* Your price sends a signal that attracts particular clients, and the ones you attract with lowball prices are the worst, most demanding kind.
* Your ordinary good clients aren't shopping on price, beyond a vague notion of what the normal range of prices for your field is. Remember: they're generally not spending their own money.
* Any client big enough to have a purchasing department is never going to let you get your rate back; their whole job is to prevent vendors from ever raising rates.
* There are a zillion things you're selling as a consultant that you don't realize you're selling, from schedule flexibility and freedom to fire at will to answering phone calls about the project deliverable 3 weeks after the project is done to not having to pay benefits and payroll taxes to documentation, and you're much more likely to forget to capture this stuff in your prices than you are to overcapture it.
I'm not sure I've ever met a new consultant that had unrealistically high rates. But most new consultants I've met have had unrealistically low rates.
If a client balks at your rate, you can still get the project cost where they need it to be: negotiate on scope instead of rate.
I‘ve been billing hourly for over ten years now, and I agree that it is cursed.
But as much as I’d like to switch to daily/weekly billing, it feels like I would never allow myself to leave the desk to run errands, play with the kids etc - because I promised to work the (whole?) day/week.
Even if you don’t actively tell clients when exactly you do work, clients can see your away/offline status in Slack/Teams, or they might call you out of the blue, which would feel to me like being caught with pants down - talking about a failed deployment on the phone in the supermarket?
And I’d be worried then that the client comes to the conclusion “Oh that guy, bills the whole week but doesn’t even work in the afternoon. What a slacker!”.
There is no relationship between your billing increment and the specific times you're at your desk. You bill a day for any day that you do significant work for the client; that's it. The notion that billing a day means you've booked 8 contiguous desk hours for your client is just hourly billing thinking; that's part of the reason you want to stop billing hourly in the first place.
Reasonable clients who hire you to deliver a project three months from now don't expect you to work 24/7 for 90 days non-stop. They expect you to deliver what was agreed in three months. They happily pay for those three months because someone calculated it will save/make them more money. They don't care what happens in between as long as you keep them regularly updated, don't disappear on them, and respond to emails and calls in a timely fashion.
Ask yourself if you want the type of clients that obsessively check your online status on Slack. Most clients don't have time for that because they have other things to worry about.
If you're deploying something, it's prudent to sit tight for a while and monitor things. You can shop for celebratory champagne later.
If they absolutely expect you to pick up the phone the minute they call, hire someone to answer the calls for you. Now they have a dedicated account manager. Charge them appropriately.
If you want to read more, the OP of this comment chain, tptacek, wrote here a lot about charging daily/weekly vs hourly (and other nuggets of wisdom about consulting). Query `site:ycombinator.com tptacek hourly` in your favorite search engine. Here's an example: https://news.ycombinator.com/item?id=4103417
But tbh, customers aggrieved at your working practices are simply not worth having. If they don't trust you enough to do the work, they probably won't trust the output of it either, which all that it entails (not paying etc).
I've been a consultant in a previous life, and the best customers were invariably the ones who just let you get on with the job.
> But as much as I’d like to switch to daily/weekly billing, it feels like I would never allow myself to leave the desk to run errands, play with the kids etc - because I promised to work the (whole?) day/week.
Bill by the project and this problem is solved.
That said, I'm one of the weird ones who prefers to bill hourly whenever possible.
So I keep hearing this, but I haven't seen it actually working in practice.
My wife has been (trying to) freelance since we moved to the US. She applied the playbook, rejected lowball offers, and negotiated higher rates.
The result? She has worked about a total of 2 months out of 1.5 years. The pipeline is dry and nothing is coming her way. In retrospect we regret not accepting some of those lowball offers. Sure, the rates suck, but not having a job sucks more.
My cynical take is that blanket statements like that are unrealistic and even harmful for some.
I agree. The original advice is very solid, but it applies after you're established yourself. Freelancers live and die on reputation, and when you're new, you have no reputation one way or another.
So the first thing a new freelancer has to do is to establish a good reputation. This means having a client history. Never forget that the world is smaller than you think, and people talk to each other about these things -- even if they're competitors.
This means that it can be a good idea to accept jobs that don't pay what they should. But the new freelancer still needs to get value that offsets the lower financial return, and that value is, basically, word-of-mouth and references.
That said, new freelancers (of any sort) have a very strong tendency to think that the "going rate" is much lower than it actually is. Talk to other freelancers in your area to learn what clients are used to paying before even thinking about setting a price.
One thing I had success with, and I've seen others have success with, is to make a proposal at the going rate, but add in an offer to take a substantial discount in exchange for permission to use the client's name as a reference, in marketing materials, etc. Especially if the client is well-known and respected.
