For contractors, one of the most challenging decisions to make is whether to charge hourly or daily rates. Some think it makes the most financial sense to charge hourly rates, while others opt for daily rates for the sake of simplicity.
Regardless of how experienced a contractor is, it is always a good idea to carefully weigh up the pros and cons of both sides before answering this all-important question. Read on for Umbrella Options’ breakdown of hourly vs. daily rate.
Unsurprisingly, there are no uniform hire rates for contractors, given how different industries can be from one another. This means your first task when deciding between hourly vs. daily rates is to have a good understanding of what your sector typically charges. In addition to looking at the rates of other contractors in your field, consider what the salary is for permanent employees in similar roles to you. While not an ironclad method of determining your rates, assessing what others charge can be a good way of making sure you are along the right lines.
Other critical factors in determining your rates are experience and skill level. It is essential to consider these points to ensure you don’t sell yourself short, or overcharge and end up dismissed at first glance.
It is worth noting that you can opt to charge a fixed price for your contract work. Rather than charging for the time a contract takes to complete, a fixed price is simply a quote for the entire job. It can sometimes be difficult to accurately measure how long a contract will take, however, and how much should be charged as a result. For less experienced contractors, this option may not be ideal.
Having a good grasp of your industry’s standards with regards to rates is key to determining what your own rates should be, which in turn is invaluable to your finances as a contractor. The importance of research cannot be overstated, as it ensures you can position yourself competitively within your market, opening you up to a broader range of work opportunities.
Once you have assessed what your industry charges on average, you should have a clearer picture of whether an hourly rate or a daily rate is better for you. Contractors that charge a higher rate, usually over £400 a day or £50 per hour, will opt for a daily rate, as this appears more reasonable to clients and generally ends up earning the contractor more. Rates lower than this are often charged hourly.
It is not always the case that these rates are sensible, however. Every contractor judging between hourly rates vs. daily rates should research their industry, in addition to the pros and cons of each rate, before settling on a decision.
Hourly rates are the current favourite for contractors. With this, it is unusual for clients to expect a contractor to work extra hours, as this would mean a larger bill once the work is completed. Should overtime be necessary, it will need the manager’s seal of approval, meaning surprise additions to your workload are significantly less likely.
This method is a bit riskier for the client than the alternative, however. If the work does need overtime, the client will need to pay more than they initially expected. For contractors, this can mean more scrutiny, and an upset client if you mismanage your time. In addition to gaining approval for overtime, most clients will put a cap on the number of extra hours a contractor can work.
For contractors looking to charge over £40 an hour for their services, the general rule is to quote a daily rate. Of course, this is only advisory, as it occasionally does not make sense to do so.
By choosing a daily rate, you will be paid for a specified number of days, which can often be more appealing for prospective clients. Time is a bit more flexible, unlike under hourly rates, and the client can ask you for overtime if they believe the work needs it.
Unfortunately, the main disadvantage to daily rates is the ease with which it can be abused. Some clients may take advantage of this vulnerability, and expect you to put in far more extra hours than is reasonable. However, this can be offset by choosing an hourly rate, which will result in a larger paycheck should you be asked for overtime.
Back to the most important question. Regrettably, there is no easy answer, as it is entirely dependent on your situation.
Choosing an hourly rate is excellent for transparency between you and your client, as expectations tend to be much more clear-cut. Provided you stick to your time schedule, this rate should pose no problems for either party.
Alternatively, you might find it preferable to operate on a daily rate, as you know what you will be paid at the end of the day, regardless of whether you finish your work quicker than expected. Do keep in mind the risks this rate carries with it, however.
In addition to what is best for you, your choice of rate may also be influenced by your client’s preferences. Some would rather pay daily, as it gives the client more control, while others will find an hourly rate better. Ultimately, as long as you do your research and bear in mind any preferences your client may have, you will be able to make a well-informed decision, even if it means adjusting your rate should a particular contract demand it.
Regardless of your chosen rate, we at Umbrella Options wish you the best of luck in your future contracting! If you are looking for an umbrella company that works for you, or simply want some questions answered, why not get in touch?