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Contractor Pay Gap Calculator
Ensure compensation equity in your workplace by accounting for the hidden imbalances of contract work.
When it comes to compensation in the workplace, base salary is only one piece of the puzzle. Contract workers miss out on many types of compensation that full-time employees are entitled to, including:
1) Additional Monetary Compensation: Company Equity, Performance Bonuses, Retirement Benefits
2) Benefits: Healthcare, Paid Time Off, Sick Leave
3) Job Stability: Severance, Costs from limited contract length
Use this calculator to identify gaps in how you compensate professional services contractors.
Instructions
Step 1
Fill out details in the table below for contractors and full-time employees in the same role, starting with the hourly wage you are offering for a contractor, and the full time annual salary of a similar full-time position. Also include any additional benefits that you offer full-time employees and, if applicable, any minimums you enforce for agencies that you use to hire contracted employees.
Step 2
Review the Wage Gap section. Each subsection enumerates a specific element of compensation and quantifies the associated pay gap.
Step 3
Review to focus on closing existing pay gaps through wage increases and improvements to benefits.
A contractor earning $50 /hour makes 52% less than a full-time employee with a yearly salary of $100000 due to hidden differences in compensation.
50
52
100000
Note: $40/hour * 40 hours *50 weeks = $80,000.
Compensation Variables
Title
contractor values
full-time values
units
Hourly Wage
50
dollars per hour
Yearly Salary
100000
dollars per year
Equity
0
20
% target of annual salary
Performance Bonus
0
15
% target of annual salary
401K Match
0
4
%
PTO
0
12
days per year
Sick Leave
0
7
days per year
Monthly Premium
1800
450
dollars per month
Severance
0
4
paid weeks if laid off
Chance of lay off
0.2
0.1
probability
Time needed to find new job
2
2
months
Avg. employment length
12
24
months
There are no rows in this table
Wage Gap
Monetary Compensation
Professional services contractors are paid an hourly wage, while full-time employees at technology companies tend to earn a yearly salary, an annual or biannual performance bonus, and vested stock (restricted stock options or equity).
Annual Salaries
We’ve converted the contractor’s hourly wage of $ an hour to an annual salary assuming that the contractor works 40 hours a week for 50 weeks in a year (accounting for federal holidays)
50
Contractor Annual Salary: $
100000
Full-Time Annual Salary: $
100000
Equity
Unlike subcontractors, full-time employees are frequently compensated in equity, which is an incentive for employees to stay at the company as their stock vests. At startups, this takes the form of private stock that is baselined to the company’s most recent valuation. At public companies, this compensation tends to take the form of restricted stock options (RSUs). The equity compensation can vary significantly and often increases with seniority (). The calculations below assume that equity compensation is valued at % of the full-time employee’s salary (based on interviews with HR professionals).
20
Contractor Equity Compensation: $
0
Full-time Equity Compensation: $
20000
Performance Bonuses
At large technology companies, performance bonuses are a frequent tool to supplement full-time employees’ salaries and incentivize high-quality work. Contractors do not receive such bonuses, which often amount to tens of thousands of dollars. Annual bonuses for full-time employee performance range from 10% to 30% of the worker’s salary (). The value used to calculate the pay gap is% of the full-time employee’s salary.
15
Contractor Bonus Compensation: $
0
Full-time Bonus Compensation: $
15000
Retirement Plan
Employers at large technology companies frequently match their employees contributions to their 401K’s up to a certain percent of the full-time employee’s salary; the average company match is 4% (). The pay gap calculation assumes that the full-time employee contributes at least % of their salary to to their 401K and that their employer matches with an additional% of salary.
4
4
Contractor Matching Retirement Contributions: $
0
Full-time Matching Retirement Contributions: $
4000
Total Difference in Monetary Compensation
Contractor Monetary Compensation: $
100000
Full-time Monetary Compensation: $
139000
After factoring in just monetary compensation differences in salaries, and the value of the equity and bonuses that full-time employees receive, the contractor in question makes $less annually than a full-time employee performing the same function.
39000
Benefits Compensation
Since professional services contractors are hired by external subcontracting agencies, the benefits (such as paid time off, sick leave, and high quality healthcare) offered to full-time employees at technology companies are usually not extended to contractors.
PTO
While technology companies have often provided generous paid time off benefits to their employees (including “unlimited” PTO days), contractors must often decide between working and unpaid leave. The average amount of PTO offered to full-time employees is 12 days for new employees (). The full-time employee’s compensation package that is used in the parity calculation is assumed to havedays of PTO.