The hardest part of being a freelancer is starting out, when nobody knows who you are. Once you have a couple of good clients under your belt, it gets much easier to find new ones.
The basic idea is that you don't want the client to think that you're a discount freelancer, but that you're offering to get some of your compensation in a different form than cash.
Because all of this has to balance out with another fundamental truth: people will tend to judge the worth or quality of a thing by its price tag. If it just looks like you're cheap, you will be perceived as being lower quality. And what most clients want is quality work, delivered as promised. Your compensation should encourage them to expect that, or at least not actively signal the opposite.
I'm lucky enough to have a 9 to 4, but I do freelancing on the side as well. I've gotten lowball offers after sending contracts over, one in the past week that was 35% below my rate, which I already thought was low to begin with. If nothing can be worked out I'm able to politely refuse, but I'd be pretty sad if I wasn't financially secure to begin with and had to barter with these types.
I'm not sure if it's been mentioned yet, but one other idea is equity, whether it's with the company or ownership of IP/software. At the moment I have a client who has offered that I have all rights to the software I'm creating for them, in exchange for a rate of about 50% less. Of course this may or may not make sense depending on the company/project, but just thought I would mention it. Good luck to you and your wife.
Personally, I turn those down. When I'm freelancing, I'm doing it specifically to maintain a high degree of flexibility. Non-scoped jobs take flexibility away.
But I think this is a personal call sort of thing, and may be right for you, depending.
> Hourly rates Your price should be a reflectance of your skills level and your reputation. In the beginning of your consultancy career I would suggest to lowball the price, but not too much.
I've found that in my case it was beneficial for both parties if I asked a rate that made it worth it for me.
Worst case scenario they said no.
Every time I lowballed, I regretted it and didn't do my best and couldn't help it.
I lowballed in the beginning just to get a foot in the door and get some experience. But once you've had a few jobs that way, it's time to stop lowballing and get a bit more selective.
And then there was this one project that I really liked, and I ended up taking an enormous cut to continue on that project. That was a bad idea. It was a cool project, but being underpaid so dramatically did hurt my enjoyment quite a bit. (And it wasn't a charity or anything; it was a bank.)
I feel like banks are one of the last places you should try to peddle B2B/SAAS/consulting packages unless you already have a gigantic reputation to work with and/or deep domain expertise + a professional network.
Many bank execs want to sign contracts with a minimum of 5 year duration. No one wants to spend all that due diligence time & energy on a 12 month contract. So, the stakes are really high. They're going to want you to prove you will be around in a decade.
If their executive team is worried about your business continuity, but still really like the technology idea, that is where you run into the undercutting angle. They'll move it under a different cost center like "tech research and transformation initiatives" as opposed to "principal, line of business systems". They'll still talk to you, but it will be on entirely different terms than you would desire.
The push for employees to become a "Consultant, freelancer or independent contractor" was the hope from companies that they could unload many costs of business to their ex-employees. Things like phone rental, insurance, car running costs, tools, etc.
However, people quickly learnt that unless the remuneration was increased in proportion, then the ex-employee was much worse of.
Plus the Tax Man quickly got involved and ruled that many Contracting arrangements were actually a sham.
There are now a list of standard tests to determine if a supposed contractor is actually an employee.
> There are now a list of standard tests to determine if a supposed contractor is actually an employee.
Not in the UK there's not.
HMRC refuse to provide a definitive list or say how they determine if a contractor is "acting as a disguised employee" (BTW you're still not an "employee" even if you're working Inside the IR35 regulations).
Instead they provide a vague tool that gives you some suggestions but reserve the right to arbitrarily decided later who is and isn't an independent contractor. They can, and have, retrospectively change the rules even for accepted tax returns.
That puts a lot of risk on anyone doing contract work. When the government changed the rules to shift some of that risk the customer, many customers just decided to drop small external contractors all together rather than work to a vague set of suggestions that they can't definitively say if they're complying with.
For small contractors it's difficult to get insurance for IR35 risks because of this. You can get it but it's not cheap or easy compared to other liabilities.
The contract market in the UK has been slowly dying since the tabloids first decided that contractors where another group they could demonise and the Tories gleefully went along with it.
IR35 is an absolute clusterfuck and I'm glad I left the UK and contract in Australia now.
It's a huge financial risk being held over your head at every turn. If HMRC decide to investigate that can cost you and you're likely to be on the hook for all sorts of legal fees to fight them.
