Talent Development Centre

What Should You Charge as an Independent Contractor?


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Alison Turnbull By Alison Turnbull,
National Delivery Manager at Eagle

What Should You Charge as an Independent Contractor?At Eagle, we work with several candidates who are making the move from permanent employment to independent contracting.

One of the questions most commonly asked is “What should I charge for an hourly rate?”

There are several factors to take into consideration, and simply calculating what your hourly rate was as a permanent employee is definitely not a recommended practice.

As an independent contractor, there are many added benefits, one of the most significant being tax savings.  Self-employment allows you to claim any valid expense needed to operate your business, which might include telephone, internet, equipment costs and even meals (considered entertainment).

On the other side of the coin, as an independent you can only bill for the hours that you work, so you have to factor in the cost of unpaid vacation days, sick days, benefits, statutory holidays and any time off between contracts.  There are also administrative costs to take into consideration, including registering a business, and potentially paying for ongoing accounting and legal services.

A basic rule of thumb that most people suggest would be to determine your hourly rate as a permanent employee, and then add 50-75%.  If you were earning $65,000/year, that equates to $31.25/hr.  By adding 50%, your rate would be $47/hr, and at 75%, your rate would be $55/hr.  Working with a range in mind allows you to have some flexibility depending on length of contract, industry and location.

If you choose to incorporate rather than working as a sole proprietor, you can typically charge a higher rate (as your agency does not have to pay the employer portion of federal taxes) and you will pay less tax, but you will also experience higher up front and ongoing costs.

When discussing rates with an agency, it’s best to ask for guidance and advice.  A good agency will be honest with you about the client’s maximum rate, but also how your experience stacks up against others in the market and what rate you should ideally target to remain competitive.  The ability to have some level of flexibility with your rate is your best bet at breaking into the contracting market.

Most candidates that we work with who transition to work as independents thoroughly enjoy the benefits that consulting have to offer and never look back, but contracting is not for everybody.  Seek advice from contractors that you know and do your research to ensure that contracting is right for you.

4 thoughts on “What Should You Charge as an Independent Contractor?

  1. Thanks for this insight and covered it very well. I would add that demand and supply also plays an important role in determining the hourly rate, especially when supply is short.

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