Laid off, then offered the same job back as a contractor

The call comes a few weeks after the redundancy, framed as a favour. Headcount is gone, the work isn't, and would you consider coming back on a contract? Same projects, same manager, same standup. They name a number, and the number is your old salary divided by the working year.

That conversion is the mistake. According to the Bureau of Labor Statistics' Employer Costs for Employee Compensation release for March 2026, published 12 June 2026, wages and salaries were 69.9% of what private-industry employers spent per hour worked: total compensation averaged $46.60 an hour, of which $32.60 was wage and $14.01 was everything else. The contractor offer is priced on the seven-tenths and asks you to absorb the other three, which is how it gets presented as continuity while functioning as a cut.

This is not an argument for refusing. Some of these deals are good, and the last section says which. It is an argument for pricing the thing actually on the table.

The salary was about 70% of what you cost

That $14.01 of hourly benefit cost breaks down, in table 4 of the same release, into paid leave at 7.6% of total compensation, insurance at 7.8%, supplemental pay at 4.1%, retirement at 3.4%, and legally required benefits at 7.2% — payroll tax, unemployment insurance, workers' compensation. One caveat: ECEC divides every cost by hours actually worked, which is why paid leave shows as a benefit rather than as wages, and any single job sits off the average. It is a scaling device for a negotiation, not an audit of your package.

The payroll tax line moves further than people expect. As an employee you paid 6.2% Social Security and 1.45% Medicare, and your employer matched it — another 7.65%, invisible on your payslip. As a contractor you pay both halves as self-employment tax at 15.3%, on 92.35% of net profit. That is 14.13% of profit against the 7.65% of wages the employer carried, a gap of 6.48 points, or nearer 5 once you deduct half your SE tax above the line at a 22% marginal rate. Above the 2026 Social Security wage base of $184,500 the gap narrows to Medicare alone.

Unemployment insurance disappears more quietly. Employers pay federal unemployment tax at 6.0% on the first $7,000 of wages, a net 0.6% after the state credit plus state unemployment tax, and nobody pays either on an invoice. Eligibility rests on wages and work in a base period, so contracting months build none. The UK version is sharper: New Style Jobseeker's Allowance requires Class 1 contributions, and you are not eligible if you were self-employed paying only Class 2. Losing the work a second time is the worse event.

The UK employer side is smaller but not small. Secondary Class 1 National Insurance runs at 15% above a £5,000 secondary threshold in 2026/27, automatic enrolment obliges the employer to add at least 3% of qualifying earnings, the £6,240 to £50,270 band, and 5.6 weeks of paid holiday belongs to workers and employees, not to the self-employed. On a £60,000 salary: £8,250 of employer NI, £1,321 of pension, and 5.6 weeks you now take unpaid.

Where each line went

Same desk, same work, same manager. A $90,000 salary, scaled to a full package at the BLS ratio.

Percentages from BLS ECEC, March 2026, private industry; the dollars are an illustration built from those ratios. The last row is the whole conversation: the employer removed $38,755 of annual cost and offered back the part that was already yours.

Salary ÷ 2,080 answers a question nobody asked

The naive conversion divides $90,000 by 52 weeks of 40 hours and produces $43.27 an hour. It embeds two errors: it treats the package as the salary, which the table disposes of, and it assumes 2,080 billable hours, which no independent worker reaches, because scoping, invoicing, chasing and finding the next client are hours nobody pays for. A rate converter that moves between hourly, day and annual figures does the division honestly, but only as well as the denominator you feed it.

The US number, worked

Start from what has to be replaced. Cash pay of $90,000. Insurance at 7.8% of the $128,755 package is $10,043 and retirement at 3.4% is $4,378: $14,421 of benefit to buy yourself. The extra payroll tax is 6.48% of $90,000, or $5,832, less about $1,399 from deducting half the SE tax at 22%: call it $4,433. Add $4,000 illustratively for equipment, software, an accountant and liability cover. Required revenue: $112,850.

Now the denominator. Four weeks off plus public holidays leaves 47 working weeks. Bill 30 of every 40 hours, generous for someone with one client and no sales problem, and you have 1,410 billable hours. $112,850 ÷ 1,410 = $80 an hour.

Against the naive $43.27, that is 1.85×. And $80 is break-even, not a business: no profit, no reserve for the gap between contracts, no payment for carrying risk that used to sit on a balance sheet. Bill 25 hours a week instead of 30 and the same total needs $96, or 2.2×. The multiplier is mostly a statement about your utilisation, so guessing it is worse than measuring it: a stopwatch app tells you hours, while a Toggl alternative where tracked hours turn into invoices tells you what share of the week converted to money — the same input behind any honest effective hourly rate.

The UK number, worked

On a £60,000 salary the employer was spending £69,571 once you add £8,250 of secondary NI and £1,321 of minimum auto-enrolment pension. Add £3,000 illustratively for equipment, an accountant and insurance: £72,571. After 5.6 weeks of holiday, 46.4 working weeks leave 232 days, of which 80% billable is 185.6, so £72,571 ÷ 185.6 = £391 a day against a naive £60,000 ÷ 260 = £230.77. That is 1.69×.