If the courts side with them and decide that you are, in fact, caught by the legislation, they don't seem to work out liabilities based on what you paid in corporation tax, dividend tax etc, and what would have been owed under PAYE and NI, no, you get sicced with the whole lot again AFAICT. Neither does your determination as an employee entitle you to the employment benefits you would have had - pension contributions, paid time off etc - under that status. The whole thing is a big "fuck you" to the contractor.
IMHO it only exists because of the imbalance in taxes in the UK between earned and invested income. The system is broken and in response, instead of fixing it, they decided to fuck over small players by putting them in jeopardy.
They can't provide a definitive list because case law can always overturn it.
I guess the best they can offer is "if you do this, we will choose not to go after you". But even that can change, as you point out. They don't have the resouces to chase even close to everyone, so they have to rely on media messaging to do a lot of the policing for them (hence going after high-profile targets like TV presenters).
Scam Contacting is just another way of extending the Gig Economy.
Some professional people may be better off as contractors, but huge numbers of young people are being ripped off by being forced into irregular hours and trying to juggle multiple jobs.
It's not the left wing or the Unions who are behind the recent explosion of insecure work.
In Netherland, being a consultant, freelancer or independent contractor is the only way to get paid your worth. Salaries for programmers are often terrible. Well, maybe not terrible, but lower than they should be.
I had a project at a bank, where I created the initial prototype for a new, vague idea and guided the project (through constantly changing product owners and other team changes) to become very successful. Because the tax service was being difficult about the difference between a self-employed contractor and an employee, the bank had a rule that self-employed contractors couldn't stay for more than two years, but after two years, I wasn't done with that project yet. So I became an employee.
The bank has pay scales for employees, and I had to fit in there. Software engineers could have a pay scale from 8-12, product owners, scrum masters, business architects and other people I worked with had pay scales from 10-13. One freelancer-turned-employee that I spoke to came from a very similar hourly rate to scale 12 (as product owner). I figured I was worth scale 12 too, but it turned out they had no programmers in scale 11 or 12 at all, and 10 was the maximum that was used, despite the fact that 10 was the minimum for pretty much every other job at that department.
Later at a department-wide meeting, the manager had the gall to complain that all their senior engineers would leave.
Many other companies pay similar rates for programmers as employees, but have no problem paying much more for you when you're a contractor or freelancer of some sort.
It is not that simple and varies country to country. Here Finland best software developers usually go consulting/freelancing in their later career because that is where big money is in our software ecosystem and it has some rather big tax benefits.
Here in the Netherlands I've seen this too. It's somewhat confusing to speak about freelancers as a single group because they stretch all the way from doordash drivers making minimum wage (and sometimes less) to well-paid someware developers making about twice what a employed senior dev would. One of those is economically precarious and needs (government) assistance, the other is doing just fine.
Same in Germany. You can get about twice the pay (if you manage to stay fully booked), though you don't save anything in taxes -- unless you count in VAT free equipment purchases and avoiding the public pension scheme.
Agree to an extent. Contractor relationships are abused at many companies, but this is usually the case with mid to low level positions. People who make it through senior ranks and go on to become consultants get treated very differently. The latter is also incredibly lucrative.
Can confirm. Senior consultants are also very valuable to companies because they can say and do things that are necessary but politically taboo within the organisation. - Like pointing out underperforming teams and managers to upper management.
> Plus the Tax Man quickly got involved and ruled that many Contracting arrangements were actually a sham.
That's not entirely true. The tax man was lobbied by big consultancies that were losing talent. Because quite often, an employee of consultancy would have found they could make more money by working with the consultancy client directly and cutting out the middleman.
If these arrangements were "a sham" then tax man would have included big consultancies in the scope of relevant legislation, like IR35 here in the UK.
> people quickly learnt that unless the remuneration was increased in proportion
I mean, not only is this my experience, but that's the trope, no? You get fired and then hired back as a consultant for twice the cost? Regardless, if that isn't happening, this doesn't seem like a problem we should be fixing using government. No matter how you are classified, you need to make sure the net compensation you are receiving for doing the job is worth all the costs (which includes not only any time and materials you are supposed to be bringing to the job yourself, but also indirect stuff like occupational risk exposure).
To put this story in reverse: somehow in the United States we've pawned off the problems we SHOULD be solving using government--stuff like health care, retirement planning, and disability leave--to private companies to each separately manage for their individual pool of employees, which has resulted in a system that privileges larger companies that can have larger and more amortized employee pools and has created this ridiculous idea that there is this concept of an "employee" that must be mandated and enforced. It is all a massive misdirection that helps lock in and prevent collective action.
