What to Consider When Negotiating a Day Rate?

A competent journalist or a writer of any pedigree would lay out their arguments in an opening statement, constantly refer back to them and validate them throughout the article and then summarise the condition of their points in a closing summary. Unfortunately I am a recruiter, thus none of those things, so I am going to plunge straight into it.

I am going to talk about how as a contractor you should consider 1. IR-35, 2. Building trust with your recruiter and 3. Payment schedule, when negotiating your next contract.

IR-35

Yes, a bit of an obvious one but it has undoubtedly changed the world of contracting over the last 18 months (and longer in the public sector).?

Just in case you are a complete novice to the world of contracting, IR-35 is a tax regulation that is aimed at “disguised employees” - independent contractors who are doing the same role as an internal employee but are perceived as paying less tax.

IR-35 has been around for a long time, but since April this year, the liability for determining whether a candidate is “Inside” or “Outside” of IR - 35 (Inside = disguised employee) has fallen on the employer rather than the contractor.?

What this means is that Tier 1 financial institutions, and a lot of Tier 2s, who take on hundreds of contractors have blanket banned PLCs (limited company contractors) to avoid a potential assault from HMRC, forcing contractors into transacting through umbrella companies and PAYE agreements.?

As a very rough rule of thumb, your ‘take home’ Inside IR-35 will be about 60% of what you earn, vs 80% Outside IR-35.?

Which means a lot of contractors would take a lower rate Outside of IR-35 vs Inside.

An insight into my recruiter maths:

Outside IR-35- ￡200 p/d for a 6 month contract = ￡20,160 take home?

￡200 (dayrate) x 21 (average working days in a month) x 6 months (length of contract) = ￡25,200 x 0.8 = ￡20,160 take home?

To get the roughly the same take home Inside IR 35 would be ￡266.70

(￡20,160 / 60) x 100 = ￡33,600 / 6 /21 = ￡266.70

However, there are additional costs to contracting to consider, including setting up a limited company, possibly getting an accountant to run it and insurances. Another very general rule of thumb is that if you are not planning to contract for longer than 6 months, it is probably not worth getting a limited set up.?

[*There was definitely an easier way to work that out, apologies to Mr Noriss my Year 10 Maths teacher]

Communicate with your recruiter and build up trust.?

Right, this is the awkward bit when I tell you what I am thinking about when negotiating with a contractor.

A bit of a myth I can tackle is that if a contract recruiter says “the more I get, the more you get” they are probably fibbing to hide that they gain from pushing your dayrate down.?

Unless they are recruiting for an RPO (an outsourced recruiting model the largest companies employ- not a good experience for recruiter or candidate), they are likely to be working to a budget.?

For example: budget to the recruitment company is ￡300 a day - your day rate ￡250 = recruiter margin of ￡50. So obviously, the less you make, the more I do.?

Why would I tell you that as a recruiter? Because I believe in building relationships for the long term.

I am probably speaking to multiple candidates and having to weigh up; who I know and trust, what margin I need to make (it is a business transaction after all), availability in terms of number of candidates that can commit to the length of the project, and ofcourse accuracy of the candidates experience against the job.?

I put trust first for a reason. How a candidate acts and performs is a direct reflection on me.?

If a candidate agrees to be put forward for a role at ￡200 a day, and asks for ￡300 a day in the interview, not only do they look like a tool, I look like I don’t know my candidates. We won’t be working together again.?

So what do I suggest? We have an honest conversation about the role, what is needed and what you get out of it. If it doesn’t work, shake hands, walk away and I will give you a buzz next time something comes up. It works both ways, if I need to trust you, you need to be able to trust me.?

Payment schedule?

Ah, this is one that I have gotten wrong and has bitten me. Hard.?

Picture the scene: You have spent the last five years contracting at Tier 1 banks getting paid weekly. You secure a new project with a boutique consultancy at a fintech company and you are over the moon.?

You do your first week, submit your timesheet happy as Larry. You work the second week, smashed it. Wake up Friday morning, check your account and.. Nothing? You aren’t worried but you check with the agency just in case.

Turns out the contract you signed pays you monthly… in arrears.?

[As an explanation, the consultancy probably get paid monthly themselves and they won’t get paid for work they have not done themselves yet, and as a small company, they don’t have the cashflow to pay you out of pocket.]

This can vary from an inconvenience to an absolute disaster and could have been prevented if we’d have a conversation about it right at the beginning of negotiations.?

This is also a conversation to have with your umbrella company. They might pay you the same day they get the funds from the recruitment company but if the recruitment company pays monthly, that’s the gig. As a fun little bonus, if the funds are delayed between the recruitment companies account and the umbrella companies, well you have to wait and there's nothing anyone can do about it.?

If you have made it this far, congrats and apologies. That was a bit of a chunky one but I hope the insight was useful.?My overall message would be make sure you communicate effectively with your recruiter because they can make or break your contracting experience.

If you are interested in registering as a contractor at fscom, please email [email protected] and check out fscom.co to see what we do.?