1099 Tip: Estimate billable rates using your salary
If you are currently working as a government contractor, or have received offers from government contractors, you can get a rough estimate of what that company is charging the government on an hourly rate, or the billable rate as we call it.
The method is simple.
Take your salary and divide by 1000.
Then, to get a rough low end and rough high end of the range, subtract 20% and add 20%.
Let's say you make $100,000/year.
Divide $1000 by 1000.
This results in a $100/hour billable rate.
This is the middle of the range.
Subtract 20% of $100 to get $100 - $20 = $80/hour.
This is the low end of the range.
Add 20% of $100 to get $100 + $20 = $120/hour.
This is the high end of the range.
The government contractor is likely billing $80/hour - $120/hour.
If you captured these billable rates for yourself as a 1099 and worked 1800 hours per year, your revenue would be somewhere between
$80 * 1800 = $144,000/year
$120 * 1800 = $216,000/year.
Let's make some assumptions and assume your costs as a 1099 are around $20,000/year (health care, self-employment tax, business insurance, miscellaneous fees, etc.).
Your potential income will be between
$144,000 - $20,000 = $124,000/year
$216,000 - $20,000 = $196,000/year.
On the low end, the W2 employee who went 1099 will make an extra $24,000/year.
On the big end, the W2 employee who went 1099 will make an extra $96,000/year.
These are all just estimates but not unrealistic.
Is that jump in compensation worth it to you?
If you have questions feel free to reach out to me directly at email@example.com. I can also add you to my informal mailing list in case I have updates or news or whatever.
I write a lot about figuring out potential billable rates in my book.
You can read more about it here:
Going 1099: How to become a solo federal sub-contractor and gain control of your working life, earn more money and unlock more free time