That’s easily remedied. Many companies will not work with 1099 contractors and will only work with third party consulting companies.
When I was a dev lead, my manager wanted “another me”. I had a friend looking for work and he wanted $80/hour. My manager didn’t have a problem with the hourly rate. He was willing to pay $110 per hour to the consulting agency we were going through so they could hire him and we could work through them.
True. Germany has strict rules against scheinselbständigkeit (shadow employment) as well. However many intrepid consultants find ways to skirt around it.
> However, people quickly learnt that unless the remuneration was increased in proportion, then the ex-employee was much worse of.
People who have only ever been employees are often ignorant of how much money is spent on them that they never see. It can be quite a shock when they become self-employed and are required to pay these costs directly. Although that's nothing compared to the shock when they learn they now have to pay taxes quarterly, and in advance of each quarter.
My (very rough, US-based) rule of thumb is that I need to bring in revenues between 50 and 100% greater than what I want to "take home" in terms of personal income.
Which tax man in what countries? Based on your vague description I see a picture of labor protection asking employers to pay their fair share, not the tax man.
Yes that's the problem. People often work exclusively for a single employer but call this contracting because supposedly it's a deal between two companies (a real company, and a one-person shop). But no, that's still an employment contract, this is determined by the nature of the relationship, not by specific words written in the contract or rituals such as issuing an invoice.
> This time should be removed from the log, it’s still there but it is your time, not your customers time.
Oof, lost me here. Guess what? It is the customer’s time.
Software is huge. Huge huge. Gargantuan. I don’t have an eidetic memory and if the customer wants a developer with eidetic memory they’re free to look for one.
I will always be learning and re-learning. It’s a big field with lots of long small pitfalls. If you have a non-standard system, it means I’m digging and re-learning some shit I thought I had the luxury to forget. That is _definitely_ on the customer.
Personally, I think "charge by hour" is not a good piece of advice. If you are a low-tier freelancer, there may be no other way to go, and you must accept that.
For most things, mid-tier to high-tier, from my experience, it works better by day or (even better) by project.
Suppose there are only a few billable hours. In that case, there are many times more non-billable, for anything, from negotiating, through communication in between, to finalizing and invoicing. Also, 8x1h is much more work than 1x8h. The latter is a typical workday; the former is exhausting with its context-switching.
You're going to find a lot of (completely valid) advice on both sides -- bill by hour and bill by project. Out in the wild, there are a ton of factors that are going to make that advice either good or bad.
For example, the book, Million Dollar Consulting, is pretty famous for advocating the "charge by value" approach. I think a lot of what's stated in that book can make sense when you're 1) highly specialized and 2) are in high-demand. You have a lot more leverage in those situations and both sides of the equation likely know what value you're creating. These are the types of situations where managers inside the company you're working for are motivated to get through any red-tape your "non-standard" pricing models create.
However, in a lot of cases, businesses have policies and controls around how they structure contractor pay. You should certainly be flexible to not limit yourself, especially if you don't have a whole host of companies knocking at your inbox.
I'd suggest really thinking through how much time it takes to acquire (pitching, negotiations, other pre-contract meetings) a client, how much admin time it takes, and just build that into your hourly rate. Setting up retainer agreements is also usually a good idea for you and something clients don't typically balk at -- e.g. you will be paid a minimum of 10 hours per week, even if you only worked 5 hours.
For anyone worried about limiting their income by charging hourly rates, I'd suggest looking around at what high-end law firms, creative agencies, management consultants, accounting firms, etc. charge. As a solo consultant, you're ALWAYS going to be constrained by hour many hours you're willing to work, regardless of how you bill.
Per project or per time is one question, and yes - it depends on many things.
My point is that, from my experience, "per day" is strictly better than "per hour". In principle, you can say "just build it into your hourly rate". In practice, it is only if it is agreed beforehand how many hours, how distributed, and what is the non-billable overhead. Plus, adding conditions like "I am being paid for at least X h a week, I work in blocks of at least Y h, etc" , in my experience, added needless friction. I have learned to avoid the friction by saying "I don't have an hourly rate; my daily rate is X" and, if needed, adding that I am open to splitting some days in half.
> You should certainly be flexible to not limit yourself, especially if you don't have a whole host of companies knocking at your inbox.
I hope "you should" is rhetorical - I know what I am doing. Sure, there is a balance between how many clients are interested and how well I set conditions of collaboration with them. Obviously, in terms of when you set the balance, YMMV.
> For anyone worried about limiting their income by charging hourly rates, I'd suggest looking around at what high-end law firms, creative agencies, management consultants, accounting firms, etc. charge.
