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Contractor rates: how to determine yours without undervaluing your skills
10 min read | Roddy Adair | Article | Salary & pay | General
Setting the right contractor rate is something even experienced professionals should revisit regularly, especially in a market where specialist skills can command premium rates. And with only 18% of contractors and freelancers in our 2026 Salary & Recruiting Trends guide believing they would earn more as a permanent employee, it’s clear that contracting continues to be a more financially attractive route – but it may not be if your rate doesn’t reflect your true value.
Unlike permanent employees, who benefit from predictable pay rises and structured progression, contractors must take a more considered approach to determining their pay expectations. Our guidance will help you determine your worth and set a rate that reflects your earning potential.
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Organisations hire contractors because they need expertise and results. They expect someone to seamlessly transition into the role and begin delivering value without a lengthy onboarding process. Contractors can be invaluable when it comes to problem solving, fast delivery, and offering specialist knowledge that may not be so readily available in-house or through permanent hires. There is also often an increased expectation around autonomy and the ability to work effectively with minimal supervision.
It’s important to bear all this in mind when setting your rate. Doing so ensures you are paid in line with the value you provide, the responsibilities you take on, and the expertise you bring to the table.
When setting your contractor rate, remember that it needs to cover costs that permanent employees rarely think about. Our research finds that almost half (46%) of contractors and freelancers receive no benefits at all through their clients or contracts, which means many essentials fall directly on you.
Depending on your contract, you may need to pay for equipment, software or tools that an employer would normally provide to permanent employees. In fact, only 6% of contractors receive an equipment or technology allowance, so most people cover these expenses themselves.
Professional development is another area where contractors are more likely to take on the full cost. Just 8% receive a training budget, even though staying competitive in a fast‑moving market usually requires ongoing upskilling. Meanwhile, only 11% receive paid time off, and just 10% receive retirement contributions. If your contract doesn’t include holiday pay, sick pay, or employer pension contributions, you will need to factor these into your rate.
IR35 status affects how your income is taxed, which influences your take-home pay. Because of this, many contractors choose to adjust their rates depending on whether a role is inside or outside IR35. This doesn’t mean that one type of contract is better than the other. Inside IR35 can still be attractive, especially when the rate reflects the tax treatment. Outside IR35 roles may offer more flexibility, but remember that they also put greater financial onus on you, including managing tax, taking out an insurance policy, and potentially hiring an accountant. The key is understanding how each type of contract affects your overall income and setting rate expectations that align with your financial goals.
For seasoned contractors, it can be easy to fall into the habit of simply matching your most recent rate or applying a small percentage uplift. Meanwhile, some of those who are newer to short-term assignments use the ‘double your permanent salary’ rule of thumb as a quick starting point, while others use the widely cited ‘30% rule.’ In reality, there’s no one-size-fits-all calculation to determine what your rate should be. It can vary significantly depending on your industry, seniority level, and whether your skillset is more generalist or niche.
With so many variables at play, after you have thoughtfully set your rate expectations, it’s a good idea to benchmark this with a recruitment consultant who understands your market and the expertise you can provide it. This is the most reliable way to determine if your daily or hourly rate is realistic.
Contractor rates are largely influenced by supply and demand. When there is a shortage of suitable applicants with a certain skillset, or when a sector is experiencing rapid growth, contractors with in-demand capabilities can obtain higher rates than they would have previously. Conversely, when supply outweighs demand, securing higher‑paying roles becomes more challenging.
Our survey found that 26% of employers plan to recruit contractors, freelancers, interim or temporary workers over the next 12 months – the same figure as last year. This stability suggests ongoing demand, but also highlights the importance of staying competitive and well‑positioned. With the market holding steady rather than growing, organisations often focus more on securing the right expertise, which makes strong skills and clear value even more critical.
Negotiation is crucial to successful contracting, and handling it well helps protect your value. Focus on the outcomes you deliver, the problems you solve, and the speed at which you can add value. These are the points that matter most to clients.
Being clear about the minimum rate you are willing to accept helps you make decisions that support your long-term goals. So, if a client challenges your rate and offers one below your expectations, explore the reasons behind it. Sometimes there’s room for flexibility; other times, lowering your rate would undermine your position or make the contract financially unviable. Walking away can feel difficult, but it can be the right decision when a rate does not reflect your worth.
Working with a recruitment consultant gives you an advocate who can negotiate on your behalf if an offer falls short. When you combine that support with a clear understanding of your own value, you put yourself in the strongest position to secure contracts that genuinely reflect your expertise.
Download The UK Contractor Toolkit, which offers expert guidance to help you at every stage of your contracting journey – whether you’re a seasoned contractor or a permanent employee thinking about making the leap.
And, if you’re a tech contractor, use our Tech Talent Explorer to benchmark global contract rates for top tech roles and compare them with average permanent salaries, helping you understand where your skills deliver the strongest financial return.
A good starting point is to calculate your desired annual income, add your business costs, and divide by the number of working days. From there, adjust based on market demand, your experience level, and the complexity of the work you take on.
A common benchmark is 260 working days per year, based on the number of weekdays in a calendar year. From this, most permanent employees take around 25 days of annual leave and eight bank holidays in England and Wales; days that contractors don't usually get paid for and therefore need to factor into their rate.
Many contractors also allow for likely gaps between contracts, as these can reduce the number of billable days in a year. The length of these gaps varies widely depending on your market and demand for your skillset. Because of this, most contractors use 210-230 billable days as an estimate when calculating their day rate.
To calculate your hourly rate, start with your desired day rate and divide it by the number of hours you typically bill in a day. Most contractors use 7–8 hours as a baseline.
Contractors need to account for expenses that permanent employees don’t typically pay for directly, such as equipment, software, insurance, training, holiday time, sick leave and pension contributions. These should all be built into your rate so your income remains sustainable.
Most contractors reassess their rates annually or whenever they gain new skills, complete major projects, or notice shifts in market demand. Regular reviews help ensure your rate reflects your current value.
Many contractors adjust their rate depending on the type of contract they are working. Inside IR35 roles often require a higher rate to maintain similar take home pay, while outside IR35 roles may offer more flexibility but come with additional financial responsibilities.
Roddy Adair - National Specialist Director (Temporary & Interim appointments) UK & Ireland at Hays
Roddy joined Hays in 1999 as a Recruitment Consultant. In 2012 he took over operational responsibility for Hays in Scotland, managing dedicated teams providing expert temporary and permanent recruitment services for a wide range of sectors and professions. From 2017, he has been the lead for Hays Personal & Executive Assistants business across the UK, providing strategic leadership to over 200 consultants.
