How to Calculate Contract Rate

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Contract rate takes into account time and money.
Contract rate takes into account time and money. (Image: time-money image by Vladimir Gryaznov from Fotolia.com)

Independent contractors need to know exactly how much they will be paid by the hour. This amount, typically known as the contract rate, can be determined by knowing a few of the variables that are involved in a contract, such as amount to be paid the contractor and the amount of time that the project will take to complete. A contract rate can be used to compare projects in terms of what they are worth to the contractor.

Determine the entire amount you will be paid when you have completed the project indicated in the contract. Make this amount your salary.

Calculate the amount of time it will take to complete the work indicated in the contract. Add the time used to directly work on the project and the time that it will take to budget, plan and present the final product. Do not forget to add travel time that will be necessary for the project.

Divide your salary by the amount of total time you will spend completing the project. This is your unadjusted hourly rate. For instance, if you will be paid $10,000 for the project and you plan to spend 175 hours completing the work, then your hourly rate will be $57.14.

Add any adjustments that you see fit. These may include benefits, taxes, materials and labor that you need to pay for in order to complete the project. Let's say that it will cost you $2,500 to complete the project, then your net salary will be $7,500 and your hourly rate will be $42.86.

Figure in the adjustments when negotiating a contract rate. Let's say that your unadjusted hourly rate is $50 for a project. If you need to take into account costs such as taxes, then add those taxes into the rate that needs to be paid in order for you to agree to the contract. For example, if taxes will be 40 percent, then multiple 1.40 to the hourly rate of $50 to find that the adjusted rate that you need to charge is $70 an hour.

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