How To Convert Your Salary To An Hourly Rate As You Start Your Consulting Business

The future of work is the liquid workforce. Companies that expect to maintain their competitive edge must engage and activate the liquid workforce, often by hiring on-demand advisors and consultants, along with other skilled freelance workers.

Whether you’re already a consultant or a former executive looking for new challenges, it’s a great time to start your new consulting business. I speak from decades of experience consulting on my own and starting my firm when I say that for people like us, there’s nothing more rewarding than running your own business.

On-Demand Consulting When You Have A Full-Time Job

Even if you have a full-time job, you can still start a part-time consulting business by working at nights and on weekends. It’s a great way to learn new skills, make contacts with potential employers and give your resume a boost — plus, add some extra money to your bank account. Just be sure to check with your employer to see what restrictions are in place regarding outside compensation.

Starting Your Consulting Business

It’s pretty simple to start your consulting business. Just order some business cards, and create a simple website on Squarespace or WordPress, and you’re pretty much ready to go.

You can use your Social Security number (SSN), but with the increased focus on freelance workers’ rights, I highly recommend incorporating your consulting business and applying for an IRS employer identification number (EIN). Talk to an attorney and an accountant to figure out which structure is best for you. The advice I’ve received is that incorporating helps to substantiate the claim that you are indeed an independent contractor — and this allows companies to be more confident in engaging your services. With increased focus and regulations on freelancer rights, be prepared for clients to ask about your incorporation status. Personally, my own consulting firm is incorporated as a limited liability company (LLC).

Some people choose to start their consulting business with their name. Others choose names that convey the services they offer. Others choose more abstract names. Regardless of how you choose your business name, be sure to have business cards to give out to potential clients.

How To Set Your Hourly Consulting Rate

It’s best for new consultants to start by setting their hourly consulting rate, which can be used to calculate a monthly retainer and as a guideline for project-based fees. Most fledgling consultants struggle with setting their consulting rates, but it doesn’t have to be difficult to calculate based on your current or most recent annual salary.

Imagine your most recent annual salary is $100,000. Begin by converting that figure to a basic hourly rate. Full-time employees typically work 2,000 hours per year after holidays, so divide 100,000 by 2,000 to get 50 — or $50 per hour as a starting point.

Why You Should Add A Buffer To Your Hourly Consulting Rate

However, on-demand consultants and advisors should also add in a buffer. That’s because consultants pay for their own healthcare and office expenses, along with not being eligible for paid sick time or vacation days. In addition, consultants rarely work 40 hours per week for clients, as they need to spend time on business development (BD) to get their next projects, and they have to spend time invoicing and collecting from clients.

Most consultants I know add a buffer of 30% to 50% to their hourly rate to account for all these expenses. Those same consultants will add a much smaller buffer when using a marketplace or other service that allows them to focus their work hours on billable project hours — versus BD and sales or time spent billing clients.

If you build in a 30% buffer to your rate of $50 per hour, you can charge $65 per hour. If you add a 50% buffer, your hourly rate becomes $75 per hour. More experienced on-demand consultants and advisors with highly specialized skills, pedigreed backgrounds and proven track records of delivering results to clients usually increase their rates beyond that. I’ve worked with on-demand expert advisors who charge as much as $800 per hour, but $65-$75 is a terrific place for a brand-new consultant in search of their first client to start.

Gut Check

After arriving at an hourly rate, be sure to do a gut check. Think about the potential impact your work may have on the client’s business, how urgently the project need is, and how specialized your specific experience and knowledge are. These are just a few reasons you may want to consider adjusting your hourly rate. Don’t sell yourself short!

Now that you’ve calculated your hourly rate for on-demand consulting and advisory services, you’re ready to embark on your new venture. You will be thrilled when you get that first check — but more importantly, congratulations on setting yourself up for an independent and rewarding career path.

This article was originally published in Forbes and appears here under license by the author (FlexTeam Co-Founder and Chief Talent Officer Yolanda Lau).

Q: What resources are available to help freelancers as a result of COVID-19?

