How Much Should I Charge as an IT Contractor?


It was a long drive, I finanly got out of my 8 year old car, happy that it got me to the interview on time and in one piece. This was my first interview as a contractor and I had no idea what to expect, let alone how much I am worth.

2 days later, I got a call back saying they like me, and want to over me a 3 month contract. The next question was, "what is your rate?".

In all honesty I had no idea what to say, the agent gave me a typical range, and I decided to say somewhere in the middle. He said fine all to quickly, meaning he was happy because he got me at a rate that was lower than he was expcting.

If I was to do that again, after the years of experience I have now, I would have taken time to research the market and see my market rate. Once I established that, considering I was new to contracting, I would have pitched myself close to that.

Once you are established, you can obvioulsly go higher based on your skills and how closely it matches the role. The reality is, if the company has spent money on interviewing you, and made you an offer, they want to land you as soon as possible. Finding a good candidate is time consuming and costly for them, remember that.

Other things to consider before you make the plunge:

What is IR35?

Being an IT contractor means you are self-employed. Have you ever come across the term IR35? If no, then it is high time you know what it is in order to
prosper in this field. Paying taxes is very important. Whether one is employed
or works as self-proprietor.

IR35 was designed to ensure that those working as self-employed do not evade paying taxes. The IR35 applies to limited companies and those who offer their services by the use of broker or middlemen.

The emergence of disguised employment by most of the organization led to the creation of ir35. Disguised employment is where a company employee works on a contract with the company by the use of the middlemen.

As an IT contractor. Knowledge of IR35 is vital as it brings to your mind that you will never evade taxes. By not evading taxes, you have to set your rates having at the back your mind that what you have set will sustain you after the tax-man has gone with his share.

How can l increase my rates?

After discussing IR35 brings me to  another important question that a lot of new contractors ask, How can l increase my rates? 

Increasing your rates as an IT contractor is important to maximising your potential income. Two factors should come into your mind when thinking of how to maximize your potential income.

First, it is important to understand the factors influencing the demand for your services.

Second, what is your personal potential to command a higher rate? This is based on the value you bring to the game.

Let us begin by looking at these factors :

  • The general economy – every successful business is pinned on the general outlook of a given economy. When the economy is on a boom, then be assured your business as an IT contractor will boom too.

    However, when the economy is gloomy, for example a recession, expect nothing better. For the past 10 years, the IT contracting industry has registered a boom. Why a boom? Because the economy has been recovering from the last major recession of 2008.

    And also many private and public firms feel it is cheaper seeking services from freelance workers as compared to employing new workforce permanently.

    Although contractors earn more in the short term, these workers work on contract basis, therefore after the expiry of your contract the company is done with you.

  • The need for IT specialists – there is a massive positive growth in the IT industry from the past years. For instance in the United Kingdom recently, a research reveals that the digital jobs have grown to more than 1.5 million.

    This growth calls for the demand of IT experts. Therefore putting the IT contracting job on demand.

  • Geographical location – as an IT contractor, where you are situated directly influences the charges you render for your services. If you live in an area where IT contracting services are not in demand then most definitely your rates will be lower.

    But if you are situated in a place where your services sell like hot cake, then you shall charge higher rates.

  • Your personality – IT contracting involves relating to people. You are not working for robots, you work for people.

    The way you approach people and work with them will greatly impact on whether you are likely to receive that raise your rates or not, or even stay there for the longer term. Being tactful, and understanding office politics is vital here.

  • Added new skills – in case you have just acquired some new skills while working on your current project. You should demonstrate these skills. Demonstrating the new skills should put you in a position of getting more pay.

  • Nature of the client – nature involves if you are working for the client through a broker or it is a direct client. If it is a direct client, then expect a higher pay as compared to when a broker is included.

What is a Contract Extension?

After knowing some of the things to bare at the back of your mind on increasing the rate. Another vital question arises, as an IT contractor. Your work basically is based on contract. No permanent employment.

You may sign a contract with a given company. Start working, in the due working process or after the end of your contract, the company management may be impressed with your work. They may decide to prolong your task. This is what referred to as a contract extension. It entails extending your end date to secure more work.

In my experience I have known some contractors working at companies, on contract, longer than the employees, so it can be good practice to keep the client sweet to secure more work.

Do l need an accountant?

Working hard, receiving good recommendations from various people and contract extensions from various companies. is a sign of a positive growth, more cash is flowing into your business.

With the steady inflow of money into your business. There may be a need to employ someone who will help you in the management of your cash.

In my opinion, an accountant is best practise, it will save you a lot of headache and they can help you identify things that you may have overlooked.

Do Contractors get raises?

Being a freelance or a self-employed person. The question, do contractors get raise? May sound ambiguous. Why? Because you are not permanently employed by someone.

But my answer is yes. But it really is in the form of rate increases, typically negotiated on an extension (see above). 

The Next Step

Knowing how much to charge is just one part of the puzzle, understanding how to to structure your business, claim expenses, growing and retain your income are also important parts to master with the right knowledge and experience of contracting.

