Excess Annual Leave

What to do when employees’ annual leave accruals go into excess

By Sophie Deutsch

When annual leave accruals reach an excessive amount, can you force employees to take leave? An expert weighs in on the issue.

Now that state and international borders are starting to reopen, employers may soon be flooded with a surge of leave requests.

Most employees won’t have taken much leave over the past 18 months, and many could be hanging onto a build-up annual leave for a long-overdue holiday.

But annual leave accruals were an issue long before COVID-19 can cause headaches for employers, and they were an issue long before COVID-19. There are a variety of reasons employees might be hoarding their leave, including but not limited to:

  • They want to take a significant amount in one block for an important life event (i.e. a wedding, birth of a grandchild or an overseas trip).
  • They’d prefer to cash in their leave. (This is only permitted under certain awards. See the Fair Work website for more details).
  • They’re reluctant to take annual leave if they feel their workload won’t be effectively managed in their absence, leading them to worry that they’ll be flooded with tasks upon their return to work.

Excess annual leave accrual can be a financial burden for businesses as untaken annual leave is recorded as a liability on balance sheets.

So what can employers do to keep annual leave balances as close to zero as possible?

Can you force employees to take leave?

Employers can generally only instruct employees to take leave if they’ve accrued an excessive amount, or if the organisation shuts down for a block of time, such as at the end of the year.

“The basic rule of thumb is that the employer can direct an employee to take leave if they accrue more than eight weeks,” says David Wurth, Principal and Founder of Wurth HR. The period is slightly longer for shift workers, who can be directed to take leave if they’ve accrued 10 weeks.

“The other time is if the company shuts down over Christmas and New Year, so long as you’ve given them warning. You need to give employees at least four weeks’ notice, and you have to do that every year.”

In the interests of preventing burnout and supporting employees’ wellbeing, many companies strongly encourage their employees to take smaller chunks of leave throughout the year.

Over the last 18 months as opportunities for travel have been virtually non-existent, organisations have needed to emphasise the importance of taking time off to recharge – even if that just means taking a staycation.

Driving this message home is particularly necessary as the phenomenon of ‘vacation shaming’ has taken off in the last few years.

When bosses and colleagues discourage an employee from taking time off – especially during the pandemic when time off meant staying home, rather than booking a holiday – employees might associate taking leave with feelings of guilt and angst.

If employees are concerned about being inundated with tasks upon their return to work, it’s important to reassure them that their workload will be managed during their absence. [Have a read of HRM’s piece on company-wide week off for some ideas on how an employee’s work can best be managed while they’re on leave].

Employers often don’t give adequate attention to this, says Wurth.

“It’s so often neglected,” he says. “If an employee has had three weeks off and they’re going back to work to face 450 emails, and no one will have done X, Y or Z, that’s going to be stressful for them,” says Wurth.

“Management needs to be proactive and think about who will do that person’s job when they’re away. You need to manage the traffic of emails while they’re away too. Some companies don’t even think about this.”

He also thinks managers should be doing more to keep abreast of their employees’ leave plans, or reiterating the importance of taking time off work if plans for taking leave aren’t currently in the works.

Putting annual leave on the agenda for team meetings is part of this process.

“Just like you should be having work, health and safety as an agenda item, leave should be on the agenda too. It can just be a quick check-in,” says Wurth.

Leaders can also set a healthy example by taking short breaks from work to signal that they’re making their own mental health a priority.

HRM has previously written about introducing progressive offerings such as ‘life leave’ for employees to use for special occasions. The option to take a day or two off to move house or spend time with a grandchild might provide added incentive for employees to take time off.

It might also deter employees from hoarding annual leave in anticipation of a significant event, since they can tap into their life leave – an additional benefit provided on top of annual leave – for these occasions instead.

However, this won’t always address the issue of annual leave accruals.

“Some employees might say, ‘I’ll leave my four weeks of leave brewing there for the next three years, and it will grow into 12 weeks. And I’ll just take a day off for other life events,” says Wurth.

Some employees might need more of a nudge.

Incentives to prevent excessive annual leave accrual

To prevent annual leave accruals from creeping higher, companies could consider incentives such as:

  • Running a program for employees to reduce their leave accruals. Those who successfully achieve the predetermined goal can be granted an additional day of leave.

    Nick van Luyt, HR Strategy Consultant at The Common Society, suggests turning the campaign into a workplace competition, with the team that comes out on top receiving an additional day off.When clients he’s worked with have introduced a competitive element into their program, employees have felt “more control of taking the leave” rather than being “bitter about being forced to take leave”, he says.

  • Using commercial relationships with suppliers to offer employees travel deals or accommodation discounts.

    “You could say that all staff who have less than four weeks accrued can take advantage of this deal that we’ve brokered with x company,” says Wurth. “This kind of left-of-field thinking can help to save the company money in the long-run, and they’ll have better-adjusted employees.”This option isn’t only available to organisations through existing commercial relationships.Van Luyt suggests companies could also partner with local travel providers to highlight upcoming deals that might encourage employees to book in for leave.

  • Making the process of applying for annual leave as easy and seamless as possible. Some employees might be put off taking annual leave if there’s copious amounts of paperwork to submit. Keep it simple and easy for your employees – taking time off should be a restful experience, and the process of getting there shouldn’t create more work for employees.

Any incentive or campaign needs to be supported with ongoing education about the benefits of taking leave.

