Daily-Rate Contract Versus Fixed-Term Contract

Most employers bring in contingent or temporary workforce to meet the demands of various projects which often start and end anywhere from 3 months to 24 months.

The employers may consider offering a day-rate contract or a fixed-term contract to bring on this workforce. One of the key reasons why employers bring on a temporary workforce is because of the funding and/or headcount restrictions that may be prevailing at the time.

It simply means that the employer is unable to commit to engaging a full time, permanent resource at that time.

Temporary or contract work in a professional setting is often full-time employment that requires you to go to an employer worksite 5 days a week / or work remotely for 35–40 hours a week.

The term of the engagement depends on the project start and end dates. Small projects may last 3–12 months, however, if you are involved in a large program of work, they may last 2 years or more.

If you have only worked as a permanent staff member, the differences between fixed-term contracting and day rate contracting may seem a little confusing.

Here is what you should know about daily-rate contract versus fixed-term contract work, including the pros and cons of each.

What Is a Daily-Rate Contract?

A daily-rate contract includes compensation based on a “daily rate”, that is inclusive of applicable superannuation benefits.

You receive a base pay for each day that you work. Based on your personal circumstances, you may be operating as an entity so the rates quoted are usually GST exclusive and there is an expectation that you invoice the employer weekly for the services offered inclusive of GST.

One of the key aspects you should be aware of is the termination clause, i.e, the amount of time the employer or you have to provide a notice to terminate the relationship. Depending on the employer this notice period may vary from 1 day to 2 weeks. Most daily-rate contracts end when you complete a specific task or project.

The compensation for a day rate contractor is generally higher than what you would be paid for the same role if you worked as a permanent staff member. Following are some of the reasons for higher pay:

1. As a day rate contractor you are taking a higher level of employment risk i.e., the contract may end and you may have to go through a period of unemployment in between contracts
2. The day rate contractor you are not eligible for sick leave or annual leave
3. The day rate contractor is not eligible for any benefits that the employer may be offering to the permanent staff such as training
4. The day rate contractor is paid for the days they work regardless of sickness or any other reason

Along with daily-rate contracts, some employers offer hourly-rate contracts. An hourly-rate contract includes the same basic structure but includes compensation based on an hourly rate instead of a daily rate.

What Is a Fixed-Term Contract?

A fixed-term contract is for a fixed period. The employment contract ends on a specified date or earlier if agreed by both the employer and employee.

Employers often use fixed-term contracts to fill positions during peak periods, such as when demand increases. Fixed-term employees are also frequently needed to cover the loss of labour or a temporary cover for a permanent staff member who is on extended leave.

A fixed-term contract is essentially permanent employment for a fixed period. As a fixed-term employee, you are eligible for all the benefits that a permanent employee is eligible for including sick leave, annual leave, carers leave etc.

Some employers use fixed-term contracts as a form of probationary employment. Fixed-term employees who excel at their roles may receive an offer of permanent employment at the end of the term.

The Advantages of Professional Daily-Rate Contract

• A day rate contractor is generally experienced in their area of speciality and has an entrepreneurial mindset willing to provide their services for a price that is acceptable to both of them and usually can absorb higher levels of employment risk.
• A day rate contract gives you a lot of flexibility and if the engagement is not full time, you may have the opportunity to work across multiple employers. However, you may need to discuss this option with both employers. This is generally a very attractive aspect of day rate contracting
• Daily-rate contracts also often offer higher rates of pay compared to fixed-term contracts or permanent staff members. Employers do not need to cover benefits, which allows them to pay more.
• Day rate contractors can negotiate a rate that they are willing to offer their services for and for very short term employment, employers may be willing to pay higher than market conditions. In a professional setting, you should be aware of the prevailing market rates based on the level of experience, skills and specialist services that you are offering.
• Provides an opportunity to solve a range of business problems across various organisations and industries rather than being at one employer for 5, 10 or 20 years. Professional contractors seeking to expand their opportunities may benefit more from the short commitment. The shorter timeframe of a daily-rate contract makes it easier to search for new and exciting employment opportunities.
• A day rate contract as it states is a contractual relationship between the employer and employee agreed upfront to the terms that are set out. It should not be strictly viewed as an employer/employee relationship.
• A day rate contractor is an individual who is providing services similar to large consulting companies providing services to various organisations
• You are solely responsible for your career growth and have an opportunity to fully control and steer it in the direction you would like to head in.

The Disadvantages of Daily-Rate Contract

A daily-rate contract provides less job security compared to fixed-term contracts or permanent positions. The employer can end the arrangement at any time as per the termination clause agreed upfront. Employers do not have an obligation to retain the contractor.

Some daily-rate contracts may only last a few days while others last several weeks. If you are not proactive, you may go through periods without any work or income.

You do not get paid even if you are sick or if you need to care for someone in the family who is sick.

Working under daily-rate contracts requires you to stay motivated and focused on your career. You need to constantly look for new jobs.

You have to pay the costs for upskilling and remain relevant to the changing market conditions in the areas that you provide the services.

You may lose the opportunity for internal promotions as you are expected to perform the role for which you are contracted for the duration of the contract.

The Advantages of Fixed-Term Contract

Fixed-term employees still receive many of the benefits provided to permanent employees. They have the right to the same pay, conditions, and benefits package.

You are generally eligible for sick pay, annual leave, carers leave etc.

Accepting a fixed-term position shows a willingness to become a permanent staff member and hence it may lead to permanent employment.

Generally, relative to day rate contracting there is less risk of employment in fixed-term contracting

As the employment is for short periods, the compensation may be slightly higher than the permanent position.

Based on your performance, skill, experience there may be opportunities for promotions leading to permanent employment.

The Disadvantages of Fixed-Term Contract

Relative to day contracting, fixed-term contracting offers less flexibility.

Compensation may be less than the day rate contracts, but you will be eligible for benefits and security of the role for the term.

Fixed-term does not always lead to permanent employment. There may be a lost opportunity cost when the employment ends at the end of the term.

Conclusion

Should you choose daily-rate or fixed-term contracts for your professional contracting career? The answer depends on your career ambitions and personal preferences.

Fixed-term contracts may offer a path to permanent employment. They also provide greater stability compared to daily-rate contracts, which may be necessary when furthering your education or training.

A daily-rate contract offers more flexibility. You may have the freedom to pursue multiple contracts or line up additional work after your current projects. If you only need temporary work or do not want to commit for many months at a single employer, daily-rate contracts are often more convenient.

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