ALIA West

October 2004

How much are you really worth?

Following on from last months edition when we asked how we could bring value to the marketplace and ask How much are you really worth?

If you've ever tried to convert your annual salary into an hourly rate to try and figure out if you are being paid a reasonable amount, or conversely tried to convert an hourly rate into an annual salary to try and figure out why the ends never seem to meet in the middle, it is perhaps because you are not taking into consideration everything you need to. In determining our true worth we need to look at more than how much we are being paid each week and multiplying it by the number of weeks in the year. Let me explain.

Let's assume you are a freelance librarian and you want to earn $50 000 per year, not a bad salary to begin with. In order to know how much to charge your clients per hour, most people would simply divide the amount of money by the number of weeks in the year and then by the number of hours in a typical working week (say 38), which equates to $25.30 per hour. Now before you say - ok that's not bad, I now know what figure to stick on the invoice. Let me ask you this, what if I told you that you were undercharging your services by at least $4.95 per hour would you believe me?

Maybe? OK, well lets give you some more food for thought and then you can make up your own mind.

If you use ALIA's formula for casual employees, this requires you to add on an additional 20 per cent to cover sick leave and annual leave entitlements, which you will not get as a freelance librarian, and an important form of insurance for you to consider should the unthinkable happen and you can't work for a couple of weeks.

The formula is as follows:

(http://www.alia.org.au/employment/salary.scales/casual.part-time.html)

Immediately you can see that by using the correct formula for calculating your hourly rate, you now know that you should be charging a minimum of $30.25 per hour.

Perfect I can hear you cry, now I can put that extra money aside and I can still have money in the bank if I decide to take holidays or if I am sick and unable to work.

But there are a few other things to think about.

What about superannuation? If you are working as a freelance librarian then you won't be getting superannuation from your employer, because you are your own employer. Therefore you should be making provisions to pay yourself. Whilst you could take the 9 per cent recommended out of the money you receive, most organisations offer salary plus superannuation, so you need to do the same. Therefore you need to add an additional $2.72 per hour, taking your hourly rate to $32.92 per hour in order to cover this additional figure.

Now ask yourself, how many unpaid hours do you put in to your business? How much time do you spend on the administration of the work you do for your clients? - For example, do you have to submit timesheets and invoices, how about the time you spend on the telephone chasing up payments, as well as doing your bookkeeping and accounts. Do a quick calculation and I am sure you will quickly realise that you can add an extra 10-20 per cent to the amount of hours you are actually working for your client - just to keep your business ticking over. In other words if you work a 30 hour week (you want to spend some time doing things you enjoy besides working), you can actually expect to work a 33 to 36 hour week ie 3 to 6 hours of unpaid work to keep your accounts up-to-date. However, this may not be enough if you take into account GST and BAS these days. If you are working for more than one client, then you should take into account the number of telephone conversations you have with your clients that are not part of your paid working hours. Do you charge them for this time or give it to them as good will?

If you are working for more than one client what kind of record keeping do you have in place to ensure that you are up-to-date with the client's requirements? Have you costed the time taken to maintain the records into your worth or do you perform these tasks as unpaid hours? I am sure you are beginning to see where this is heading.

Now let's think about other requirements of freelancing. Do you have professional indemnity and public liability insurance? How much per year does it cost? Let's assume it costs $1500 per annum - and that's conservative - it therefore costs $28.74 per week. How many hours per week are you working? If you are working a 38-hour week, you need to add another 75 cents onto your hourly rate to cover your insurance cost. Please bear in mind that you may not covered by your client's workers compensation, so you may also need to cost in some form of income protection or workers compensation insurance. Do you know how much it costs? Do the same calculation as you did for the public liability insurance and for your workers compensation and/or income protection and add it to your hourly rate.

Now, how much have you have invested in equipment that you use to support your business: PC, modem, printers, mobile telephone, and car? How much do you spend on consumables: - paper, toner, electricity, telephone calls, postage, fuel?

Whilst some people may say that the tax benefits of claiming their vehicle, equipment etc. means that they can charge less per hour, are you absolutely sure? How does the taxation system on personal services income affect you? The tax benefits may not be so good if you work for only one client.

Of course there are added benefits to being a freelancer that it is hard to put a monetary figure on. There is the ability to stay at home with the sick children, choices of when to work, where to work and with whom you work.

Why are many companies choosing to use freelance contractors over agencies and permanent placements? Because most freelance contractors don't know their worth and significantly undercharge for their services and expertise. At the end of the day you think you are getting a good deal by invoicing at a rate of $30.25 per hour but when you take all other costs into consideration you are more than likely earning less than $20.00 per hour.

Shirley Cowcher and Lorraine Bradshaw, Information Enterprises Australia (IEA), a specialist library and records management recruitment agency, consultants and trainers in Western Australia. For permanent staff placements and short-term labour hire solutions.

Shirley Cowcher is the director of Information Enterprises Australia. Lorraine Bradshaw is the current editor of the Australian Record Retention Manual and is the author of IEA's free monthly e-zine Information Overload.