4

As a Canadian software contractor, what's the best or most accepted method if I've agreed to an annualized salary, to bill it out monthly considering holidays, February being a shorter month etc?

Is it as simple as calculating how many work days are in a year, breaking it down to a daily wage and issuing that for the days worked each month?

Is there a quick resource to find out days in a Canadian working year and such?

4

I don't think there is a "best" or "most accepted" way. What's more important is what works for you and your client. Though, it's actually common for contractors to negotiate an hourly rate or a daily rate and not a target annual income directly.

Contracts aren't expected to be long, and setting the rate on any other basis involves dealing with tricky issues of holidays, vacation, days off, etc. as you have probably guessed. Even using a daily rate means you ought to discuss and agree with your client on what constitutes a typical day. Is it 7 hours? 6 to 8? What happens if you work 12 hours one day? What if you have to take the afternoon off? Tricky.

I have heard of a few cases where a flat monthly rate was charged, usually because the client wanted predictability in the billing. In that case it's typically a set amount per month, and standard hours and expected days off ought to be worked into the contract.

I personally prefer charging an hourly rate because it's the most straightforward: I get paid only for the hours I work, and I don't need to do anything special to account for any kind of time off since I don't get paid for non-work hours. Plus, if a client wants more hours, I can charge more.

Either way, you go – hourly or daily – it is possible to work backward from a target annual income. Here are samples of how I might arrive at each. Plug in your own assumptions and adjust as you see fit.

Daily Rate — First, let $X be your target annual income. There are 52 weeks in the year. But, you'd want some vacation – let's say 3 weeks. That leaves 49 weeks, in which there are 5 days per week = 245 days work per year. You should also assume you won't work on statutory holidays. Let's say there are 10 in your province. (Refer to Wikipedia - Public holidays in Canada to find out exactly.) That leaves 235 days. Budget for a few sick days too. Leaves 232 days. So, divide $X by 232 to get a possible daily rate.

Hourly Rate — We'll use the 232 days per year already calculated in the previous section. Next, let's say your typical day would be 7 hours of billable work. (Most employees get paid for 7.5 or 8 hours, but they get paid lunch or other breaks in there – whereas contractors typically don't.) Multiply 232 x 7 = 1624 work hours per year, if you only took off the time allotted above and didn't work any extra hours. So, divide $X by 1624 to get a possible hourly rate.

I answered a related question answers.onstartups.com - How can I determine a good rate for freelancing?. There are a few items of overhead mentioned in my answer there you might want to consider, too.

Whichever you choose, you should provide your client with an invoice on a set frequency (weekly, semi-monthly, monthly) detailing how many hours or days you worked during the period. Work out this frequency and payment terms in advance, too.

(Aside: When you talk about an annualized salary, you're using the language of an employee. You ought to ensure your arrangement is truly contractor/client and not employee/employer – there are tax consequences if you think you're operating as a contractor but then Canada Revenue Agency later determines you were, in fact, in an employee/employer relationship.)

0

I would say the practical solution depends on the circumstances:

  • If you are a typical contractor and have assumed all the risk, I would recommend a daily rate
  • If you assume most of the risk, but still get paid for overtime and 'lose' on undertime, I would recommend an hourly rate
  • If you are more like an employee, and there is a clear ruling on how much vacation you will take and that your employer is willing to cover most risks of downtime (perhaps due to disease or waiting time), I would just divide the annual pay by 12 and have it transferred every month

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.