The real cost of day rate contracting

Day rate contracting completely changed my life. When I first started in Organisational Change Management, I almost fell off my chair when a recruiter told me the role paid $750 per day. I had no idea that simply changing my employment type from permanent or fixed term contracts to day rate contracting could be so lucrative. My family thought I was nuts because day rate contracting seemed to them so risky and unstable but the truth is: I was doing the same work for almost double the pay, my contracts always got renewed, and I got headhunted a lot with a pay rate bump each time. Sure I forewent some company benefits like bonuses, product discounts, and gym memberships. But I’ve always maintained that I’d prefer to get that extra money in my pocket so I could choose what to do with it rather than be at the mercy of the market, a bad boss, or crummy benefits I wasn’t actually ever going to use. 

Because I started day rate contracting so early on in my career, making the switch put me on the path to earning almost $200,000 salary equivalent, paying off my home loan in 7 years instead of 20 years, and living a life of absolute financial abundance, freedom and flexibility. It gave me the ability to have a side hustle and take months off overseas following my passions of flowers and food and still earn an incredible salary despite all the flexibility in my year. For several years, I loved it and totally milked the wonderful opportunity it gave me.

But as time wore on, the shine of day rate contracting began to tarnish and I started needing and knowing I deserved more. When you’re really experienced in Change Management, you need to consider what day rate contracting is ultimately costing you…

#1 Hitting the market cap

I was a few years into my Change Management career and had been steadily increasing my day rate with every contract or during renewals. I could see the market cap and could tell I was just a couple of years off hitting it. The problem was: I was only in my early 30s! Once I hit the market cap, I’d cap out on my earning potential unless I wanted to take on Head of Change or Change Director roles with more direct reports, responsibilities, and time required. When you’re a day rate contractor, you’re always constrained by the employment market cap rather than having unlimited income potential where you get to choose your own rates as an independent consultant. When I moved to my own consultancy, I tripled my rates overnight.

#2 Trading time for money

The other challenge with being a day rate contractor is that you are constrained by trading time for money. The whole point is that you are charging by the day, and usually employed with fixed days and hours regardless whether you are working full time or part time. You are being remunerated directly for the hours you work, which again means your income potential caps out on the number of working days in the week. As an independent consultant, you could instead start charging based on deliverables and when you do that: earning potential is unlimited. 

#3 Recruiter gloss 

Often as a day rate contractor, you’ll be hired via a recruitment agency. The recruitment agency will often position you as a “consultant” but really you are simply a temporary employee (particularly when set up as PAYG where they’re paying your super and tax!). Now, I absolutely love recruiters and think they are the best kept secret in Change Management for contractors. But importantly, they own the business relationship with the client and the client either pays them a commission for any work you do with the client in the future, or there could be a restraint of trade or introduction fee if you wanted to start working directly with the client as an independent consultant.

#4 Treated like an employee

One of the other ways day rate contracting can cost you is that even though you’re a temporary worker, you’ll often be treated like an employee within the organisation. This could look like attending team meetings and events, performance plans with KPIs and goal setting, development planning, 1:1s, coaching circles, and more. This might be your jam and if my employer wanted me to do these things I did so wholeheartedly to support and help build team culture and ways of working and build relationships with my leaders and peers. But since the early days of my career, I’ve owned my own career development and performance and I often find these types of internal employee performance processes as kind of redundant for many high-achieving and experienced Change professionals. Because you’re more like an employee, you’re also more likely to get drawn or dragged into office politics that can sap your time and kill your vibe.

#5 Expertise and advice is wasted

Perhaps the biggest cost of day rate contracting is that your expertise and advice can feel like it’s being wasted and that your impact is being stifled. You are predominantly stuck working in one organisation and often one project when you know you could be adding value and driving success broader and wider. As an internal, your good ideas and sage advice may be dismissed and overlooked whereas an external consultant saying the same thing may be revered and applauded. And if you have other skill sets, passions, services and offerings, you either provide them for free into the organisation or don’t get to use them at all. I brought a ton of my leadership training, coaching, and Neuro-Linguistic Programming tools and techniques into projects as a day rate contractor, things that were completely over-and-above a regular Change Manager’s remit and I wasn’t paid anything extra for it. Luckily I enjoyed doing this but over time, I kind of wanted to be compensated for these extra skillsets and value-adds. You might have business analysis, coaching, training, facilitation, strategy, organisational design, HR, User Experience or a million other complementary skillsets or expertises that either never see the light of day or you aren’t compensated for if you bring in this service on a project simply because you’re pegged to a day rate contract.

So yes I love day rate contracting and for anyone thinking of being a consultant I think it’s an amazing first step and the first mindset shift to starting to treat yourself like a business. But if you’re experienced as a Change Management expert, you might start wanting to make the most of the value you have to offer and transform the costs of day rate contracting into the opportunities of independent consulting. 

Lata xx

P.S. If you want to step up to your next level in your Change Management career, I’ve got resources perfect for whichever level you are and whatever your income potential goals are. Here’s 4 ways I can help:

1. Find out more about a career in Change Management and how to make the change with my global bestselling book Pioneer Your Career Change - click here to get your copy in print, ebook or audiobook
2. Discover the difference between permanent, fixed term and day rate contracting, see the career paths and day rates, and check out the transferable skills to start or step up in your Change career with my Intro to Change Management Webinar - click here for instant access
3. Learn my powerful Neuro-Linguistic Programming and Coaching techniques and get all the tools and templates to lead end-to-end change delivery with my Leading Successful Change program - click here to join the program today
4. Level up your change leadership and luxury and learn how to start or grow your own independent Change Management consultancy with my Instant Change Consultant Retreat. The Early Bird closes tonight Tuesday 30 September 8.00pm AEST (Sydney time) - click here to find out more and register before the Early Bird deadline