Umbrella company - what hourly rate to ask -quick reply needed?

elsien

I'm looking for a permanent job following redundancy, but in the meantime have been semi-offered a month's contract work and I need to tell them what hourly rate I want for it. I've not done contract work before and the agency say they will act as umbrella company.
I'm looking at equivalence with my previous pay rate plus possibly a bit for travel but don't know how best to work it out. Can anyone point me in the direction of anything that will help me to work out the sums?
And any other pitfalls I need to be aware of?

Derwent

http://www.contractoruk.com/calculators/rate_increase_calculator.html

elsien

Sorry, being thick, I don't understand it.
I don't know the hourly pay rate as that's what I'm trying to work out, I don't know what IR35 status is or what the percentage dividend received means?

InsideInsurance

elsien wrote: »

Sorry, being thick, I don't understand it.
I don't know the hourly pay rate as that's what I'm trying to work out, I don't know what IR35 status is or what the percentage dividend received means?

If you are going via an umbrella you can ignore all of that.

IR35 is a piece of tax legislation to do with contractors that operate via their own limited company that means they at a minimum can avoid paying NI by taking most the money out of their company as dividends rather than salary and at most could be be giving salaries & dividends to unemployed family members etc to benefit from their tax free allowances etc.

If you are inside IR35, ie HMRC think your much closer to an employee than a company, it forces you to take the devils share of your taking as salary rather than using the above methods of mitigating your tax liabilities.


As to rate of pay, really the agency should be advising you as they will be getting a percentage of your rate (often 15-20%) and so its in their best interest is that you get as high a rate as they can. That percentage is on top of your rate and not take from your rate.

The old optimistic way of ball parking it was to take the equivalent perm annual salary and divide that by 100 to get the contractor day rate so a £60,000 perm job would be £600 a day as a contractor. An hourly rate would be that divided by 8. This is fairly optimistic but not unachievable but you probably should be willing to consider coming down from it.

In reality the market changes a lot, the duration of the contract should be factored in, anything that makes this particular role more complex/ unfavourable compared to the norm for this job type etc.

Looking at the relevant job sites for your industry or a generic contractor one should also give you ideas on the normal day rates people are offering at the moment.

El_Torro

Bear in mind that you will be paying the employer's National Insurance out of the day rate. You will also not be paid any holiday pay or sick pay.

The formula mentioned above (annual salary divided by 100 for a day rate) sounds about right. What I usually use is calculate what a permanent's hourly rate is, then double it for the contractor rate.

gettingready

Without knowing the industry/job role...

Think of having a yearly salary of 40k (just for the sake of calculations) as being the norm for you.

That divided by 48 weeks (not 52 but 48 as you would normally get 28 days paid holidays if you were in permanent job and you do nto if contracting) would be around £833 per week so say for 40 hours week would be about £21.00 per hour.

Ask for a bit more - between £35-£40 per hour MINIMUM as contracts are being paid much higher than permanent jobs (no security, no sick pay, no holiday pay etc).

This is a general advise as now knowing the job/industry/your experience/qyalifications - it is impossible to say how much should YOU ask for.

All the best

elsien

Thanks all, that's helped clarify things.

gettingready

Do not calculate as equivalent to your previous permanent rate. Contract shuld be double that