Pay

Going from temp to perm? How to calculate your new pay

October 12, 2012: 11:49 AM ET

Before talking money with an employer who's hiring you from a temp agency, it helps to understand the math -- and get ready for a pay cut.

FORTUNE -- Dear Annie: I've been working as a full-time contractor at a semiconductor company for the past year. Officially, I'm a W-2 employee of the staffing agency that supplies freelancers like me to client companies. Now, my boss here wants to hire me as a regular full-time employee with a salary and benefits, which would be great, and I'm trying to figure out how to negotiate a compensation package.

I've done all the basic research on what similar positions in this geographic area pay, including what various Internet sites say this company pays its employees, but I still feel I don't have enough information. I know what I make hourly, but I don't know how much this company is paying to the staffing firm. Here's how I'm looking at it: If the client, my prospective employer, is paying $X plus $Y to the agency, and then the agency keeps $X and pays me $Y, then I'm worth X plus Y to the company, and my new salary should reflect that. Right? Or am I missing something? — Jersey Boy

Dear JB: Your approach certainly seems logical at first glance but, as you suspect, it leaves out a couple of crucial considerations. First, a bit of background: Melissa Quade, manager of professional services at compensation research site PayScale.com, points out that, if you're a typical skilled contract worker, the hourly rate you're getting now is probably pretty high.

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"Generally speaking, contract employees are paid a premium rate," says Quade. "I worked with one consulting firm that paid its contract people four to five times the hourly rate that regular employees' salaries would work out to, because the contractors had specialized knowledge and were always being poached for permanent jobs at the companies where they were placed. So this firm felt they had to pay what they did in order to hold on to these workers."

Your situation might be similar, so basing your salary expectations on what you call Y -- that is, what the staffing agency pays you -- may be unrealistic. Quade says the agency is getting paid a fee somewhere between 15 and 30% of your current pay. Using your X plus Y formula, that would mean you'd be asking for a salary of what you're making now plus, let's say, 20%. More

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