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If you are working as a contractor through an umbrella company or a limited company, you will need to know how a day rate works and compares to an hourly rate, as well as the pros and cons of each. By weighing up the different types of payment rate, you may be able to decide which approach works best.
For professionals that are working as contractors, either through a limited company or an umbrella company, it is important to think carefully about how you wish to be paid, if you have the freedom to choose.
Charging at a day rate or hourly rate can make a big difference to how much you earn and the number of hours you will end up working. As a contractor, it will be up to you to understand the different types of rates and find the option that will work best for yourself and your client base.
Here, we explain how day rates work compared to hourly rates, and offer insights into which approach might be suitable for your career.
Contractors who charge a day rate bill their clients a fixed amount for each day they work, usually invoiced at the end of each week based on the number of days worked. This can be requested monthly but often, people will opt to be paid weekly.
The daily rate approach tends to be adopted by contractors who are used to charging slightly higher rates for their credentials and experience, or those who work with more valuable professional clients.
There are a number of benefits to this model that lead many contractors to charge on a day rate basis:
However, there can also be disadvantages to charging a daily rate:
Contractors who charge an hourly rate bill their clients for the total number of hours they deliver, and will usually invoice at the end of each week for every hour worked.
Hourly rates tend to be more common than daily rates, and are the norm among more junior contractors or projects with a lower budget. Generally, an hourly rate system will be used for your work.
There are a number of reasons why the hourly rate model has become so commonly used by contractors and clients:
These advantages will need to be weighed against the potential downsides inherent to this pay model:
As with daily rates, contractors who intend to charge an hourly rate should ensure that they set expectations with the client in advance, and ensure that mutually agreeable terms are laid out clearly in the contract before any work is delivered.
When considering whether to charge a day rate or an hourly rate, there is no simple right or wrong answer. It will depend on the specific details of the job, the expectations of both parties, the timescales involved and whether you have the flexibility to choose.
In order to decide which pay model will work the best, ask the following questions:
By determining which pay model you will choose, you will be able to work with your recruitment company to find roles that will suit your preferred method of working and payment. Deciding whether to charge a day rate or an hourly rate may also affect how umbrella companies assess your weekly salary and calculate any sick pay and holiday pay entitlements you will receive from them, so it is best to provide clarity on this as soon as possible.
To learn more about day rates vs hourly rates and how to determine the most effective way to charge for your services, get in touch with Sellick Partnership.