Whether you are an existing contractor looking to move on to your next project or are considering contracting to progress your career, every contractor has to decide between charging hourly rates or daily rates.
Both options have their own pros and cons and will have a different impact on contractors in terms of time, ease and finances. That means it’s important that contractors do their research to find out which route will be the best for their contracting needs.
In this guide, Umbrella Broker explore the advantages and drawbacks of both hourly rates and daily rates to help every contractor gain a thorough grasp of their options and choose the best route forward.
The first step – decide on your contractor rates
Before deciding on whether you will charge an hourly rate or a daily rate, contractors first need to determine how much they can charge for their services.
Contractor rates not only vary from industry to industry, they also depend on the skill level and experience of the contractor. To determine how much you can charge, you will need to do your research:
- Look at what similar contractors in your industry charge to give yourself a rough guide of rates in your sector
- Research permanent salary points: many contract roles will have permanent role equivalents, so finding out the salaries for these roles will help you work out how much you can charge.
- Make use of online resources such as this handy guide.
Once you have decided on your contractor rates, it should become clear whether a daily rate or hourly rate is the better option. After all, on average, contractors with higher rates that work out at around £400 per day or £50 per hour will charge by day.
However, this isn’t always the case, meaning it’s important to look at both the pros and cons of both rate types in order to make an informed decision.
It’s also important to point out that there is a third option to consider. This is charging a fixed price. Here, a contractor will quote a fixed price for carrying out the project. Although this can be a feasible option for some, it can also be difficult to accurately predict how much time a project will take and therefore how much to quote, making this option problematic for many contractors.
Now you’ve determined your rates, let’s look at the pros and cons of charging hourly rates vs daily rates.
Daily Rates
Under this option, a contractor is paid for the number of days worked. As we have mentioned, this is typically the option taken by those contractors who can charge higher rates, usually of around £400+ per day.
The benefits of charging daily rates:
- For the contractor charging a daily rate usually means they can charge higher fees than if they were charging by the hour.
- For the client, this way of charging fees usually gives them a better grasp of their budgets and finances.
- Clients can also prefer this option as it means that if they need to ask the contractor to work a few extra hours it won’t cost them any more money.
On the other hand, the cons of this option are as follows:
- Some clients will take advantage of this system, expecting the contractor to work long hours frequently since they are paying no more for this time. This is worth considering for those contractors who do not wish to work lots of overtime.
Hourly Rates
The other option is to charge your contractor services by the hour. With this option, contractors are paid a fixed sum per hour they work. This is the most common route taken by contractors and is most popular for those charging around and below £40 per hour.
The pros of this option include:
- For contractors, it can stop clients expecting them to work long hours frequently, after all, unlike with a daily rate, the client will have to pay for any extra hours worked. If the contractor does need to work extra time, this will therefore require approval from a manager.
The cons of this option include:
- For clients, it can be more risky to take on a contractor charging an hourly rate as this can lead to costs building up if extra work is required. That’s why many clients will cap the number of hours the contractor can work.
Generally speaking, this is the option preferred by both the contractor and the client as it clearly lays out what is expected of each party.
Hourly vs daily rate: what’s the best option for you?
When it comes to hourly rate vs daily rate, there’s no right or wrong answer. Your decision will be impacted by your own contractor rates, what industry you work in and the preferences of the client.
Generally, for those charging upwards of £400 per day, a daily rate is better. However, it is worth remembering that this does leave the client open to ask the contractor to work extra hours when required.
On the other hand, for contractors whose rates work out at around or below £40 per hour, an hourly rate is usually the best option. However, it is worth considering that this can be seen as more of a risk by the client who doesn’t want to pay more hours than expected if the contract requires it.
