The difference between daily rates vs hourly rates for contractors

One of the first decisions a contractor has to make is whether to be paid hourly or daily. Both options impact salary, overtime, and client expectations, so it’s important to understand the advantages and disadvantages of each. Check out this Compare Your Pay guide to get an idea of industry standards and how your choice compares.

Option 1: Daily Rates

A daily rate ensures that contractors are paid day-to-day instead of hourly. This favours those who work at a higher rate – around £500 or more a day on average – and are usually preferred by more established contractors or people with specialised knowledge in demand.

Advantages of a Daily Rate

By charging a per-day rate, you’ll be guaranteed a higher total fee and could bring home more at the end of each month. Also, most clients prefer daily rate since they are able to budget more accurately, knowing the daily price instead of hourly amounts that change over time. This can be to your advantage when you are working under a contract.

Drawbacks of a Daily Rate

Another downside to daily rates is that clients may want you to work overtime without compensation, which is not ideal for those who do not want to put in unpaid extra hours. This can render a daily wage unattractive when overtime or longer work will likely be required.

Option 2: Hourly Rates

Hourly billing enables contractors to be paid per hour rather than by the day. That can be the perfect deal for contractors who charge around £40 an hour or less.

Benefits of an Hourly Rate

The biggest advantage of doing an hourly wage is that you get paid for the entire time you’re working, not just overtime. This format can discourage clients from demanding unpaid extra hours like they would on a daily rate. On average, extra hours must be approved by a manager, which makes things easy to understand.

Drawbacks of an Hourly Rate

But clients might be hesitant to hire an hourly rate contractor because additional work can result in unexpected costs. This uncertainty could drive customers away from hiring hourly workers if they have a limited budget.

Option 3: Fixed Fees

Beyond the hourly and daily rates, contractors can also choose a fixed fee structure that involves one price for the entire project. This simplifies billing but also requires you to predict the time and effort that will be required, which can be hard to predict and can cause budget conflicts.

Per Hour or Per Day: Which One Is Best for You?

After going over the pros and cons of both, you’re ready to choose which suits you. If you’re a skilled contractor and can comfortably charge £500 or more a day, a daily rate will suit you (but may include some unpaid overtime). If you work for a rate that costs less than £40 an hour then an hourly fee might make more sense, though clients may be wary of committing the amount on the budget.

Option 4: Retainer Fees

Retainer-based work is another option for contractors. With a retainer, a client pays a fixed amount upfront to secure a contractor’s time and resources for a specified period. This model is ideal for long-term contracts or situations where a client needs regular access to a contractor's skills without committing to specific hours or days.

Advantages of a Retainer Fee

Working on retainer is one of the major benefits you get. Because there’s a fixed fee you pay on a schedule, contractors are in control of their own income, which makes for easier budgeting and planning. Additionally, retainer agreements establish more lasting relationships with clients, generating more repeat sales and referrals.

Retainers are also helpful for clients who ensure that they have access to a contractor’s time and resources without having to constantly renegotiate them. This is often particularly beneficial for customers who have long-term or irregular needs, like consulting, creative, or IT support.

Drawbacks of a Retainer Fee

Retainers, however, can come with a price tag. For instance, if work is unevenly distributed, contractors may work longer than they were expecting without additional compensation. And it is also imperative that you communicate clearly with your clients about what is covered under the retainer fee in order not to get duped.

Retainers also limit your ability to take on more clients, since you are entrusting a portion of your time to the retainer client. Retainers can be uncomfortably restrictive for contractors who prefer project work.

Per Hour, Per Day, Fixed Fee, or Retainer: Which Is Best For You?

Having this additional feature in mind, you can now decide if an hourly rate, daily rate, fixed fee or retainer is best for your business, clients, and work style. To give you a bit of a breakdown, here’s the overview:

Day Rate: Great for experienced contractors earning around £500+/day, ideal for project-based work with daily workloads that you know are going to happen.

Hourly Rate: Excellent for contractors that work on an hourly rate of £40 or less, and offer flexibility and reasonable overtime.

Fixed Fee: Good for defined projects but it’s a good way to ensure you don’t overestimate the time.

Retainer Fee: Safeguards funds and long-term client relationships, suitable for long term or advisory projects, but does not allow enough slack for other work.

Ready to take your contracting career to the next level?

With all these possibilities out of the way, it’s time to commit to the payment arrangement that best fits your professional needs. Compare Your Pay help guide you in choosing the right umbrella company for your specific method and offer guidance and assistance to make your contracting process more straightforward.

Identifying the right umbrella company after you’ve picked out your billing method is the next crucial factor. Compare Your Pay makes it easy by partnering with contractors to understand their specific needs. By screening all of them we ensure you’re connected to an umbrella provider who fits your requirements.

To see how we can improve your contracting career, call Compare Your Pay today and join the thousands of contractors who rely on us.