As a result of federal and state government actions, there are a number of different programs to assist freelancers and gig workers who have been financially impacted by the COVID-19 pandemic. These include benefits from the Coronavirus Aid, Relief, and Economic Security (CARES) Act as well as other resources. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on Friday, March 27, 2020.

Tax Payment Extensions

The US Treasury Department and IRS have extended the deadline for filing 2019 taxes until July 15, 2020 without penalties or interest. Additionally, the first quarterly payment for 2020 has been extended from April 15 to July 15, 2020. Further extensions for filing federal taxes can be applied for using Form 4868 for individuals and Form 7004 for businesses.

For state taxes, tax deadline extensions vary by state so make sure to check with your state’s tax agency for details. 

CARES Act and Benefits for Freelancers

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a number of programs and benefits for businesses and individuals – including self-employed individuals (freelancers, independent contractors, gig workers, etc.). 

Economic Impact Payments

Individuals are eligible to receive a direct cash payment from the US federal government of up to $1,200 for each adult and $500 per child (if under the income limit of $75,000). The payment does vary depending on income and starts to phase out from $75,000 to $99,000 (or $150,000 to $198,000 for couples filing jointly) using adjusted gross income (AGI) from either your 2019 tax return or 2018 tax return (if 2019 not available). For those individuals without federal tax liability, the payment will be $600. Note that the payment will be reconciled after 2020 tax returns are filed. Depending on your 2020 earnings, you may be required to pay back some of the relief payment or will receive a bigger rebate next year. Additional information can be found in the IRS Economic Impact Payment FAQs.

Economic Injury Disaster Loan (EIDL)

A key financial support option for small businesses (including sole proprietorships) is the Economic Injury Disaster Loan (EIDL). The EIDL program includes an emergency advance option, which provides up to $10,000 in emergency relief. This advance is effectively a grant as it does not have to be repaid. For more information on EIDL, see our post on the CARES Act and financial support for businesses. Applications for EIDL can be made through the Small Business Administration (SBA).

Paycheck Protection Program (PPP)

The Paycheck Protection a (PPP) enables eligible entities to apply for a loan through approved Small Business Administration (SBA) lenders. Sole proprietorships can apply starting on April 3, 2020, while independent contractors and self-employed individuals can apply starting on April 10, 2020. The PPP loans can be used to cover payroll and other certain business expenses (interest on mortgage obligations incurred before February 15, 2020; rent under lease agreements in force before February 15, 2020; and utilities for services in place prior to February 15, 2020). Applications can be submitted until June 30, 2020. PPP loans can be eligible to be forgiven if payroll expenses are kept consistent to the salary paid and the number of employees paid before the COVID-19 pandemic for eight weeks (at least 75% of the PP loan must be used for payroll to be for loan forgiveness eligibility). For more information, consult the Treasury Department’s PPP fact sheet. Note: You cannot receive unemployment benefits and a PPP loan at the same time.

Tax Relief

The CARES Act includes several tax relief options for businesses (including sole proprietorships) to receive tax relief: payroll tax credits and deferrals, credits for COVID-19 related paid leave, and loosening requirements and limitations introduced with the 2017 Tax Cuts and Jobs Act (TCJA). Per the latest guidance from the IRS, eligible self-employed individuals can claim an income tax credit equal to their “qualified sick leave amount” or “qualified family leave amount” to offset their federal self-employment tax.

Qualified Sick Leave to Offset Federal Self-Employment Tax

To meet the requirements for qualified sick leave, the self-employed individual must be unable to work because he/she is subject to a federal/state/local quarantine or isolation order related to COVID-19, has been advised to self-quarantine by a healthcare provider due to concerns related to COVID-19, or is experiencing symptoms of COVID-19 and seeking a medical diagnosis. Ten days is the maximum number of days for determining the qualified sick leave equivalent. The sick leave equivalent is calculated by multiplying the number of days (in the taxable year) by the lesser of $511 or 100% of the average daily self-employment income of the individual for the taxable year.

