Skip to main content

Contractors, what features can influence your pay rate?

Paystream News

Michelle Derungs

Friday 14th Aug, 2015

With its added flexibility, greater autonomy and enhanced career prospects, for many, contracting is a very attractive way to work. However, it's the earning potential that comes with working as a contractor that acts as the biggest pull when choosing to work in this way. And here are some of the biggest things that can influence your earning potential.


Much like permanent employment, pay rates are greatly influenced by location. Therefore it is no surprise that contracts based in city centres or those that are located in Greater London or the South East tend to be higher than other areas.

Skill set

As an umbrella or limited company contractor, your skill set will have a big impact on your pay rate. For the most part, contractors are brought in to fulfil a specific need for a specific period of time. Therefore, if you have a skill that is highly sought after, it can give you greater leverage to negotiate higher pay rates.

Supply vs Demand

There is no doubt that economic change will play an impact on contractor pay rates. In an economic downturn the contractor market is the first to be affected as companies will reduce the amount of contract workers they have working for them. This means that sourcing contracts becomes very competitive so pay rates are lower as the demand lies with the contractors. However in an economic upturn contract placements are the first to increase so as the number of placements start to increase the demand shifts to the company, meaning that contractors have the ability to negotiate better pay rates.


As an umbrella or limited company contractor, a strong knowledge about the industry you operate in can also give you more leverage to negotiate higher pay rates. This is because some industries, such as financial and law, require in-depth knowledge of best practices, legislation and terminology.

Limited company vs umbrella company

Choosing to work through an umbrella company or setting yourself up as a limited company contractor can have an impact on your final take-home pay. This is because as a limited company contractor you withdraw funds as a dividend rather than paying yourself a full salary making it the most tax-efficient way to work. However, your ability to work as a limited company contractor is entirely dependent upon your IR35 status.

Understanding some of the key factors that can influence pay rate can be very useful as a contractor as it allows you to make an informed choice when selecting that next contract.

Back to the Top