Agencies work on a very different basis than solo freelancers/contractors, including (but not limited to) the fact that on the bill, there are hours of many people involved.
I absolutely refuse to be a “contractor” or anything that looks like “staff augmentation”.
Strategic consulting where I am talking to decision makers and people in control of budgets where I’m brought in for expertise is different.
When I was a dev lead and saw the difference between what we were paying “consultants in name only” staff aug C# developers and what we were paying “AWS consultants” who were just old school net ops folks who knew how to duplicate on prem infrastructure and processes and make it more expensive in the cloud, it changed my entire career trajectory.
I knew I could bring more to the table as someone who had a development background, knew some about infrastructure if I knew “cloud”.
I got a full time job at AWS in the Professional Services department where I still work. ;)
And I stay away from any project where it looks like it’s going to be staff augmentation.
I want to have clear objectives and clear definition of done with success criteria not “the customer bought a bucket of hours and they will add you to their team and assign tasks”.
In certain Latin American countries if 90+ Oct of your revenue comes from a single client, the tax office determines that this client is de facto your employer and you become entitled to severance and other perks when you leave or contract is ended.
But I don't want severance and other perks. I just want money so I can save up my own buffer and buy my own perks.
I think it's very good that the tax service is looking out for underpaid freelancers struggling on the edge of poverty (or often below it), but highly paid software engineers can take care of themselves. If my current client wants to end our contract tomorrow, I'm fine with that. That's why he's hiring me, and not an employee. And that's why he's paying me as much as he is.
I'm all for drawing a line somewhere based on hourly rate. Below $50/h (or wherever you want to draw that line), you may be entitled to employee benefits, above that line, you're on your own, because you can take care of yourself.
I don't think the pay rate really matters, and you could always decline it. I think this is more meant to safely allow someone to put most of their eggs in one basket - generally that's a risky move and the client could simply refuse to pay and put you out of business, but as a client there's a lot of value in being the main priority
Readit News
* Your price sends a signal that attracts particular clients, and the ones you attract with lowball prices are the worst, most demanding kind.
* Your ordinary good clients aren't shopping on price, beyond a vague notion of what the normal range of prices for your field is. Remember: they're generally not spending their own money.
* Any client big enough to have a purchasing department is never going to let you get your rate back; their whole job is to prevent vendors from ever raising rates.
* There are a zillion things you're selling as a consultant that you don't realize you're selling, from schedule flexibility and freedom to fire at will to answering phone calls about the project deliverable 3 weeks after the project is done to not having to pay benefits and payroll taxes to documentation, and you're much more likely to forget to capture this stuff in your prices than you are to overcapture it.
I'm not sure I've ever met a new consultant that had unrealistically high rates. But most new consultants I've met have had unrealistically low rates.
If a client balks at your rate, you can still get the project cost where they need it to be: negotiate on scope instead of rate.
Never bill hourly. Hourly is cursed.
But as much as I’d like to switch to daily/weekly billing, it feels like I would never allow myself to leave the desk to run errands, play with the kids etc - because I promised to work the (whole?) day/week.
Even if you don’t actively tell clients when exactly you do work, clients can see your away/offline status in Slack/Teams, or they might call you out of the blue, which would feel to me like being caught with pants down - talking about a failed deployment on the phone in the supermarket?
And I’d be worried then that the client comes to the conclusion “Oh that guy, bills the whole week but doesn’t even work in the afternoon. What a slacker!”.
How do you or other people handle this?
Reasonable clients who hire you to deliver a project three months from now don't expect you to work 24/7 for 90 days non-stop. They expect you to deliver what was agreed in three months. They happily pay for those three months because someone calculated it will save/make them more money. They don't care what happens in between as long as you keep them regularly updated, don't disappear on them, and respond to emails and calls in a timely fashion.
Ask yourself if you want the type of clients that obsessively check your online status on Slack. Most clients don't have time for that because they have other things to worry about.
If you're deploying something, it's prudent to sit tight for a while and monitor things. You can shop for celebratory champagne later.
If they absolutely expect you to pick up the phone the minute they call, hire someone to answer the calls for you. Now they have a dedicated account manager. Charge them appropriately.
If you want to read more, the OP of this comment chain, tptacek, wrote here a lot about charging daily/weekly vs hourly (and other nuggets of wisdom about consulting). Query `site:ycombinator.com tptacek hourly` in your favorite search engine. Here's an example: https://news.ycombinator.com/item?id=4103417
But tbh, customers aggrieved at your working practices are simply not worth having. If they don't trust you enough to do the work, they probably won't trust the output of it either, which all that it entails (not paying etc).
