Competex - About Interim Management: Daily Rates

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It is extremely important that you calculate a suitable daily rate to charge your clients and, in so doing, you must fully take into account your changed status.

As a salaried employee, you worked for approximately 220 days in the year, after taking into account weekends, holidays and bank holidays. However, as an interim manager, you will probably work and be paid for fewer days than this and you need to take this into account when computing your daily rate.

The extra costs of independence

When you were a salaried employee, your employer bore certain extra costs over and above your gross salary, which you will now have to pay for out of your total fee income, and these fall into three categories.

1.	Those items that will now have to be paid for out of your net salary, such as: Private health insurance Company car
2.	Those items that will now have to be paid for out of your gross salary, such as: Pension contributions. (NB There are Inland Revenue maxima based on age and salary)
3.	Those items which are not personal benefits but which you will now have to pay for out of your fee income, such as: Accountant's fees Computer equipment Office bits and pieces Annual professional indemnity (PI) insurance
4.	In addition, your employer also paid employer's NI. Funds available to pay salary must be split between gross salary and employer's NI, which is currently 12.8% of gross salary over £4,895. In principle, therefore, out of every £1,000 of fee income that you use to pay salaries, approximately £887 becomes gross salary and £113 becomes employer's contribution (ie 11.3% of the funds used to pay salary goes as employer's NI contribution).

Out of your gross salary you will continue to pay income tax and employee's NI (together known as PAYE). The employee's NI for directors is currently 11% of gross salary between £4,895 and £32,760 plus 1% of all earnings over £32,760. Lower rate tax is currently 10% up to £2,090, basic rate tax of 22% applies between £2,091 and £32,400, and top rate tax is 40% of income above £32,400.

Calculating your daily rate

You need to start with the amount of money that you require to live on (possibly, but not necessarily, your old gross salary). To that you should add all the extra costs and divide the total by the number of days in the year that you anticipate working in order to arrive at a daily rate. You could refine this by producing one rate for short assignments and another for longer assignments where the number of days is more or less guaranteed. In your own mind, always remember that your daily rate includes an amount for employer's NI contribution, which has to be paid to Revenue and Customs (along with the tax and employee's NI contribution that you have always paid).

Be quite clear how much of your daily rate will go to you and how much will go to the government, since it is counter-productive to grumble about it later on!

Do be realistic about the number of days in the year that you are likely to work but, having done the calculation, also be realistic about the fee you propose to charge, particularly if this is your first assignment and you have yet to prove yourself. Remember too, that if you are working through a provider, they will be marking up your fees by their commission, and the client must feel that you can give him value for the money that he is paying.