Generally, IT contractors earn significantly more than permanent employees performing similar roles. You could potentially double your gross earnings for doing similar work.
Contract rate basics
Of course, contractors face the uncertainty of short-term work and economic downturns, so these risks are offset by higher pay levels. Even if your gross pay doubles by contracting, your net take-home pay is unlikely to be twice as high.
Your net take-home pay will also be influenced by:
Contractor rates vary widely based on location, skills, experience, market demand, and economic conditions. You can get a sense of current rates by talking to agencies and other contractors, and by using online data sources.
Factors that affect your rate
One of the most frequently asked questions by aspiring IT contractors is, “what hourly or daily rate can I achieve?” The answer depends on several key factors:
Your technical skills and industry expertise. Specialist or in-demand skills command a premium.
The location of the contract. Rates are typically highest in London and the South-East. Rates in the North, Midlands, and Scotland tend to be lower, although remote contracts can sometimes equalise differences.
Market demand for your expertise. High-demand niche skills can drive up rates significantly.
The state of the economy. Contractors tend to be the first to go in a downturn and the first to be hired during a recovery.
Agent or agency commission. Your gross rate may be reduced by fees taken by recruiters.
Your company structure. Limited company contractors typically earn more than those working through an umbrella company.
IR35 / Off-Payroll rules. If your work is caught, the financial impact can be substantial.
How many hours or days will you actually work?
To calculate your realistic annual pre-tax income, consider:
Public holidays – unlike permanent staff, contractors do not get paid for these. Allow around 2 weeks, possibly more if clients close over Christmas.
Sickness – leave another 2 weeks or more to cover illness.
Holidays – contractors may take fewer breaks, but you should still allow about 4 weeks for holidays.
Downtime between contracts – even regular contractors usually face gaps. Allow 1 to 2 weeks for each contract transition.
Even without extra downtime, this brings the working year down from 52 to about 44 weeks.
Real-life earnings examples
For an IT contractor charging £40 per hour, working a 37.5-hour week for 44 weeks a year, that equates to:
£66,000 gross per year (£5,500 turnover per month).
At £50 per hour: £82,500 gross per year (£6,875 per month).
At £30 per hour: £49,500 gross per year (£4,125 per month).
Remember, these are pre-tax figures. Your take-home pay will vary based on your trading structure and IR35 status.
Convert from permanent to contractor
Dave Chaplin of Contractor Calculator advises:
“As a starting point, you should expect to end up with at least as much in your pocket each month as you currently do as a permanent employee. Then on top of that, you should expect a bit more because contractors can charge a premium, and also because of the tax advantages of being a contractor, assuming you avoid IR35.”
LinkedIn posts – search for contract day-rate guides such as this example.
Freelancer platforms – sites like Upwork or PeoplePerHour provide some insight into market rates, especially for short-term gigs.
Networking for real-world insight
Data is helpful, but real insight often comes from other contractors. Try networking by:
Attending industry events or meetups.
Engaging with peers on LinkedIn.
Joining professional bodies like the BCS or tech groups.
Negotiating your rate
Once you know typical rates, make sure you are confident negotiating yours. Our guides on negotiating contractor rates can help you do that effectively:
