After taking the leap into working on a contract basis, there are a few things that you will need to know. The first is how to choose whether you should be working through an umbrella company or limited company. The next thing is to determine what rate of pay you should be earning.
- Define your minimum rate
In order to decide what your contract rate should be, it is important to suss out the minimum rate you can charge so that you can live comfortably. To begin with, work out your personal living costs (food, bills etc.) and then add up business costs, including expenses, to give you an idea of your yearly costs.
Once you have this total, you can then divide the cost by the amount of hours you expect to work for that year. Let's say you aim to work 8 hours per day, over 49 weeks, you should expect to work 1,960 hours per year. Don't forget to include tax deductions. This will give you the very minimum amount you will need to charge in order to live comfortably.
- Analyse industry averages
It's important to always have an up to date understanding of average rates for the industry you operate in. This way you can always ensure you price yourself competitively rather than under or overselling yourself.
It is also important to remember that, as an umbrella or limited company contractor, industry rates will only give you an idea of your worth. A contractor's rate of pay also depends on specific skills, experience and also the supply and demand for a particular industry at that time. If there is a lack in skilled labour in your chosen industry then you will have greater leverage to negotiate higher contract rates.
So what are the best ways to find out industry averages?
- An online salary calculator can give you a rough estimate of industry averages however, as mention previously they don't take into account certain skills sets and previous experience levels.
- Job boards will also provide insight into how much employers are currently willing to offer contractors for certain positions.
- Contract rates for niche markets
Are you a limited or umbrella company contactor that offer a highly tailored set of skills that are sought after by niche markets? If so, this can have a big impact on your contract rates. Use your unique skills set as leverage to negotiate higher rates.
As a limited or umbrella company contractor it can be tough at first to set the right rate. The best way to determine this is by experience because over the course of a couple of contracts you will get more of a feel for the market as well as the average time and cost various contracts will take you. However our hints and tips above will give you a head start whilst you're gathering that experience.
Now your clued up on contractor rates, why not take a look at 5 Tips on contract negotiation that you can use today.