Once you master what to charge, the next challenge is understating how to negotiate a rate increase.

How To Negotiate A Rate Increase As An IT contractor

how to negotiate a rate increase


You may believe that you know about IT contracting and everything related to it. But do you know the 5 ways to negotiate a rate increase as an IT contractor? Don't worry, I've got you covered. We will be discussing that in this article.

As an IT contractor, negotiation is a vital stage in your career. Negotiation depends on several factors like your keenness to do the work, your skills, and experience, the demand as well as the complexity of the work. But whenever you negotiate, you should weigh the opportunity cost and ensure it is fairly higher. At the very least, never negotiate against yourself.

Let's begin the discussion, shall we?

1. Should Have A Valid Reason

It is never advisable to ask for a raise for the sake of it. It is very important to consider yourself as a client and think about whether it is really worth giving a raise to the contractor. This is our first and indeed most important point. You should have a valid reason for asking for the raise. Because nobody can get a raise without proving they deserve it. It is not that easy. When you are paying a dollar, it needs to be worthy.

So make sure that you deserve this raise before you ask the client for it, because there is a chance that the client will cancel the offer. If you have enough experience and skills to show your client as well as any previous works that you have done, and any good achievements, do not shy off from showing it as it will really count. The negotiation will also affect the competency in the market. Don't just wait for another offer with a higher payment, because that won't happen all the time. So make sure to utilize all the opportunities.

2. Performance Is Key

Whatever you do, for any price it is, always ensure to deliver quality work. Never compromise on quality, because that defines who you really are. Therefore, no matter what the payment is, if the quality is good, that will make a good reference for yourself. Always ensure the quality of your work is impeccable.

The more you provide a better outcome, the more the client will value your service. They will eventually become a regular client, then you can ask for a raise, considering the services that you have done so far because they will now be more dependent on you. Though you might have the skills, it might not expressly qualify you for a raise. What is important is to achieve the results. The rule of thumb is to always work for a good reference because that is what going to get you more offers from more clients. Always try to get the best results, no matter what’s at stake.

3. Note Your Extra Responsibilities

Often large contracts mean that you might even crossover the roles such that you might be doing what you didn't expect to do. It is often possible that you end up doing things that you didn't offer in the contract. As we know, flexibility is good, but always sure that you get paid for everything that you do.

You don't want to work for free so make a list of what you have done while working on the project. Mention them to the client while submitting the project and ask for the payment for the works done. If possible, ask the details and ensure you see to it that the employer is very specific about the tasks. There is no harm in telling the employer that anything else done other than the mentioned tasks would be considered as extras and should be paid for as such. This will help you in assured payment.

Another angle on this, is just getting on and doing this work, but keeping a note of the extra tasks you are taking on. Then when it comes to negotiation, you can use these extra tasks to justify the rate increase.

4. Know The Right Time To Negotiate

how to negotiate a rate increase

For an IT contractor, it is important to choose the right time to negotiate. Choosing the right time to approach the employer is vital.

For instance, you can't ask the employer for a raise during a time of recession or in any other situation where they are running short of money. Similarly, you can't ask for a raise within a few weeks of your recruitment. This is because it is more or less like asking too much without even deserving it.

Remember, there is a time that is required to prove your skills and quality of work, to the employer. So after achieving the set goals and objectives, it is okay to ask for a raise.

It is always better if you have a justification to get the raise and the general convention is that you approach your employer four to six weeks before the ending of the previous contract. This will give you enough time for you to show your works and skills and also get you the time to negotiate before the contract gets renewed.

5. Be Ready To Face The Outcome

If you ask for a raise and you happen to get a 'No' from the employer's side, then you will have two option to consider. If they can't provide the raise because they can't afford to pay you a higher amount of increased overheads, you better take that offer and notify them about having a conversation when times are better.

On the other hand, you can just resign from the job stating that it is not good enough for you. But the important thing to remember is that you need to be prepared for the outcome of this decision too.

If you are planning to resign, then you better find an alternate project or work, so that you can turn down the project confidently. You need to work yourself out the solution first as being idle is not good for an IT contractor. Remember that while the alternative job will take care of the rents and payments, securing it might not be easy without the points that we mentioned before.

Final Thoughts on Negotiating a Rate Increase

Before you negotiate, be sure of what you want, what you deserve, and also be ready to walk away if you need to. If not, then don't ask for another chance at negotiation. I would say that handling the scenario without affecting the relationship between you and the employer is most preferred.

Value your employer the most. Don't trouble them in their hardest times. Just make sure to ask for the negotiation at the right time.

The above-discussed points form the golden rules when thinking of the best ways to negotiate a rate increase as an IT contractor. I believe this discussion will help you figure out the problems and confusions that most of you were facing. I hope it has given a clear view of what you required.

Did you enjoy this piece of information? Was this valuable to you? Please let us know your opinions in the comment section below.

Talented Tester Support
 

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