Contractor pay rates versus agency charge rates
The amount a contractor receives is not the same as the rate a client is invoiced. Before comparing quotes on a data centre project, decide which number is being discussed: worker pay, limited-company fee, umbrella assignment rate or the agency’s client charge. Confusing these can distort a hiring decision.
Define the three figures
A worker’s gross pay, a company’s invoice rate and the amount the end client is charged can be different. The charge rate may include agency margin, employer costs where applicable, payroll administration, insurance or other agreed costs. The exact components depend on the engagement arrangement.
Ask every supplier to name the basis rather than presenting an unqualified "day rate".
Calculate cost using real working assumptions
If a client is charged a daily amount, annualising it by multiplying by 260 days is often misleading. Contracts have different working days, holidays, shutdowns, shift premiums, overtime and expense treatment. A programme budget should use the expected billable days and the actual contract terms.
Confirm how travel, accommodation, night work, on-call arrangements and extensions are charged.
Margin is not the same as markup
An agency margin measured against the client charge rate is calculated differently from markup measured against the contractor cost. For example, a £100 cost and a £125 charge represent £25 difference: a 20% margin on charge, but a 25% markup on cost. Use the same denominator when comparing proposals.
Neither figure tells you everything about value. Sourcing effort, compliance and account management may affect the agreed service.
Consider IR35 and the payment route
Personal service company, PAYE and umbrella arrangements are not financially interchangeable. The status determination and supply-chain responsibilities matter. Do not compare an umbrella assignment rate with limited-company income as if they were take-home pay. Seek current tax advice where needed.
Ask for a transparent quotation
Request contractor rate basis, agency charge basis, VAT treatment where applicable, minimum hours or days, timesheet approval, payment schedule, expenses, cancellation rules and extension terms in writing. Then compare contractors on technical fit and total commercial commitment.
Source and further reading
The sources below provide background relevant to contractor pay rates versus agency charge rates. Technical examples in this guide are explanatory and do not describe a Franklin Critical client or completed assignment.
Frequently asked questions
Is an agency charge rate the contractor’s wage?
No. It is the amount the client is billed under the agreed supply arrangement; the worker’s pay may differ.
Is a 20% margin the same as a 20% markup?
No. Margin uses the selling price as the denominator; markup uses cost.
How should we compare contractor rates?
Agree the payment route, expected billable days, shift or overtime rules, expenses and tax treatment before comparing.