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IT contractor rates – what hourly rate can you achieve?

If you are starting up as an IT contractor, you will find that hourly or daily rates are determined by a number of factors – principally your skills and experience, the industry sector, the location of the assignment, and the underlying economic conditions at the time.

Current State of the Contracting Market

Since the start of the credit crunch in 2007/8, median contract rates have not increased greatly, although the demand for contractors as a whole has remained fairly resilient according to a host of surveys published in Contract Eye’s market reports section. In fact, according to the Monster  Employment Index in the year to January 2012, the demand for IT and engineering specialists grew faster than any other industry sectors. According to JobAdsWatch, the overall demand for contractors increased by 25% during 2011.

Economic Factors

When the credit crunch first hit, many contract assignments were scrapped, however the contract market has bounced back strongly since. The demand for public sector contractors has been very subdued following cost cutting measures, however private sector demand appears to be buoyant. Demand varies wildly between industries – the highest rates are typically the preserve of the financial services sector, although most investment banks have at some stage imposed mandatory rate cuts of 10% or more on their entire workforces to cut costs.

Skills & Experience

Probably the most important factor in determining your contract rate. Contractors with niche skills can command in excess of £100 per hour, whereas the average contract rate is between £30 and £40 according to most market rate reports. Currently, the demand for ‘m commerce’ skills is very high as retailers and other organisations try to exploit the explosive demand for mobile technology. You can find out the average daily rate for all types of IT skill over time at ITJobsWatch.

Location

The location of an assignment will have a massive effect on your potential earning power. According to JobsAdsWatch, which correlates data from thousands of contract postings each quarter, Inner London has witnessed as 30% rise in demand for IT contractors over the past 12 months, whereas demand in the North West fell by almost 18%. Demand in Scotland and the North West fell by several percent.

Predictably, in line with demand and the cost of living, average rates are highest in Greater London, the South East and South West.

Other Factors

Aside from the headline contract rate you can command as a contractor, the business structure you decide to operate under will have a large impact on your actual take home pay. The most tax efficient way to contract is via a limited company as there are no National Insurance Contributions payable on dividends, and tax planning can yield further benefits. Umbrella company contractors, on the other hand, are taxed in the same was as traditional employees.

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