How to convert consultant rate to employee salary??

Caroliso

I'm asked this periodically, and am reluctant to quanitfy, but maybe someone out there has a better answer than I do.

If we are paying someone as a consultant, and we determine this service is becoming so integral to our work that it should be a salaried position, how do we figure the right compensation?
The people who ask this question are usually looking for a factor that allows them to convert the consultant's rate to a salary the consultant will accept to come on board.
I feel it's not quite so simple. One can back into it by taking (from the consultant's rate) a percentage for benefits and overhead (theirs or ours?), but then what? You still may wind up with a number that makes no sense in your salary structure, and ultimately the salary needs to factor in the market and how our company fits into that market, not on what the consultant initially persuaded someone to pay him/her.
Am I making this too complicated? How do you approach this question? Is there a basic conversion formula that i don't know about?

Margaret Morford

As someone who consults, you should not take their rate and try to figure something from that. Consultant rates are higher because you do not provide them with benefits or work space, equiptment, etc. and you usually only use them when you need particular expertise or need to outsource something for which you don't have time. They do not usually have a continious stream of work from one client. What do you do to value a new position in your company? Do a job description and then evaluate the job. The only other way to do it is to ask the consultant what he/she made last year (Ask for proof W-2, etc) and see if you can match that.

Margaret Morford
theHRedge
615-371-8200
[email]mmorford@mleesmith.com[/email]
[url]http://www.thehredge.net[/url]

Gillian

Margaret is correct. There isn't any way to convert one to the other. Your decision should be based on sound compensation practice, which means a job description and knowledge of what the pay range should be. Then you match the salary desired by the consultant and see if it fits into the range. If it does, fine and if it doesn't, then you must decide which is most important, the salary range or the particular individual.

Caroliso

Thanks for both your responses. You've confirmed my contention that the right way is to affix a value to the job based on job description, market and internal equity, not based on consultant's rate.
Margaret also raises an interesting point -- that the consultant rate probably factors in something for the fact that they have down time for which they aren't paid because they can't count on a continuous stream of work. This might inflate the actual rate.
This was helpful to assist me in fashioning a response that not only says "no, there's no conversion rate" but some reasons why it wouldn't make sense.