Contracting by the hour or by the task

Contracting by the hour or by the task

Hiring a contractor gives a person or an organization the ability to get work done by an expert without doing it by themselves.  A homeowner can have a plumber install a hot water heater, or a small company can get a marketing video. For the homeowner, the advantage is expertise. For the business, additional advantages include not creating an employment relationship, with the supervision, benefits, overhead, and obligations that entails.

As a business owner, I experience both sides of the contracting relationship, and one of the most confounding issues is whether to bill (or pay) by the hour or by the job. There are pros and cons to each option, and after much experience, I come firmly down on…the middle.

There are pros and cons of billing by the hour or flat rate. Here is my analysis:

By the hour

Pros: As a contractor, I get paid for all the hours I work. If the job is difficult, or is bigger than I thought, I get paid more. The client will know exactly what they are paying for.

Cons: As a contractor, if I am efficient, I get paid less. The client could end up paying for any mistakes I make. Both of us will deal with inconsistent revenue and expense.

My opinion: This works best for short projects in IT or human resources, where the job involves problem solving and a highly technical skill set. It is also appropriate for initial implementation or training.

Flat rate billing

Pros: Both the contactor and the client benefit from consistency. The contractor is encouraged to find efficient ways of working,

Cons: Risky for both contractor and client if the job is poorly understood or inconsistent.

My opinion: This plan works best for my accounting or IT customers once initial training is completed and the work becomes predictable.

In an effort to be fair and transparent with my clients, I often provide a base of services for a set fee, with additional services on an added-cost basis.

My fees are based on an estimate of time needed to do the work, the degree of difficulty of the work/skill required, overhead expenses, and the market rate for such services. I find that when employers compare my bids with the full cost[1] of hiring an “in  house” employee, they find it very efficient.

Be assured that when you work with North Star NP, we will work with you to agree on an equitable, practical plan for paying for services.


[1] Full cost includes salary, benefits, taxes, overhead, training, supplies including technology, and cost of recruitment/replacement. Another blog post!

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