Every contractor has to decide whether they will charge hourly or daily hire rates. This is an important decision that contractors must make that will have an impact on how much they will earn and whether they will be paid for extra hours worked.
When choosing between hourly vs daily rates, contractors should first determine how much they can charge for their time, dependent on sector, contract and experience. Having determined your contractor fee, you can next look at the advantages and drawbacks of both the hourly vs daily rate options to see which is the best fit for you.
To help, Umbrella Broker has put together this handy guide, so every contractor can find the best way to charge their fees in 2021.
Step 1: determine your contractor rates
As we’ve already mentioned, before determining whether hourly or daily rates are best for you, the first step is to determine what you can charge for your time.
To do this, you will need to do your research, looking at contractor rates in your industry, as well as rates for your experience level. After all, if you are a seasoned contractor with years’ worth of experience under your belt, you will be able to charge more for your time than a brand new contractor with less experience.
Contractors may also find it helpful to look at the salaries of their permanent counterparts. Although contractors can usually charge more than employees, this can be a useful starting point to gauge the salary levels of these roles.
Once you have done your research and landed on your contractor rates, it will become easier to determine whether daily or hourly rates are best for you.
In general, contractors that charge higher rates, roughly around £400 per day or £50 per hour, will be better off charging their rates by the day as they will earn more than they would if they were charging by the hour.
However, before making your decision based solely on rates, it is important to look at the pros and cons of both hourly vs daily rates.
Daily rates: pros
As the name suggests, when a contractor charges their time by the day they are paid for the number of days worked, not the number of hours worked.
There are many pros to charging by the day.
With this option, the contractor can charge a higher fee than if they were charging their time by the hour. This means that the contractor will take home more money at the end of each month which is a big advantage to many.
Another benefit to this option is that it allows the client to get a better overview of their budgets and finances, giving them a clearer overview of where they stand in terms of the project.
Daily rate: Cons
However, there are also drawbacks to charging daily rates. The main disadvantage of this option is that clients might expect the contractor to work longer hours without paying them more for their time.
This is because they are being paid by the day, not the hour, and so it is always worth considering that this might not be the best option for contractors that don’t want to work unpaid overtime.
Hourly rates: Pros
The second option for contractors is to charge their time by the hour. As the name suggests, this is when the contractor is paid per hour worked, rather than per day worked.
As we have already mentioned, this is usually the option taken by contractors charging £40 or less for their time. However, it is also worth taking into account the pros and cons of this option before making your final decision.
Let’s start with the benefits of charging by the hour.
The main advantage of this option is that, as the contractor is being paid hourly, it can stop the client from expecting them to work overtime frequently as they will have to pay for every hour worked.
In this case, if the client wants the contractor to work extra hours, they will need to seek the approval of a manager to sign off the extra time.
Hourly rate: Cons
On the other hand, the drawback to this option is that, for the client, it can be more of a risk to take on the contractor in this way as, if extra work is needed, this can lead to them paying the contractor more than initially anticipated.
For this reason, many clients will put a limit on the hours the contractor can work.
Is there another option?
There is a third and final option for contractors which is charging a fixed fee.
As the name suggests, this is when the contractor will charge a fixed price to the client to carry out the project.
However, most contractors find that charging their time by the hour or day is favourable as it can be hard to predict how much time the project will take and therefore how much they should charge.
