Hourly or daily rate? IT contractor guide to pay

Sleepless nights among the business community owing to worries about payment terms might be on the increase, but the terms of payment that IT contractors should concern themselves with remain the same: Hourly (H) and Daily (D).

Although there are exceptions - 'fixed price work', 'time & materials' and 'payment by results', 'D' or 'H' is the term invariably used to advertise how much a freelance IT contract should payout.

(H) rates or Hourly charge rate

  • The candidate is paid for the total number of hours worked, receiving a fixed sum for each hour worked
  • The more junior the role, the more likely pay is hourly
  • As every hour worked is an hour paid, hourly rates may be preferable on long projects, particularly as contractors don't get paid overtime, and rarely get an overtime rate or anything similar
  • Predominant on freelance bidding sites and favoured for freelance IT roles at blue-collar organisations
  • The candidate typically invoices weekly, for the hours worked in that single week.
  • When setting your charge out rate, come up with a template or formula you can apply to different offers as they come in. Example: your hourly rate could be your ideal annual salary divided by 1,750 hours, so £45,000 P/A = £26 per hour. 1,750 is used in this example because it is roughly the number of working hours per calendar year when a contactor can expect to work for ten months of the year (8 hours per day * 5 working days per week * 52 weeks / 12 months in the year * 10 working months = 1,733)

(D) rates or Daily charge rate

  • The candidate is paid for the total number of days worked, receiving a fixed sum for each day worked, and invoices monthly
  • The more senior the role, the more likely pay is daily
  • A daily rate is usually for a set number of hours and does not allow for excessive work. The drawback is the contractor can end up working more than the standard day (circa 7.5 hours) for a flat rate
  • Favoured on professional, white collar contract roles. Liked by end-users for appearing to keep budgets more in check.
  • Come up with a template or formula that can be applied to different job offers to determine your call out/ charge out rate per day. Know this well as day rates are the norm for most leading contracting sites and boards. Also, when approached by prospective clients about a call out rate, pay that is not offered first on daily basis may be off-putting to lucrative consulting enquirers. Day rates tend to offer more certainty to the end-user in terms of the final bill they will be expected to pay the contractor.

Who's rate is it anyway?

Like salaries for 'permies', rates for contractors are down to the client. As the end-user is the ultimate holder of the purse strings, any subsequent appeal (at renewal stage) for a rate/pay increase is less effective if confined to the recruitment agency.

Where a client (and contractor) is working through an agency, the client invariably has an idea at to what rates they are willing to pay for each contract. But often the agent has a degree of influence, which is more likely to be exerted where the client is unaware of current rates, new to contract hiring or unfamiliar with freelance IT skills.

Rate questions to ask to avoid pitfalls

  • How long is a day? In other words, how many hours per day are you expected to put in, as a minimum, when working on a day rate?
  • How often are you expected to work longer than the advertised hours or the set number of hours in the day rate?
  • Is there any provision for extra pay or an inflated rate to cover longer assignments during unsociable hours?
  • Are rates, or pay or remuneration, mentioned in your contract, or supporting paperwork? Is there, for example, any mention of pay/rates under the contract's notice period or restrictive covenant?
  • Will the expected rate, or envisioned charge-out rate, have any bearing on any insurance agreements or protections that are already in place?

Not asking on rates avoids pitfalls

On the whole, end-users will not want you to discuss your rate with other contractors. In some cases, your contract may state that discussing rates is not permitted - therefore you would breach your terms if you did talk about it. So be careful with contractors asking about pay, no matter how informal their approach or questioning. If in doubt, don't say anything.

Rate rise: If you don't ask, you don't get

At the end of you contract term, it is possible for you to secure a higher rate than the rate you commenced on. However if the terms is only for one week initially, then that's too soon to ask for more money!

Beyond that, an ideal time to successfully negotiate a rate rise is where your role has changed significantly from the work that you were brought in to do. There are many other factors to consider but, to gauge your chance of securing a rise, put yourself in the client's place and then ask whether your request is still reasonable. Don't expect to always get a raise just because you ask, but if you don't ask...

Guidance - as told to CUK - by Andrea Williams, a director at Outsource UK, a Swindon-based IT recruitment agency, specialising in placing interim and contract IT personnel to a range of industries in the UK and Europe.

Wednesday 2nd November 2011