Contractors - Deciding Your Rate

One of the trickiest things about being a contractor is coming up with an hourly rate that will pay your bills while at the same time keeping you marketable.

I often think, how much should I charge my clients?

It can be difficult to come up with a reasonable rate that can pay you what your worth and make up for the lack of the usual benefits that come with being an employee, such as sick days, vacation and medical.

The actual cost of an employee is not just the salary, so you have to make sure the contract rate you charge factors everything in.

I think in the past, I’ve definitely not charged enough.

When I first started, I made the mistake of not wanting to be too expensive, plus not factoring in the ‘hidden’ or opportunity costs of no longer being an employee.

What I do now is take the full-time salary I’d make as an accountant, and add in the usual employee benefits to calculate my desired hourly rate.

Here’s an example, for a salary of $60,000:

Salary - $60,000
Vacation – $3,600 (3 weeks or 6%)
Sick days – $1,200 (1 week or 2%)
Medical – $1,800 (avg. premium of $150/month)
Total hidden/opportunity cost - $66,600

Now, if I calculate the hourly rate – assuming 37.5 hours per week, bi-weekly – I come up with a target rate of $34.

As a note, the hourly rate does not include any loss of job-security or not being able to collect EI and it assumes full-time employment. You may want to add an additional amount for ‘uncertainties’

I would want to charge much more because most contracts are short-term.

In reality, I’ve found that anything less than 40 isn’t really worth it and if you’re a manager, you’d want to charge closer to $50 or $75. Obviously, if you use subcontractors, you’ll have to charge even more.

It’s a great guide and if someone offers you a certain rate, you can do a simple calculation to see if it is worth being a contractor or an employee.

Remember, the rate may seem high, but you’re saving the company the cost of those benefits and they’re getting the flexibility of having a contractor.