How much tax cut will i get

how much tax cut will i get

How much should my wage be cut when I am directly hired instead of a contractor, and thus receiving benifits?

Another Workplace SE answer describes the situation well in the USA:

[Many contractors are employed under] W2, [which] means that you're an employee of the contracting agency. They handle the billing and other overhead, pay payroll taxes and usually offer benefits (quality varies by company). They bill the client, usually about 50% or more higher than what you'll see. For example, they bill the client company $80/hr for your time and pay you $45/hr.

In general, you'll see about 20-30% more on an annual basis as a W2 contractor.

Often these type of W2 contractors will be hired directly by the company they are contracting by after some time. The idea being that that the employee has a trial period and can be easily let go if needed because "hey, they're just a contractor, they don't actually work for us." They company employing the contractors does not pay for health insurance, other benefits, or payroll taxes for the contractor, and pays the contractor more because

of this.

When a contractor is hired directly by the company they are actually working for, there is sometimes a pay cut for the employee because now the company is paying for health insurance, other benefits, and payroll taxes for their new employee. (If there is no pay cut you effectively get a raise, "same good salary + new benefits!")

How much should this pay cut be typically?

The above quote suggests 20-30%, but those percentages can be ambiguous.

For example, if I am a contractor, and would normally expect a 70,000$ salary with benefits, I would mark up my salary 30% as a W2 contractor:

But come time to be hired, I would not expect a 30% pay cut (at least not calculated in the following way):

That is 10% below my target salary.

I use this example to establish that a salary markup and a salary cut are not equivalent and the way they are calculated varies. Please be aware of this when giving answers.

What is a reasonable pay cut when being hired and offered new benefits?


Category: Taxes

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