How many hours is a contractor day rate in the UK?
As technology continues to evolve, the specialised knowledge and technical prowess of IT professionals have become integral to society.
And with almost two million IT contractors operating in the UK, it is important to understand the pay structure and how to navigate contracts to ensure your pay reflects the work you do.
Here, exclusively for ContractorUK, Alexandra Langston, payroll manager at Matchtech, explores what an IT contractor can expect when it comes to day rates; how much is in such a rate, what determines the rate and where legislation could affect the daily rate.
What is a contractor day rate?
For a freelance or contract IT professional, the term ‘day rate’ refers to the amount you charge a day for your services. The most professional opportunities and contracts tend to be advertised with a ‘day rate,’ whereas temporary posts and more casual tech assignments tend to offer ‘hourly’ rates.
But both types of temporary IT worker are hired for specific roles and periods (unlike salaried employees), which ultimately means higher earning potential, and flexibility.
How many hours is a day rate?
In the UK, a typical working day equates to 7.5 -- 8 hours a day.
As a contractor, naturally, you have a degree of flexibility over your working hours, but it also depends on your client's requirements.
If you yourself require flexibility in your contract, such as for personal commitments, this should be discussed with your client from the outset and built into your contract. Such flexibility on your part may of course impact the hours you operate on a certain day, but we’d advise you keep exceptions to your standard ‘day rate’ to a minimum. You don’t really want upset clients, who have their own interpretation of ‘day rate' -- so see ‘Client interpretation,’ below.
What about the off-payroll working rules/ IR35 and rates?
When considering IR35, the legislation does not differentiate between daily rates and hourly rates.
Indeed, all rates are treated equally when calculating for those who fall inside and outside IR35. However, to avoid nasty surprises, the OPW or IR35 rules should always be factored in when contractors look at their rate and take-home pay.
Remember, contractors who fall outside IR35 are typically paid gross, and the unit value is the rate agreed by both parties, with no amendments.
What is an assignment rate?
On the other hand, for contractors inside IR35, the ‘fee-payer’ is responsible for paying th Employer NIC and (if applicable) the Apprenticeship Levy, with the effect that the limited company is no longer responsible for paying these, and the unit rate is reduced to reflect this, creating what’s called an ‘assignment rate.’
For contractors on a Statement of Work, which theoretically allows ‘milestone payments’ at specific points in the project, our recommendation is to discuss the number of hours to be worked in one day. This should ensure the client’s expectation of days required to meet a milestone is considered when looking at or deciding the rate.
Factors determining day rates are numerous
To determine the day rate, your individual skillset and knowledge should be taken into consideration.
Like many other industries, the realm of IT has become increasingly competitive, with in-demand skills, such as data science, cybersecurity, cloud computing, and software development commanding higher rates, due to their scarcity and demand.
The second determinant is the overall complexity and scope of the project at hand. More intricate projects that require specialised knowledge often warrant higher rates due to the unique challenges they present, and the time commitment they may entail.
Geographic location is still also key in determining how much the day rate will amount to. Rates can vary widely based on the cost of living within different regions, meaning contractors operating within metropolitan tech hubs can usually command higher rates compared to those working in less expensive areas.
Your overall reputation -- in the industry; its sub-sectors, the labour market or among the decision-makers involved, also plays a crucial role in your perceived value.
Positive testimonials on LinkedIn, successful projects on your CV, and recommendations from previous roles or line managers can all help build your overall popularity, thereby exerting upward pressure on the rate.
The key to unlocking your optimum day rate comes down to research. Typically, day rates will be discussed during the initial stages of any new contract. So as a contractor, you'd be wise to take note of current market values and match them against your current skillset to ensure your rates are competitive and reflect your worth.
Client interpretation (includes pro-rata)
When discussing pay rates with a client, communication and transparency are vital.
Naturally, one of the main perks of becoming a contractor is that degree of flexibility, but when it comes to calculating day rates, a client may have their own interpretation.
For a client, a standard day rate may mean one unit price based on 7.5 hours of the contractor’s time. However, this may not take into consideration hour-flexibility, travel, or meetings.
If you work fewer hours than the day rate specifies, a company could process a unit at 0.5 of your agreed day rate. On the other hand, if you work more than those specified hours, an hour ‘overtime’ rate will usually be agreed upon with your client.
It’s worth noting, however, that it is not standard practice for a payroll department to track your working hours against your agreed day rate, which is where the term ‘pro-rata’ comes in.
In essence, ‘pro rata’ for a contractor means your day rate will be distributed in proportion to the number of hours you have worked. However, it's worth noting that these calculations aren’t always accurate, and you invariably end up being paid less than what an hourly rate would equate to! Some companies request that an hourly rate be paid, if possible, to avoid any confusion.
Flexibility, legislation, and round pegs in square HMRC-holes
When it comes to you or the client requiring flexibility (mentioned at the top), this is where things get a little more complex with day rates!
For example, if you work on a project where a level of flexibility is required, typically contractors would be advised to use a day rate as the unit of pay for work done in a day, regardless of how long the work takes.
Also be aware, in April 2019, the government introduced a law which requires all employers to provide payslips with details about hours worked, based on specific criteria. Unfortunately, the Real Time Information (RTI) submitted to HMRC only requires information about hours worked in certain bands, including up to 15.99 hours, 16-23.99 hours, 24-29.99 hours, 30+ hours, and 'Other.'
The 'Other' category is typically used for workers without regular schedules, such as those on zero-hour contracts. Yet this makes it difficult for HMRC to identify breaches of National Minimum Wage (NMW) regulations, especially for day rates.
In 2022, this issue was partly addressed, as HMRC said that hours-worked will be further considered for day-rate workers.
Ultimately, this consideration could result in contractors requiring a more robust record of hours-worked. Who knows; for simplicity's sake, it may even prompt a shift towards hourly rates. Until then, and for now at least, it’s ‘day rate’ that prevails for most professional contractors.