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Starting Out :: 3. IT Contract Negotiations  

Once you have been offered an IT contract, you will need to negotiate both the rate you will be paid (hourly/daily usually), and consider the implications of IR35 before signing any contract.

There are no "fixed rates" for any type of IT contract work - rates tend to be market-driven, and will be determined mainly by the level of demand for your skills, the location of the contract, and your level of experience.

This is a very good time to be starting up as an IT contractor, as market rates have climbed back to the levels seen before 9/11 (see news story here).

You can also get a general feel of the overall strength of the IT contracting market by clicking on to Jobstats. The site compiles general market data using the information posted on IT contract job boards.

Negotiating your Contract Rate

You should also consult any contacts you have in the IT contracting world to get an idea of what rates are generally paid for your skillset (and experience) - have this figure in mind before negotiating your rate with your agency.

Agencies, of course, receive commissions for introducing you to a client... the less they pay you, the more they take home. Don't be afraid to stand your ground and negotiate a higher rate than the first offer... at the same time, if you are a first timer, don't push it too far as you are trying to climb onto the first step of the IT contracting ladder.

As with many other things, the contract negotiation stage is a delicate one, where common sense is needed.

IR35 & IT Contract Considerations

The other important consideration to make when negotiating a new IT contract, is how IR35 may affect you.

Essentially, IR35 was introduced in 1999 to prevent permanent employees from leaving their PAYE roles, only to return on a contractual basis shortly afterwards.

Typically working through their own limited companies, contractors would typically earn more, and also pay less tax due to their status as limited company directors.

IR35 aims to prevent contractors who work in a very similar way to their "permanent colleagues" from enjoying the tax and income benefits of a limited company director.

The Inland Revenue judge each contract on its own merits. You should read our IR35 Employment Status page for an idea of how you would determine if your contract would be caught by the rules.

We would strongly recommend hiring a professional to look over the proposed contract before signing it. Many established IT Contractor Accountancy and Legal Firms, such as SJD Accountancy and Egos provide IR35 contract review services. They could well save you a large amount of money!


Published on Feb 13, 2006


Further Reading