Hiring contractors & estimating rates

This isn’t anything but a collection of musings about how to assess pay rate for contractors. Lately I have been working with various styles of contracting arrangements and wanted to collect some random thoughts here.

Define contractor?

A contractor is someone without an employment contract for your company. In essence however, everyone is a contractor selling their (dev) services. 81% of developers according to Github work full time for companies. This is often driven from stability and predictability. Particularly in the EU, a dev on a permanent contract knows that their income is secure and various perks associated.

Going from employed to 'contractor'

The absolute minimum a dev will set a contracting rate is about equal to the rate they could command from an employer. Rates for “senior” devs in the Netherlands hover around 70,000€ per year. Maybe 60 for some cash strapped places. “Jrs” are often around 35-40 in EU. There are many benchmarks out there with more solid numbers.

I say “junior” and “senior” in quotes because it just isn't that simple as pay more and get more. Performance is something paid for across all years experience. Sure you pay a JR 2800-3300 per month. Depending on region of US, this might not be far shot from an entry level range either. But this is the entry point for a junior role. A junior role could easily make over six figures in the US given a high performing company looking for a high performing person. These roles tend to go to people that have gone through rigorous external selection process (elite college or program). As a dev builds experience, this external selection validation becomes more irrelevant as they should be assess on their summation of their portfolio and work. All this to. say, finding the cheapest senior might not yield the results of a more expensive mid level contractor.

Headwinds in European development

The trouble is… US companies like to cost cut. And they also tend to pay the most. I’ve noticed the salaries creeping up faster since COVID in the Netherlands. I haven’t been in the US so I can only speculate through stories. I am seeing a lot more incidences of contractors outside the US working for US companies compared to when I first left. As the pandemic took hold, and the result of companies embracing remote work, foreign contractors become more appealing. When I started my dev career in the US, hiring a contractor was expensive option for flexibility of upsizing and downsizing. These US contractors charged much higher for various tax and other reasons. Reasons that don’t necessarily exist in Europe. Now that American companies are figuring out they can pay less for devs elsewhere, they have launched on ambitious hiring sprees.

Global equalization of rates

Salary and talent is currently equalizing globally. In just a few decades or maybe years the industry will be sorted by what developers can exchange their services for. Currently there remains moderate variability of rates for comparable skill but that will narrow over time.

So all of that to set the background, let’s look at the math and objective standpoint.

The range for dev work typically goes for 0 to about 350k a year. I realize on the high end it could go a lot more, also very few work for 0. However way more devs work for nothing at some point than devs that get paid 350k a year so that’s why I capped the ceiling there.

Generally the target range of devs for me is 70k to 150k in the US. A pretty fresh CS grad in the US will hit the 100,000 mark commonly. The rate in the Netherlands I see is 36-75k or so commonly. Don’t get too hung up on the exact values. The numbers are more from sentiments than research. This overlaps a bit between regions… What I notice is that even the senior devs that make 60s, 70s here tend to be not all that more skilled than the 70k juniors in the US. The good ones with potential go find places that support higher pay bands. Of course, this is not easy to do for many devs. Particularly ones with families or ties to an area. With remote work this barrier is quickly eroding. The question that remains to be seen is how many 100k+ devs can the industry support? In theory, indefinite. But to generate high pay, there needs to be high impact. Impactful ideas are hard to come by. How to build a website is a solved problem. How to analyze quantities of data larger than most people will ever have access to is solved (How many petabytes you got lying around..). These things will grow and scale and with that comes new solutions. But the tech is there to solve most problems. I can watch HD video at a level I’m completely okay with. I’m a big quality nerd so I love lossless but do I really need that right now listening to music while writing this?

Calculating a rate

The different variables to look for are as follows:

Base employment rate * uncertainty multiplier * increased finance multiplier.
Base employment rate

Thus a dev that can make 100k could start with this. This is assuming 5 weeks time off where not working at all to get paid.

100000 / 47 / 40 = 53.20 per hour as the starting base point.

Uncertainty multiplier

Working as a contractor most likely means another job down the line or a very real possibility the project does not work out. Depending on how much uncertainty is introduced, the higher the multiplier. The less stable the work, the more time a dev needs to cover in marketing and finding new contracts. This will get baked into their costs.

Increased finance multiplier

Contracting devs will have to usually provide their own equipment and internet and other costs that are covered often by the employer. US contracted devs have additional tax and health insurance obligations that adds a significant markup just to get paid the same as they would at an employer.

Hiring in other regions.

Often times you can find developers in cheaper to live countries that may offer lower rates. For US companies this represents a significant savings. For EU companies it tends to be marginal. The fee to the agency often claws back a lot of the up front savings on the developer rate. The benefit though is access to a larger pool of potential hires and easier up and down scaling. Hiring through another dev shop has some risks compared to directly hiring the dev. Directly hired devs are more invested in your company. Dev shop devs are often working multiple projects and often needs highly specced out work to be effective. That's not all cases of course but expect to try many before settling in to the right one.


Best of luck! Finding devs in this time period is a tricky endeavor that is a full time job unto itself.



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