Contractor day rate - calculating based off pro rata annual 'salary'

Question

I have been working on a self-employed contract for almost 12 months. When I started, they offered me a 'pro-rata salary' of £37k.

They asked to be billed by the day, and naively I just did

37,000 / 12 / 4.3 (avg weeks per month) / 5 = 143.41

However, I've realised that there's a few things wrong with this approach.

Employees don't work every single day. Typically they get:

• 28 days paid holiday
• On average 5 days paid sick leave (according to this source.
• 8 bank holidays off
• Employers national insurance paid for them (currently roughly 14% about £8.6k) as a freelancer I have to pay this
• Pension (typically an extra 5%) - again I have to pay this myself.
• Payroll done for them - I have to pay an accountant for this.

My question is: which of these things is it reasonable for me to account for in calculating my day rate?

And also, how would you suggest re-negotiating based on this?

Answer 1

which of these things is it reasonable for me to account for in calculating my day rate?

All of them, plus the biggie - at the end of the contract they won't have to pay you any redundancy money. As a contractor, you need to factor in the time it'll take to find the next contract, which could be a month or two every six months.

All these things mean that contractor rates are 2 to 2.5 times permanent rates.

how would you suggest re-negotiating based on this?

Start by looking at other contracts in your area. Call the agents if you're not sure. Negotiation is much easier when you can just ask for the market rate, and have a good alternative if they say no (i.e. you could take one of the other contracts instead).

Answer 2

I'm going to leave aside that fact that you negotiated poorly in the first place; you already know that. Learn from it and move on.

And also, how would you suggest re-negotiating based on this?

Make sure you have enough money to walk away from your client. Being able to say "No" because you have enough money to pay upcoming bills for at least the next 2 months (better 6 months+) gives you enormous leverage.

Now - the hard part. You need to figure out what it is they need, and sell them that. Your costs are your problem, not theirs.

If they think they need a cheap "resource" - walk away. You won't get much more than you're already on. Or negotiate a shorter notice period so you can keep working whilst you look.

Ideally the're looking for someone competent who can do the job. You've been there a year; sell that. They won't need 3 months for someone more expensive to get up to speed.

The amount you charge also depends upon how niche the work is (how likely they will find someone else, at any price) and where you are based. Even a in small pond like the UK, the rates vary considerably across the country. You might be happier trading a lifestyle for a lower rate.

---

I hate the term "resource", but in many cases it's entirely apposite, as many companies really do think that knowledge workers are interchangeable parts.

Answer 3

The usual rule of thumb in contracting in the US is to take your annual salary and divide by 1000, and that gives your hourly rate. Multiply that by 8 and you have a day rate.

If you were working FULL-TIME, that would appear to be a 2x increase. Since, as a rule, contractors will typically have a significant amount of unpaid "on the beach" time, and will typically have significantly higher expenses, this averages out. If relocation is involved, this must be adjusted for cost-of-living differences.

If, for example, you live in, say, Dallas TX, and the job is in New York or San Francisco, your expenses will be a lot higher than they would be in Dallas. Years ago, while living in Dallas, I was approached about a job in San Francisco. After running the numbers, it was clear that I would need a 50% increase JUST TO BREAK EVEN.

Answer 4

As an ex-UK contractor, I second the "roughly twice your permanent salary" and the Ltd Co. Get PI insurance for the company as well. Your accountant will do payroll for you and can also offer all sorts of decent advice. Expect to pay about 100 GBP / month for accountant. But I think you will have to save that for next time.... for this contract you are stuck with what you have negotiated.

Answer 5

As a rule of thumb, the annual salary should be 120-150 daily rates. If your annual salary is £37,000 then your daily rate should be £250 to £300.

How do you re-negotiate: “It seems I was very naive with my daily rate. You took advantage of that for a year. So the rate will be £300 per day. You take it or leave it.” If they don’t agree: “Also, if you leave it, you will have to pay my tax and NI for the last year since I worked as an employee”. The last bit is the nuclear option, but call it revenge for ripping you off.