One of the first questions contractors are asked by new clients is: "What is your contract rate?" The answer is usually given either as a day rate, or as an hourly rate of pay.
The decision over which to quote can depend on a few different factors, such as whether a typical job lasts for several days or more, or whether the contractor must spend full days travelling to a specific location.
In some circumstances, a fixed price may be quoted upfront for a completed job, although this may still be subject to an agreed number of working hours, with an hourly rate for any excess.
What is a daily contractor rate?
A day rate charges the client for the number of full or part days worked, and is usually used by contractors who earn more than about £400 per day.
This can be open to a certain amount of dispute, for example if the client starts to demand unpaid overtime on a particularly pressing project.
For this reason, daily rates should be clearly defined so both client and contractor have clear expectations of the amount of work that will be done per day.
You should also have a clear agreement when it comes to part-days worked. It's normal to charge for the full day if any work is done, but the client should be aware of this too.
What is an hourly contractor rate?
An hourly rate is more common in many sectors and is typically used by contractors who earn less than about £40 per hour.
This approach is much more clearly defined, as any overtime must be paid for at the same hourly rate.
As such, jobs typically stay on a tight schedule and the responsibility is on the contractor to deliver a fair amount of work per hour.
You should still have a clear agreement in place so there are no disputes about the rate of work and whether the client can insist the contractor stays for longer to complete the job.
Which is the better option?
The best choice can depend on the nature of the contract, the required flexibility in the number of hours worked per day, and on the total cost of hiring the contractor over the course of the job.
You should also take into account the payment terms. If the contractor is to be paid weekly, it may be sensible to charge on hourly terms, so that each week's pay is a fair reflection of the varying amount of work done.
For longer contracts on monthly invoicing terms, and especially with 60-day, 90-day or even longer deadlines for payment, it may be more scalable to charge a day rate which requires less micromanagement of time sheets and overtime.
Always keep records
Whichever method you agree on, keep adequate records to show how much chargeable work has been carried out, and copies of any agreed terms, conditions and contracts.
This can reduce the risk of disputes relating to paid and unpaid overtime, part-days charged for, and jobs where the relationship breaks down before the project is complete.
Ultimately, clear upfront agreements protect both clients and contractors, while helping to build an evidence trail that can be used to prove earnings in the future.
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