Qualified Family Leave to Offset Federal Self-Employment Tax

Qualified family leave applies if the self-employed individual is caring for an individual who is subject to a federal/state/local quarantine or isolation order related to COVID-19 or has been advised to self-quarantine by a healthcare provider due to concerns related to COVID-19, or is caring for a child if the child’s school or place of care has been closed. 50 days is the maximum number of days for determining the qualified sick leave equivalent. The family leave equivalent is calculated by multiplying the number of days (in the taxable year) by the lesser of $200 or 67% of the average daily self-employment income of the individual for the taxable year.

In both cases, the days in question must be in the period starting April 1, 2020, and ending December 31, 2020. For additional information, consult the IRS FAQs.

Unemployment Insurance

For the first time, freelancers, independent contractors, self-employed individuals, and gig workers are eligible to apply for unemployment insurance as a result of the CARES Act. Guidance from the US Department of Labor to states specifies that those who are unemployed, partially unemployed, or unable or unavailable to work due to COVID-19 related reasons are eligible for Pandemic Unemployment Assistance (PUA). 

Individuals will be paid an additional $600 per week (through July 31, 2020) in addition to the standard unemployment benefit for their states. For those that remain unemployed, a 13-week extension of benefits is offered (beyond each state’s benefits duration) through December 31, 2020. When applying for unemployment insurance, freelancers will likely need to provide evidence of past income, for example by providing the prior year 1099 tax form. Check your state’s requirements.

Consult the Department of Labor for additional information on Unemployment Insurance Relief.

Other Resources

A variety of other assistance programs, grants, and other resources are available depending on your location. The Gig Worker’s Collective has compiled an extensive list of COVID-19 resources by state

As news about the implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act comes out, we will continue to provide updates on this blog post and additional blog posts. Sign-up for our FlexTeam Newsletter to receive all the latest news about CARES and tips for activating on-demand consultants and advisors.

Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.

Q: What business tax relief is provided by the CARES Act?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes several options for businesses to receive tax relief and other financial support. The options for tax relief include payroll tax credits and deferrals, credits for COVID-19 related paid leave, and loosening requirements and limitations introduced with the 2017 Tax Cuts and Jobs Act (TCJA).

Continue reading “Q: What business tax relief is provided by the CARES Act?”

Q: What is the CARES Act and what financial support does it offer for my business?

Ask FlexTeam: What is the CARES Act and what financial support does it offer to my business?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on Friday, March 27, includes a variety of mechanisms to provide emergency financial relief to those impacted by COVID-19.

While a lot of the attention has been focused on whether or not individuals will be receiving checks in the mail (and when), as well as what benefits large corporations and industries will be receiving, there are two primary ways for small and medium businesses (those with fewer than 500 employees, including sole proprietorships) to receive financial support.

Continue reading “Q: What is the CARES Act and what financial support does it offer for my business?”

Hiring On-Demand Consultants And Advisors As The Gig Economy Matures

Hiring On-Demand Consultants And Advisors As The Gig Economy Matures

When you think of the gig economy, you most likely think of people shuttling around passengers or delivering food and of companies like Uber, Lyft and Taskrabbit — companies whose workers are, generally, not thought of as highly skilled. You may also think of companies like Upwork, whose success is proof the business model for freelancer workers is here to stay. McKinsey reports that up to 162 million people in Europe and the United States are engaged in some form of independent work. That’s 20% to 30% of the working-age population!

From Low-Skill Freelancers To Specialized Knowledge Workers

But the gig economy is more than low-skill freelancers and side hustlers, more than drivers shuttling passengers, people hosting overnight guests and workers delivering meals and groceries. Today, highly experienced — and highly educated — knowledge workers and creative professionals are the fastest-growing segments of the gig economy.

Companies are realizing that the quickest and most efficient way to get specialized talent is to hire them as project-based gig workers. Corporate boards and executive teams are hiring experts who can provide high-level advice on how to take advantage of business and technology trends while also delivering tactical insights on implementation. These knowledge workers are changing the face of the gig economy.

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