What Rate Should I Charge?
Topics
Tuesday, 1 July, 2008 | Tagged in Contractors, Rates | Written by Crackerjacks
More and more of us are taking up the opportunity to manage our own careers on our own terms.
One of the great things about contracting through Crackerjacks is that you get to determine what you’ll work for. In other words – you get to set your own rate. While this will depend largely on market rates, and on the particular skills that you bring to a contract, it’s important to have a good knowledge of the industry, the value of the services you’re offering and an understanding of how employment costs are calculated.
Factors To Consider
Contractors and permanent employees differ in their rights and benefits. Permanent employees have access to a range of benefits which impact their actual available hours: annual leave, sick leave, paid public holidays, long-service leave, superannuation, jury leave, compassionate leave, family leave, professional development, and retrenchment/redundancy provisions. As a contractor you may not have access to these benefits, so you might want to factor these into your hourly fee.
So how do you do this? You can start by working out how many hours a year you’d be looking at working if you were a permanent employee, and then deducting hours to account for whatever benefits are relevant to you. These might include leave, superannuation, insurance and other regular benefits of employment. At minimum you should be factoring in some annual leave.
Additionally, if it’s a short term contract that you’re completing, it’s a good idea to factor in potential downtime and overheads that may occur while you’re searching for new work. Allowing a factor of 10-20% for this is about how much you should be looking at. Remember, though, as a Crackerjack you can be in the market for new contracts even while you’re working – just make sure that your calendar reflects your availability and let the contracts find you.
Let’s Take You Through An Example
Based on a 40 hour week, the number of hours you would work per year is 40 hours x 52 weeks = 2,080 hours per year. This is the number you start with. The next step is to factor in the benefits you’re missing out on as a contractor.
| Number of Hours | ||
| Public holidays | 11 days per year | 88 |
| Annual leave | 20 days per year | 160 |
| Sick leave | 10 days per year | 80 |
| Superannuation | 5% of total hours per year | 104 |
| Professional indemnity | 3% of total hours per year | 62 |
| Miscellaneous leave (e.g. family, jury duty) | 3 days per year | 24 |
| Professional development | 5 days per year | 40 |
| 558 |
So if you wanted to account for all of these factors in your rate, your hourly fee would be based on 2,080 hours per year – 558 hours of benefits = 1,522 hours.
If the contract was a short term one and you wanted to factor in downtime of, say, 15% you’d take this into account by dividing the number of hours per year you’re factoring into your rate by 1 plus your downtime factor. I.e. your rate would be based on 1,522 hours / (1 + 0.15) = 1,323 hours.
So then to work out an hourly rate, you take your target salary and divide it by the total number of hours of benefits and work in a year.
Say your target salary (before tax) was $50,000 a year.
For a full-time permanent employee, the hourly rate is $50,000 / 2,080 hours = $24.04.
For a long-term contract, the hourly rate is $50,000 / 1,522 hours = $32.86.
For a short-term contract, the hourly rate is $50,000 / 1,323 hours = $37.79.
Based on all these factors, for a long-term contract your hourly rate is about 137% of a permanent employees’ and 157% of a permanent employees’ rate for a short-term contract.
A Few Key Points
Remember, we’re not here to tell you how much you can or should charge. Not all of these benefits may be relevant to you, we may have missed out some that are, you may be able to factor in a premium for your skills, plus you can’t forget to look at the market and what other people in your field are charging.
Sound confusing? Working out your rate can be one of the toughest things as a contractor. It’s a never ending process too; whichever way you choose to calculate your rate, you should review it on a regular basis. You may choose to increase or decrease your rate based on how attractive the role on offer is, the length of the role or how much your skills have increased over time. On another note, if you’re a top-rated Crackerjack and constantly receiving excellent performance reviews, you may find that you can charge more of a premium.
Happy contracting.
October 16th, 2008
Hi,
For new entrants to the workforce, i.e. migrants, would you have any ideas on what to put into the equation?
October 20th, 2008
Hi Maybelle – thanks for your comment. It really depends on their skills and experience and the relative demand for these in the market that will determine what rate they charge. Best approach is to get some NZ experience initially; contracting through Crackerjacks can help you through this.
Talk soon
Regards
Tony
October 24th, 2008
On my last contract I asked the customer to make me an offer.. that was just after he stated he was impressed with my CV.., I was in front of him, he made a good offer and I accepted on the spot.. maybe Crackerjacks needs to take account that publicising a rate from a contractor side on a web site may not always help open the door.. especially if its too high and if its too low well what does that say about the contractors self worth.. Its the market that determines the rate which comes down to supply and demand like any market.. It would be helpful for crackerjack to publish some stats as you start to see what is actually offered.. also need to see the stats on job offers versus contractor supply.. On the client side the potential hirer probably needs to know what the average, top and bottom rates are.
October 25th, 2008
Hi David, thanks for your question.
We specifically don’t publish your Crackerjacks contractor rate at all. Upon sign up by a contractor we ask for your rate range (what $’s you ideally would expect – top, and what the min $’s you would accept for a contract). When a company is looking for a contractor they are required to disclose how much they want to pay, therefore they only get to search upon you if the rate they wish to pay is within your rate $ range per hour that you’re willing to accept. By doing this there is no need for a messy negotiation on rate. We definitely have plans to put on key stats for the industry in the near future as well as use stats for keys skills and rolls from our own service when further depth is created.
Talk soon
Regards
Tony
October 25th, 2008
Thanks for these guidelines.It really helps to calculate the hours and rates specially for short term rates
November 27th, 2008
I live in Australia but would be interested in picking up contracts in New Zealand. Are there any problems with doing this with the ‘Crackerjack model’?
November 28th, 2008
Hi Paul
There are no issues in doing this, so go for it!
March 22nd, 2009
The article on hours is very useful- and simple to apply. Thanks it helps a lot. Bruce
August 11th, 2009
Hello Kristen,
I t is a good thing that there are many options regarding holiday pays.
Thanks Sneha
August 11th, 2009
Hello .
The above helps when you are out there in the work force . Many thanks for that and pointin out the equation .
Gillian
August 13th, 2009
Hi Sneha
Thank you for your comment – glad to see you are up to speed with the technical details surrounding holiday pay now.
Kind regards,
Kristen
November 19th, 2009
Hi recently my client has started talks of buying me out from my agentS for a long term direct contract. I just want to understand that as a contractor what are my options? Do I have a say in this matter? I do like the new contract. Is there a cap that my agent can charge as a buy out fee? Can he stop me from anything? He said he leaves it on me. I have encountered this situation for the first time.
November 19th, 2009
Hi Rj
In this situation the agent has to act on your behalf, because the contract is between them and your client. In this case you can only hope that the agent acts in your best interests. This is something you should be discussing with your agent. We would like to point out this situation would not happen if the contract was engaged through Crackerjacks. Because we follow a direct engagement model (where the contract is between the contractor and client directly) there is no ‘middle man’ as such.
April 30th, 2010
Just have bookmarked your site, and waiting for the next interesting article
May 1st, 2010
I want to start my own blog too, what blog platform do you use, where i can download it ?
May 3rd, 2010
Hi there
You can create your own blog on Blogger – see this site for more details – https://www.blogger.com/start
All the best,
Kristen
May 16th, 2010
I came across your article, i think your blog is interesting, keep us posting.
June 19th, 2010
Great info, thanks for useful post. I am waiting for more