One of the toughest choices that contractors have to make is whether they should choose an hourly hire rate or a daily hire rate. Will it be easier to use a daily rate? Will an hourly rate benefit you financially, and which will ensure you maximise your time the most?
It’s vital to determine both options’ pros and cons, regardless of whether you are thinking of moving from permanent employment to contracting or you are an experienced contractor.
Different industries will be susceptible to different contract hire rates, while the skills you provide will also play a part. The majority of the time, the rate you choose will determine whether you should provide a quote based on an hourly or daily rate. Commonly, those who have a higher rate will opt to quote per day.
However, it’s worth noting that it is also possible to carry out work for a fixed rate. In this instance, you will provide a quote for specific work that needs to be completed. Despite this, it can prove difficult to determine how much time you will need and what your quote should contain.
The hourly or daily rate will become a vital part of your contractor finances as you move forward. Therefore, before making any decision, you should identify what other contractors are charging in your industry. The aim is to ensure you fall in line with your competitors while giving yourself the best opportunity to win work.
Should the quote you provide be too high or too low, there will be consequences, so ready yourself for this. If the quote is too low, then you could miss out on earning more, or you might be considered as being underskilled. If the quote is too high, then you will be overlooked. These are things that can happen, regardless of whether you offer an hourly or daily rate, although this is seen more in those who offer an hourly rate.
When it comes to working out your rate, it’s important to remember that contracting rates are commonly higher than those in permanent employment. This means that the lowest rate you offer should be factored around what you would earn as a permanent employee. This is crucial when thinking about IR35 because whether you are inside or outside, you could see a reduction of as much as 25% in your take-home pay.
With the amount you want to charge decided, you need to determine whether you want to quote on an hourly or daily basis. One rule to follow focuses on how much you charge. If the hourly rate equates to over £40 an hour, then it’s recommended that you opt for a day rate. However, it is not always as clear as that.
Using a daily rate, you will be paid for a fixed number of days. For your client, they might prefer this as they might be required to ask you to work more hours occasionally. Compared to an hourly rate, costs can increase significantly, although there is more flexibility around the time using a day rate.
Despite this, there are instances where some abuse this system, which means that long hours could become a frequent request, but an hourly rate will prevent clients from requesting this unless they want to pay more.
Contractors are more likely to choose hourly rates, but this poses a risk of costs increasing for the client. Therefore, it’s recommended that a cap on the number of hours is implemented.
With regards to overtime, this would require prior approval from the manager, but this is also likely to mean that last-minute requests are not likely. However, poor time management could mean that you are not using your time in the right way, and that’s likely to lead to the client taking notice and asking questions.
Hourly rates provide a clear understanding of what both parties should expect.
This is purely subjective and is governed by the situation you are in. With an hourly rate, the expectations are set out, and in this situation, it’s possible to manage the output that the client expects. With a good working relationship, it should mean that there are not like to be any problems working with this rate.
In contrast, it could be put that using an hourly rate could lead to contractors not using their time wisely. The emphasis is on time instead of the outcome, which can mean that it can take longer to complete. However, with improved flexibility around time, it could also have the opposite impact. Some contractors might choose to be more productive, knowing they will be paid for the day, even if tasks are completed quickly.
It’s common to see day rates when the rates of pay are higher, and there is a reason for this. Opting for an hourly rate can leave clients with a significant challenge to overcome. With it broken down in this way when compared to a day rate can lead to alternative reactions.
From the perspective of a client, you could give them a quote for a day’s work, which equates to £50 an hour and over the average working day of eight hours, this would cost £400. In another scenario, you give them a quote for a full day of work of £400. This will mean that the client needs to work out the hourly rate, which would take more effort and prove challenging for them to negotiate rates. However, the client will understand that a daily rate brings more flexibility should any changes need to be made. A day rate provides a more cost-effective option as it avoids the need to pay for additional hours should improvements be required.
As a result of this, this method is likely to be the preferred choice of creative industries. With administrative work, the client might feel more confident opting for an hourly rate.
There is no clear cut answer here. However, with research, you can see the client’s position and understand your industry’s best practices, allowing you to make the right decision. This could even result in your moving between the two methods depending on the project.