12
Contractor Paid Time Off: $
0
Full-time Paid Time Off: $
4615.38
Sick Leave
Many subcontracting agencies provide the federally mandated 24 hours (3 days) of sick leave per year. This is often not enough, forcing contractors to decide between their economic livelihood or health. The stakes of this dichotomy between health and economic stability have only been exacerbated by the pandemic. The national average of sick days offered for new employees is 7 days (), though many technology companies also offer flexible norms around taking paid time off due to illness. The full-time employee’s compensation package that is used in the parity calculation is assumed to havedays of sick leave.
7
Contractor Sick Leave: $
0
Full-time Sick Leave: $
2692.31
Cost of Health Insurance
Although health insurance costs vary significantly by an individual’s needs and a company’s offerings, the difference between coverage for full-time employees and contractors can be stark. Whereas Silicon Valley companies are known for offering best-in-class healthcare benefits, that is usually not the case for contracting agencies (). In 2020, the average annual premium for health coverage for a family of 4 was $21,342, where employers picked up 73% of the cost. The calculations below assume a $monthly premium for contractors and a $monthly premium for full-time employees ().
1800
450
Contractor Healthcare Monthly Premium: $
-21600
Full-time Healthcare Monthly Premium: $
-5400
Total Difference in Benefits Compensation
Contractor Benefits Compensation: $
-21600
Full-time Benefits Compensation: $
1907.69
After factoring in just the differences in benefits provided to full-time and contract workers, the net difference between full-time and contractor nonmonetary benefits is $.
23507.69
Job Stability Compensation
Contractors and full-time employees experience different levels of job stability because of differences in employment protections and the average length of employment.
Economic Value of Job Uncertainty
The economic value of job uncertainty is calculated by incorporating the amount of time lost when a full-time employee or contractor is not working. Silicon Valley tends to have a high variance in turnover rate, and a study on turnover of 15 large Bay Area tech companies showed full-time tenures ranging from 1.8 to 7 years (). Contract lengths can be much shorter, and companies are incentivized to reduce the contract length for fear of legal repercussions. In turn, since contractors frequently have shorter work periods, they spend more time on the job market and less time earning income ().
The calculations below assume a work period ofmonths for contractors and months for full-time employees. The time required to transition between jobs is assumed to be months for contractors and months for full-time employees ().
12
24
2
2
Contractors: $
-14285.71
Full-time Employees: $
-7692.31
Severance Benefits
Full-time employees at technology companies often benefit from worker protections that are legally mandated or considered “best practices” when it comes to involuntary termination. On average, full-time employees are offered 1 to 2 weeks of paid salary for every year worked (). Contractors, who are more likely to be laid off in the first place, must also accept a fraction of what full-time employees receive in severance. For example, in May 2020, Airbnb laid off full-time employees and contractors in response to the pandemic. Full-time employees were offered 7 weeks of severance while contractors (who made up a majority of the layoffs) were offered 1 week ().
To calculate the impact of severance, we make an estimation for the likelihood of being laid off for a given year, and factor in the expected severance. The calculations assume that the likelihood of layoff for a contractor is % and the likelihood of a layoff for a full-time employee is %. The pay gap calculations assume the severance for contractors is weeks andweeks for full-time employees.
20
10
0
4
Contractors:
0
Full-time Employees: $
769.23
Total Difference in Economic Stability
Contractors:
-14285.71
Full-time Employees:
-6923.08
After factoring in the job uncertainty experienced by contractors and the diminished worker protections that are offered to contractors, the monetary difference in job stability between contractors and full-time employees amounts to $.
7362.63
Important Aspects of Contract Work That Are Not Covered
While the calculator aims to cover the main discrepancies between full-time and contractor compensation, there may be other forms of compensation that are unique to each company. For example, Silicon Valley companies are also known for providing perks such as meals, transportation subsidies, personal care reimbursements, and branded personal items.
In addition, there are a significant number of nonmonetary disparities between full-time and contract work that create a meaningful divide between the 2 worker classes. From unequal access to company content and events to weaker legal protections, these differences further the perception of a 2-tier system between full-time and contract workers, despite their working side by side.
Total Wage Gap
Taking into account the differences in monetary, benefits, and job stability compensation, we sum up the total expected compensation below.
Total Contractor Expected Compensation:
64114.29
Total Full-time Expected Compensation: $
133984.61
This results in:
Current Wage Gap:52.15%
52.15
Net Difference in Compensation: $69870.32
69870.32
How can I address the compensation disparity between full-time workers and contractors?
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