Recruiters are notorious for doling out ridiculously inaccurate information about pay, perpetuating false equivalencies, and confusing under-prepared candidates.
For example, for contracting, it’s extremely common to pitch an hourly pay rate associated with an “equivalent” base salary that isn’t close. The most common rule of thumb recruiters use is the simple but very misleading 2000 hour rule. Take an hourly rate and multiply it by 2000 hours worked in a year to get an equivalent base salary number.
$50/hour * 2000 hours/year = $100,000/year
Or simply
$50 * 2 = $100(K).
Well, it is true that there are 52 weeks in a year and therefore 2080 weekday work hours if you use the eight hour per day standard. Knocking off two weeks of unpaid time off, or 80 hours, gets you 2000 work hours per year. One problem is that two weeks is not the total paid time off typically taken by salaried employees for holidays, personal or sick time, and vacation. It is much more than that. This oversimplification also completely disregards the other benefits of full-time salary positions in healthcare, bonuses, retirement plans, equity, educational reimbursements, minor perks, etc. When you add it all up, it’s almost a given that a salaried employee making a base salary of $100,000 is doing much better than a contractor making $50 an hour. Are recruiters simply hoping their targets are too naive or busy to look it up? Hopefully your hiring campaign is not dependent upon glossing over key details for success.
It’s much more correct to call this particular hourly rate yearly extrapolation value a total compensation equivalent rather than a base salary equivalent to make it clear there’s a significant difference. There is obviously a lot of work to do researching any individual organization’s compensation packages to uncover what the total compensation really is and keep up with frequent policy changes, and that’s why many people don’t bother to dive into those details. Base salary numbers are much more easily tracked and compared, which explains how recruiters can get away with the deception.
If you want a slightly more accurate rule of thumb you might instruct your recruiters to use for base salary and hourly equivalency is the eight-fifths rule.
8/5 * $50 = $80K
Based on a somewhere-in-the-lower-middle benefits package in a salaried position, a $50/hour contracting rate is much closer to an $80,000/year base salary than a $100,000/year base salary. You can see that a few thousand dollars each in PTO, retirement plan matching, bonuses, and the other package benefits can easily add up to the $20,000/year difference of this example. Note that this is just a ballpark figure and for some companies or roles with wild extra benefits it may not be very useful. Some contracting positions also come with a few benefits, and that clearly changes the calculus as well.
This table gives you some more eight-fifths rule data points for your reference.
The Eight-Fifths Rule | |
Hourly Rate | Approximate Base Salary Annual Equivalent |
$60 | $96,000 |
$75 | $120,000 |
$100 | $160,000 |
$110 | $176,000 |
$140 | $224,000 |
$180 | $288,000 |
An example that can illustrate how one might arrive at one of these numbers follows
Annual base salary | $160,000 |
Employer-paid healthcare contribution | $6,000 |
Employer-paid retirement plan contribution | $3,000 |
Annual bonus | $2,000 |
Annual estimated equity transfer value | $5,000 |
Total compensation | $176,000 |
PTO: 10 holidays, 10 personal/sick days, 20 vacation days | Eight weeks total (320 hours) |
Work hours per year | 1760 (44 weeks @ 40 hours/week) |
Equivalent hourly rate | $100/hour |
If you want to ensure your recruiters are making the best use of their time and your money, have the conversation with them about their math.
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