I've been a consultant in a previous life, and the best customers were invariably the ones who just let you get on with the job.
Deleted Comment
Bill by the project and this problem is solved.
That said, I'm one of the weird ones who prefers to bill hourly whenever possible.
My wife has been (trying to) freelance since we moved to the US. She applied the playbook, rejected lowball offers, and negotiated higher rates.
The result? She has worked about a total of 2 months out of 1.5 years. The pipeline is dry and nothing is coming her way. In retrospect we regret not accepting some of those lowball offers. Sure, the rates suck, but not having a job sucks more.
My cynical take is that blanket statements like that are unrealistic and even harmful for some.
I agree. The original advice is very solid, but it applies after you're established yourself. Freelancers live and die on reputation, and when you're new, you have no reputation one way or another.
So the first thing a new freelancer has to do is to establish a good reputation. This means having a client history. Never forget that the world is smaller than you think, and people talk to each other about these things -- even if they're competitors.
This means that it can be a good idea to accept jobs that don't pay what they should. But the new freelancer still needs to get value that offsets the lower financial return, and that value is, basically, word-of-mouth and references.
That said, new freelancers (of any sort) have a very strong tendency to think that the "going rate" is much lower than it actually is. Talk to other freelancers in your area to learn what clients are used to paying before even thinking about setting a price.
One thing I had success with, and I've seen others have success with, is to make a proposal at the going rate, but add in an offer to take a substantial discount in exchange for permission to use the client's name as a reference, in marketing materials, etc. Especially if the client is well-known and respected.
The hardest part of being a freelancer is starting out, when nobody knows who you are. Once you have a couple of good clients under your belt, it gets much easier to find new ones.
The basic idea is that you don't want the client to think that you're a discount freelancer, but that you're offering to get some of your compensation in a different form than cash.
Because all of this has to balance out with another fundamental truth: people will tend to judge the worth or quality of a thing by its price tag. If it just looks like you're cheap, you will be perceived as being lower quality. And what most clients want is quality work, delivered as promised. Your compensation should encourage them to expect that, or at least not actively signal the opposite.
I'm not sure if it's been mentioned yet, but one other idea is equity, whether it's with the company or ownership of IP/software. At the moment I have a client who has offered that I have all rights to the software I'm creating for them, in exchange for a rate of about 50% less. Of course this may or may not make sense depending on the company/project, but just thought I would mention it. Good luck to you and your wife.
But I think this is a personal call sort of thing, and may be right for you, depending.
I've found that in my case it was beneficial for both parties if I asked a rate that made it worth it for me.
Worst case scenario they said no.
Every time I lowballed, I regretted it and didn't do my best and couldn't help it.
And then there was this one project that I really liked, and I ended up taking an enormous cut to continue on that project. That was a bad idea. It was a cool project, but being underpaid so dramatically did hurt my enjoyment quite a bit. (And it wasn't a charity or anything; it was a bank.)
Ah yes the irony of capitalism.
I feel like banks are one of the last places you should try to peddle B2B/SAAS/consulting packages unless you already have a gigantic reputation to work with and/or deep domain expertise + a professional network.
Many bank execs want to sign contracts with a minimum of 5 year duration. No one wants to spend all that due diligence time & energy on a 12 month contract. So, the stakes are really high. They're going to want you to prove you will be around in a decade.
If their executive team is worried about your business continuity, but still really like the technology idea, that is where you run into the undercutting angle. They'll move it under a different cost center like "tech research and transformation initiatives" as opposed to "principal, line of business systems". They'll still talk to you, but it will be on entirely different terms than you would desire.
However, people quickly learnt that unless the remuneration was increased in proportion, then the ex-employee was much worse of.
Plus the Tax Man quickly got involved and ruled that many Contracting arrangements were actually a sham.
There are now a list of standard tests to determine if a supposed contractor is actually an employee.
Not in the UK there's not.
HMRC refuse to provide a definitive list or say how they determine if a contractor is "acting as a disguised employee" (BTW you're still not an "employee" even if you're working Inside the IR35 regulations).
Instead they provide a vague tool that gives you some suggestions but reserve the right to arbitrarily decided later who is and isn't an independent contractor. They can, and have, retrospectively change the rules even for accepted tax returns.
That puts a lot of risk on anyone doing contract work. When the government changed the rules to shift some of that risk the customer, many customers just decided to drop small external contractors all together rather than work to a vague set of suggestions that they can't definitively say if they're complying with.
For small contractors it's difficult to get insurance for IR35 risks because of this. You can get it but it's not cheap or easy compared to other liabilities.
