## Monday, August 13, 2007

### Beware of Math

Comparing job offers is often a challenge. No two job offers are equal, even if they have the same dollar value attached. They are further complicated by the fact that different people value different things. For example, would you accept a lower salary for more time off? What if the salary discount subtracted more than the weekly value of the extra time? This is further complicated when you add contracting offers into the mix. Screw apples and oranges. It’s more like trying to compare a tropical fruit cup with a New England fruit cup with another New England fruit cup that somebody picked all the grapes out of. When you are a contractor, you get an hourly rate. You get no paid time off, but you do get paid for every hour you work. You also get a bump if you go into overtime. That means that the way you compare things is going to vary depending on what assumptions you make.

Let’s look at an example. Let’s say you are comparing two jobs. One is a \$30/hour contract and one is a \$50k a year job. To get these into the same units, we need to annualize the hourly rate. How do we do that?

1. Multiply it out times 40 hours per week and 52 weeks per year.

30 dollars/hour * 40 hours/week * 52 weeks/year = \$62,400 per year

Looks like a better job, no? This will tell you how much you would earn with no overtime and no time off. How realistic is that? Let’s take out the holidays since most companies will not let you work on holidays.

1. Same as 1, but subtract the holidays since you won’t earn anything for those. Let’s assume 10 holidays as that seems typical on average. That’s the equivalent of 2 weeks of business days.

30 dollars/hour * 40 hours/week * 50 weeks/year = \$60,000 per year

Of course, you aren’t allowed to take vacation under that scheme. So, if you are looking to compare, should you take unpaid vacation and see where you come out?

1. Same as 2, but subtract out the vacation days you don’t get. More and more high tech companies are standardizing on 3 weeks to start. That brings us down to 47 weeks.

30 dollars/hour * 40 hours/week * 47 weeks/year = \$56,400 per year

Starting to get close now, isn’t it? And what if you get sick? Can you take time off? And how will you pay for medicine and such?

1. Same as 3, but we are going to remove a week of sick time and a conservative \$500 per month to cover the difference in having company health insurance and having to be self-insured.

30 dollars/hour * 40 hours/week * 46 weeks/year - \$500/month * 12 months/year = \$49,200 per year

Now, all of a sudden they are similar. If we start adding to the salary with things like bonuses, tuition reimbursement, flexible spending plans, etc, it starts to far outpace the contract position.

The problem is that whole analysis is biased toward normalizing for benefits. If your goal is to make as much money as possible and assume some risks for yourself, then you may want to calculate for averages and maximums and may make some assumptions for overtime. You could probably calculate an annualized income of \$70k.
What does this all mean? It means you need to decide your priorities and goals before you start searching. And you should do the math yourself. Other people will give you their takes on the numbers. This is not out of a desire to mislead or be malicious. They are just doing the math from their perspective. Do your homework. Set up your assumptions. Then do your comparison. Just realize that it is a subjective comparison. There’s nothing wrong with being subjective when you are the subject. After all, you are the one who needs to live with the decision.