Here are the steps to set your pay rates and justify them as a contractor so you can streamline the application process.
One of the challenges of being an independent contractor is determining your rates. In the early days, you may be tempted to ask for a low amount so you can find work and build your reputation. As you start to value yourself and recognise what your skills are worth, you’ll have the confidence to raise your prices.
Rates are different across industries and borders, but the following should help you figure out how to create a rate card for yourself.
Creating a Rate Card: What to Keep In Mind
Firstly, do not set out to charge an amount similar to your full-time salary for contract jobs. This type of work can be sporadic at times so most industries expect to pay contractors a higher rate.
Depending on your qualifications, you should set your contract rates at 20-30% higher than you would for a permanent position. So if you would expect to earn $50 as an employee, you would earn something more in the vicinity of $62.50 per hour as a contractor. You may set a rate card with a sliding scale of $60 – $65 per hour.
Depending on where you live and the fine print of the contract on offer, think about factors such as superannuation/retirement savings. Some roles will have retirement pay included in the package, others won’t so you will need to charge for this separately.
If your skills are in high demand, you should be able to determine the annual income you want and work backwards.
For example, if you would like to earn AUD120,000 over the course of a year but you expect to spend three months either looking for work or taking an unpaid break, figure out an estimate of the hours you will work over the year, then divide this by your figure of AUD120,000.
With this being said, you also need to know the benchmark salaries for contractors in your industry. There are often job platforms which will help you examine averages or which advertise similar roles so you can compare.
Plenty of websites give ballpark figures, such as emolument.com for South Africa, Glassdoor in the UK and au.talent.com in Australia. However, it may pay to join a more specific platform so you can view average roles which are closely aligned with your talents.
When you calculate your rates, don’t forget to factor in insurance (it’s recommended you have some professional liability insurance in place). Factor in overheads such as the cost of owning your own device or paying for your home internet in your calculations.
Tax is another consideration; you’ll pay more tax as you earn more money so be aware of tax thresholds. For example:
In Australia, you pay $5,092 plus 32.5% of every dollar you earn over $45,000, and $29,467 plus 37% of every dollar you earn once your financial year income exceeds $120,000. Because of this, you may decide to set a slightly lower rate but talk to your employer about fringe benefits such as health insurance or rent contributions which would lower your pay but save you money.
A final point; you may decide to charge a day rate rather than an hourly figure. This can make life more manageable because you won’t have to submit specific time sheets.
Know Your Worth
Factor in the time you will spend not working as much as the time you will spend working, when you set your rates as a contractor.
The other tip is to see yourself as a business rather than an employee and to think in terms of the value you offer rather than an exchange of time for money. When you take on a role with a business, you can potentially help it to achieve hundreds of thousands, if not millions of dollars, in money earned. You will build the confidence to charge more when you recognise and can quantify the value you deliver.
Don’t be afraid to increase your rates as you build your experience. Every role makes you more employable so update your minimum rate regularly.
To prove you are worth the investment, remember to ask every employer for references. Ask them to upload feedback about you on LinkedIn and request written testimonials to share in your online profile and job applications.
Calculate your rate
Want a shortcut to figure out how much you can earn as a contractor and what your rates should be? Download our 2023 Regional Rate Guide here.
Once you have a clear rate card, you can update it any time. However, having one will make it easier to respond when recruiters and businesses get in touch with you for short and long term contract roles.