The contract market in the UK has been slowly dying since the tabloids first decided that contractors where another group they could demonise and the Tories gleefully went along with it.
It's a huge financial risk being held over your head at every turn. If HMRC decide to investigate that can cost you and you're likely to be on the hook for all sorts of legal fees to fight them.
If the courts side with them and decide that you are, in fact, caught by the legislation, they don't seem to work out liabilities based on what you paid in corporation tax, dividend tax etc, and what would have been owed under PAYE and NI, no, you get sicced with the whole lot again AFAICT. Neither does your determination as an employee entitle you to the employment benefits you would have had - pension contributions, paid time off etc - under that status. The whole thing is a big "fuck you" to the contractor.
IMHO it only exists because of the imbalance in taxes in the UK between earned and invested income. The system is broken and in response, instead of fixing it, they decided to fuck over small players by putting them in jeopardy.
I guess the best they can offer is "if you do this, we will choose not to go after you". But even that can change, as you point out. They don't have the resouces to chase even close to everyone, so they have to rely on media messaging to do a lot of the policing for them (hence going after high-profile targets like TV presenters).
Scam Contacting is just another way of extending the Gig Economy.
Some professional people may be better off as contractors, but huge numbers of young people are being ripped off by being forced into irregular hours and trying to juggle multiple jobs.
It's not the left wing or the Unions who are behind the recent explosion of insecure work.
https://www.australianunions.org.au/2022/04/29/what-you-need...
https://theconversation.com/why-insecure-work-is-finally-bei...
A good accountant/tax advisor can help here. They do know how HMRC categorise disguised employees and can help you not get burned.
I had a project at a bank, where I created the initial prototype for a new, vague idea and guided the project (through constantly changing product owners and other team changes) to become very successful. Because the tax service was being difficult about the difference between a self-employed contractor and an employee, the bank had a rule that self-employed contractors couldn't stay for more than two years, but after two years, I wasn't done with that project yet. So I became an employee.
The bank has pay scales for employees, and I had to fit in there. Software engineers could have a pay scale from 8-12, product owners, scrum masters, business architects and other people I worked with had pay scales from 10-13. One freelancer-turned-employee that I spoke to came from a very similar hourly rate to scale 12 (as product owner). I figured I was worth scale 12 too, but it turned out they had no programmers in scale 11 or 12 at all, and 10 was the maximum that was used, despite the fact that 10 was the minimum for pretty much every other job at that department.
Later at a department-wide meeting, the manager had the gall to complain that all their senior engineers would leave.
Many other companies pay similar rates for programmers as employees, but have no problem paying much more for you when you're a contractor or freelancer of some sort.
There are a lot of companies that seem willing to hire me as a consultant, not so many as a permanent employee.
That's not entirely true. The tax man was lobbied by big consultancies that were losing talent. Because quite often, an employee of consultancy would have found they could make more money by working with the consultancy client directly and cutting out the middleman.
If these arrangements were "a sham" then tax man would have included big consultancies in the scope of relevant legislation, like IR35 here in the UK.
I mean, not only is this my experience, but that's the trope, no? You get fired and then hired back as a consultant for twice the cost? Regardless, if that isn't happening, this doesn't seem like a problem we should be fixing using government. No matter how you are classified, you need to make sure the net compensation you are receiving for doing the job is worth all the costs (which includes not only any time and materials you are supposed to be bringing to the job yourself, but also indirect stuff like occupational risk exposure).
To put this story in reverse: somehow in the United States we've pawned off the problems we SHOULD be solving using government--stuff like health care, retirement planning, and disability leave--to private companies to each separately manage for their individual pool of employees, which has resulted in a system that privileges larger companies that can have larger and more amortized employee pools and has created this ridiculous idea that there is this concept of an "employee" that must be mandated and enforced. It is all a massive misdirection that helps lock in and prevent collective action.
When I was a dev lead, my manager wanted “another me”. I had a friend looking for work and he wanted $80/hour. My manager didn’t have a problem with the hourly rate. He was willing to pay $110 per hour to the consulting agency we were going through so they could hire him and we could work through them.
https://www.eu-gleichbehandlungsstelle.de/eugs-en/practical-...
People who have only ever been employees are often ignorant of how much money is spent on them that they never see. It can be quite a shock when they become self-employed and are required to pay these costs directly. Although that's nothing compared to the shock when they learn they now have to pay taxes quarterly, and in advance of each quarter.
My (very rough, US-based) rule of thumb is that I need to bring in revenues between 50 and 100% greater than what I want to "take home" in terms of personal income.