The UK multiple is lower for one structural reason: health cover was never priced into the employment relationship, so it does not have to be repriced out. There is a genuine offset too. Class 4 NI is 6% between £12,570 and £50,270 and 2% above, where employee Class 1 is 8% and 2% on the same bands, so £60,000 of profit carries £2,457 rather than £3,211. That £754 saving is about 8% of the £9,571 of employer cost removed.

The contract does not decide what you are

Here is what makes the offer risky rather than merely underpriced: classification is a question of fact, and the label on the agreement is one piece of evidence among many. The IRS applies common-law rules across three categories: behavioural control, financial control, and the type of relationship. There is, in the agency's words, "no 'magic' or set number of factors" that settles it. On behavioural control the guidance is specific that an employee is generally subject to instructions about when, where and how to work, that "the more detailed the instructions, the more control the business exercises," and that an evaluation system measuring how the work is done points to employment while one measuring results does not. Read that against the offer. Same manager, same hours, same systems, same review cycle, work central to the business, no other clients: rehiring a laid-off employee into their former role produces that pattern more reliably than any other arrangement. Either side can ask the IRS to rule using Form SS-8, and a worker who believes they were misclassified files Form 8919.

The UK splits the question in two. In employment law, status turns on the reality of the arrangement across the employee, worker and self-employed categories, and tribunals decide it, so a contract calling you self-employed does not settle whether you are a worker with holiday and minimum wage rights. In tax law, the off-payroll working rules decide who carries the PAYE: where the client is public sector or a medium or large private company, the client determines your status and must issue a status determination statement with reasons; where the client is small, your own intermediary decides. Inside IR35, the deemed employer deducts income tax and employee NI from fees paid to your company, which moves your net further than any rate negotiation will, so get the SDS in writing first. If an umbrella company is proposed instead, note that since 6 April 2026 the agency or end client is responsible for PAYE being operated correctly.

Classification is fact-specific and jurisdiction-specific, and none of this is legal advice. It is a reason to make the working arrangement genuinely different, if the label is going to be.

What you actually gain, priced

The gains are real and smaller than the transfer. Business expenses become deductible, including a home office at $5 per square foot up to 300 square feet, capped at $1,500 on the simplified method. Retirement capacity rises if you use it, since a SEP-IRA allows the lesser of 25% of compensation or $72,000, well above the match you lost. Health premiums may be deductible above the line via Form 7206, with a trap aimed at this reader: eligibility for a subsidised plan through a spouse's employer disqualifies you for that month, and the deduction never reduces SE tax.

Then QBI, made permanent by Pub. L. 119-21 §70105, with 2026 phase-in thresholds of $201,750 single and $403,500 joint. On $90,000 of qualified business income in a 22% bracket, the 20% deduction is worth about $18,000 × 22% ≈ $3,960: real, and roughly a tenth of the $38,755 that moved.

The largest gain is not on that list. It is the right to take other clients, which turns a single point of failure into a portfolio and is exactly what the draft will often restrict. If exclusivity is in there, it is worth more than the rate, and pricing what replaces it is the subject of hourly versus day rate versus fixed price. An anchor client plus two smaller ones is the position independent consultants reach deliberately rather than by accident.

What moves in this conversation

Your position differs from a resigner's, mostly in your favour: you owe no notice, and the person calling has a delivery problem with a date on it. Restrictive covenants and the etiquette of a voluntary exit are a separate problem. What actually moves here:

• The rate. The headcount budget is gone; the project budget is a different pot, and usually the one paying you.
• A minimum monthly commitment. Hours guaranteed and payable whether or not used — the most valuable term after rate, because it turns variable work into something a lender recognises.
• Notice on both sides. Thirty days, symmetric.
• Invoice terms. Net 15 rather than the vendor-default net 45, and a deposit for month one.
• Equipment. Either they keep supplying the laptop, or the rate carries it.

What does not move: the classification, if the working pattern stays identical, because that is not theirs to grant. Nor will vendor onboarding bend — expect a W-9, or a W-8BEN if you are outside the US before anything is paid, and send it unprompted so the first invoice does not stall in procurement.

The multiple below which this is a pay cut

Take your old salary, divide by 2,080 in the US or by 260 days in the UK, and call that the salary-equivalent rate. The arithmetic landed on 1.85× for the US case at 1,410 billable hours and 1.69× for the UK case at 186 billable days. Working floor: 1.8× in the US, 1.7× in the UK, plus roughly 10% for every five billable hours a week you fall below 30. Below that, the offer is a pay cut wearing the clothes of continuity, and at the 1.0× the naive conversion produces you are funding your former employer's benefit savings out of your own retirement.

Above the line, take it seriously. Two or three days a week at 1.8×, with the rest free, beats the job you had: it covers fixed costs while you build a second and third client, and a known payer beats a pipeline.

The number is not the only test. The red flag that should stop you regardless of rate: if the arrangement sets when you work, how you work, whose equipment you use and who reviews your method, and it bars other clients, you are being asked to be an employee at contractor prices, and both the IRS common-law test and the UK status rules will eventually read it that way. Ask which parts of the working pattern they will change, and treat "none" as information about the deal.

Worklyn's Rate Check compares what you quoted against what the work returned per hour, and time tracking that feeds straight into invoices shows the billable share of your week — the input this whole calculation turns on.