, my client and I discussed what she would need to make to meet her needs as she is planning to leave her job by January.
There are several options she is considering. Some are full-time jobs with benefits and others are part-time without benefits.
To stir the pot and get things simmering, I asked what she thought she would need to make. With full-time jobs with benefits, it’s more of an “Apples to Apples” scenario. If the benefits are similar, then the salary number means the most.
If a job pays a higher hourly rate, but doesn’t have benefits, I suggested she look at her pay stub and see what she is currently paying toward her benefits each month as a starting point. Then I reminded her that for benefits, the employer also usually pays toward at least some of them, so she would need to factor that in as well, to get a better idea about what the true monthly cost is for the benefits.
It’s not as easy as it sounds. In the end, the most reliable numbers that will be available are on the pay stub, so it’s a place to start.
When you receive a salary and benefits, it’s easy to lose track of what you are paying. You fill out your withholding forms and sign up for whatever standard benefits are offered, and after that, you probably worry most about what your take-home pay is each month. It’s easy to forget how much you actually make per hour. When you’re working for yourself, or cobbling together different contract work, you find yourself comparing “Apples to Oranges.”
Here is an easy way to start.
Assume you get two weeks of paid time off each year. This means you work 50 weeks per year.
If you work 40 hours a week, then you work 2000 hours per year.
So if you make $50,000 a year, your hourly rate is $25/hour.
According to Zippia, the average employee contribution to cover health insurance in 2021 was $5,588/year ($465.67/month) for family coverage and the average employer contribution was $15,574/year ($1,297.83/month). So the annual premium for this example means the insurance premium per year is $21,162/year or $1,763/month. To have equivalent take-home pay, a person making $50,000 as an employee would need to make $65,574 ($32.79/hour) And that is just for insurance. It’s an imperfect example, because it’s based on averages and assumptions, but it does illustrate pretty clearly why self-employed folks and independent contractors need to really sit down and figure out how to value their time.
I won’t draw this out with further examples, because they might not be especially useful to each person reading.
Instead, I will tell you that my client has some great hourly numbers in front of her but needs to figure out what expenses she would be taking on that are now paid by her employer.
If you are considering working for yourself, here are some articles that will help you figure out how to value your time.
“How Much Should You Charge for Your Services?” on Nolo.com.
“The Value of Time: How Much is Your Time Really Worth?” by James Clear.
What is your time worth? Probably more than you realize.