Oof, lost me here. Guess what? It is the customer’s time.
Software is huge. Huge huge. Gargantuan. I don’t have an eidetic memory and if the customer wants a developer with eidetic memory they’re free to look for one.
I will always be learning and re-learning. It’s a big field with lots of long small pitfalls. If you have a non-standard system, it means I’m digging and re-learning some shit I thought I had the luxury to forget. That is _definitely_ on the customer.
For most things, mid-tier to high-tier, from my experience, it works better by day or (even better) by project.
Suppose there are only a few billable hours. In that case, there are many times more non-billable, for anything, from negotiating, through communication in between, to finalizing and invoicing. Also, 8x1h is much more work than 1x8h. The latter is a typical workday; the former is exhausting with its context-switching.
See also https://training.kalzumeus.com/newsletters/archive/consultin... (discussed here numerous times, including https://news.ycombinator.com/item?id=4805091).
For example, the book, Million Dollar Consulting, is pretty famous for advocating the "charge by value" approach. I think a lot of what's stated in that book can make sense when you're 1) highly specialized and 2) are in high-demand. You have a lot more leverage in those situations and both sides of the equation likely know what value you're creating. These are the types of situations where managers inside the company you're working for are motivated to get through any red-tape your "non-standard" pricing models create.
However, in a lot of cases, businesses have policies and controls around how they structure contractor pay. You should certainly be flexible to not limit yourself, especially if you don't have a whole host of companies knocking at your inbox.
I'd suggest really thinking through how much time it takes to acquire (pitching, negotiations, other pre-contract meetings) a client, how much admin time it takes, and just build that into your hourly rate. Setting up retainer agreements is also usually a good idea for you and something clients don't typically balk at -- e.g. you will be paid a minimum of 10 hours per week, even if you only worked 5 hours.
For anyone worried about limiting their income by charging hourly rates, I'd suggest looking around at what high-end law firms, creative agencies, management consultants, accounting firms, etc. charge. As a solo consultant, you're ALWAYS going to be constrained by hour many hours you're willing to work, regardless of how you bill.
My point is that, from my experience, "per day" is strictly better than "per hour". In principle, you can say "just build it into your hourly rate". In practice, it is only if it is agreed beforehand how many hours, how distributed, and what is the non-billable overhead. Plus, adding conditions like "I am being paid for at least X h a week, I work in blocks of at least Y h, etc" , in my experience, added needless friction. I have learned to avoid the friction by saying "I don't have an hourly rate; my daily rate is X" and, if needed, adding that I am open to splitting some days in half.
> You should certainly be flexible to not limit yourself, especially if you don't have a whole host of companies knocking at your inbox.
I hope "you should" is rhetorical - I know what I am doing. Sure, there is a balance between how many clients are interested and how well I set conditions of collaboration with them. Obviously, in terms of when you set the balance, YMMV.
> For anyone worried about limiting their income by charging hourly rates, I'd suggest looking around at what high-end law firms, creative agencies, management consultants, accounting firms, etc. charge.
Agencies work on a very different basis than solo freelancers/contractors, including (but not limited to) the fact that on the bill, there are hours of many people involved.
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How To Be a Consultant, a freelancer or an independent contractor (2009) - https://news.ycombinator.com/item?id=2255463 - Feb 2011 (7 comments)
How to run a small consultancy / freelancing business - https://news.ycombinator.com/item?id=848370 - Sept 2009 (63 comments)
Strategic consulting where I am talking to decision makers and people in control of budgets where I’m brought in for expertise is different.
When I was a dev lead and saw the difference between what we were paying “consultants in name only” staff aug C# developers and what we were paying “AWS consultants” who were just old school net ops folks who knew how to duplicate on prem infrastructure and processes and make it more expensive in the cloud, it changed my entire career trajectory.
I knew I could bring more to the table as someone who had a development background, knew some about infrastructure if I knew “cloud”.
I spent the next two years getting experience.
And I stay away from any project where it looks like it’s going to be staff augmentation.
I want to have clear objectives and clear definition of done with success criteria not “the customer bought a bucket of hours and they will add you to their team and assign tasks”.
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I think it's very good that the tax service is looking out for underpaid freelancers struggling on the edge of poverty (or often below it), but highly paid software engineers can take care of themselves. If my current client wants to end our contract tomorrow, I'm fine with that. That's why he's hiring me, and not an employee. And that's why he's paying me as much as he is.
I'm all for drawing a line somewhere based on hourly rate. Below $50/h (or wherever you want to draw that line), you may be entitled to employee benefits, above that line, you're on your own, because you can take care of yourself.