“It’s key to wellbeing,” says Wurth. “Employers should not be encouraging their staff to bank their leave for a big holiday, but reinforcing that smaller breaks are essential to mental health.”

What to include in a dismissal letter

An HR guide to writing a dismissal letter

By Sophie Deutsch

Before telling an employee that their time is up, make sure you have a strong dismissal letter ready to go. Here are some simple things you should always include.

Letting an employee go from time to time is, unfortunately, part and parcel of being in HR.

An employee’s performance might not be up to scratch, perhaps they made an irreparable blunder, or tough times might call for operational cuts.

Whatever the reason, when it comes time to terminate their employment, you need to be prepared with a formal and legally defensible dismissal letter.

HRM speaks with David Wurth, Principal and Founder of Wurth HR, to find out the must-haves in a dismissal letter.

Gearing up for a tough conversation

Before issuing a dismissal letter, communicating your decision with the employee – either in a face-to-face meeting or on a video call if employees are working remotely – is an essential first step.

The recent case of Petersen v Allpet Products underlines the importance of verbally communicating a termination before the employee is handed a dismissal letter.

Although the FWC found that the dismissal was unfair because the employee didn’t consider the impact of the pandemic on the employee’s ability to complete their work, and noted the difficulty in assessing underperformance, the judge also noted the absence of communication.

The employee was informed of her dismissal by email, without any prior meeting or phone call.

Just this week, Wurth encountered a similar scenario when he was advising a client on how to dismiss an employee.

When the client asked whether this could be communicated over the phone, Wurth recommended a video call instead.

“Over the phone is ok but definitely not by text, and definitely not by email. There needs to be a voice somewhere, and preferably a face as well,” he says.

In a dismissal meeting, Wurth says you should also consider:

  • Suggesting the employee bring a support person, regardless of whether the meeting is being conducted in person or over a video call, so that the employee has someone on their side to lean on for emotional support.
    “It’s not a legal requirement to offer this, but it can look better at the FWC if you have at least made the offer,” says Wurth.
    Giving the employee 24 hours’ notice of the meeting will allow them time to find a support person.
  • Mentioning termination within the first 30 seconds: “The decision that’s been made should be the first thing that’s covered – as in, ‘Your position has been identified as surplus to requirements, and unfortunately your employment is being terminated.’
    “I tell managers to practice saying these words before the meeting… In the first 30 seconds of the meeting, the word ‘termination’ needs to be used. I know that’s harsh, but some people spend way too long on salutations and trying to make the employee feel at ease.They are never going to feel at ease. The more you do that the more horrible they will feel because the manager’s body language is usually dissonant with what they are saying.”
  • Encouraging the manager to do the termination. “Some HR managers will take this on board because the manager doesn’t want to do it themselves. They’ll be at the meeting but they don’t want to utter the words, ‘You are being let go’. I push back on that. It’s the manager’s job, and it’s our job as HR to coach managers in doing that.”
  • Outlining the reasons for termination. Wurth also advises not going into detail, because once the person hears they have lost their job, they aren’t going to listen for much longer. You can save the details for their dismissal letter.

Basics of dismissal letter writing

Although the specific elements of a dismissal letter will differ depending on the reason for termination, there are a few foundational elements to tick off including:

  • Follow the same basic structure. Wurth advises adhering to the same three-stage structure for every dismissal letter. The letter should start by outlining the employee’s contract is being terminated, explain the reason(s) for termination, and finish with a short section on next steps.
    “I tell managers that if they want a script for their meeting, use the letter as a script. I tend to write them as though a meeting is happening, and this is the written version in front of them.”
  • Keep it formal and to the point. “Keep it short, a page and a half should be the absolute max.” Some managers will also add their contact details at the end of the letter to bring in the human element, soften the blow, and lend a hand to the employee in case they need support down the road.
  • Have your paperwork ready to go. “You need to have a letter there and then… I don’t think the meeting should be followed up with anything, and that’s for all sorts of terminations, whether it’s dismissal due to poor performance, misconduct, retrenchment, or otherwise,” says Wurth.He adds that the company should  have made a decision on the employee’s last day of work, and ensure that’s  included in the letter.If termination is made over a video call, Wurth’s advice is to send an email with the dismissal letter as soon as the meeting ends.
  • Have the manager sign the letter: “The HR person can be mentioned in the letter as a point of contact, but that’s it – don’t have the letter signed from them,” says Wurth. “The letter is from the company, and the manager is the one who is representing the company.”He acknowledges there are many organisations that would have it signed by HR, but his view is that this indicates the manager is “not taking responsibility and blaming HR”.

The Fair Work Ombudsman offers a range of helpful templates for writing a termination of employment letter.

Following these basic principles will help to ensure your company’s reputation remains intact and, most importantly, protect you from a potential unfair dismissal claim.

David Wurth was interviewed by Sophie Deutsch for this article, which was originally published on HRM, the news site of the Australian HR Institute. 

Useful numbers for your HR and payroll teams

Here are some useful numbers for you and your HR team, effective 1/7/21:

  1. Minimum wage up 2.5% – $772.60 per week ($965.75 casual rate) – $20.33 per hour ($25.41 casual rate); $40,175.20 pa ($50,219.00 pa casual rate)
  2. Modern Award pay rates –  Most Modern Awards increase by 2.5% from 1/7/21. Retail Award increases 1/9/21 and 21 other Modern Awards from 1/11/21 – check the Fair Work Ombudsman website for details or email me: david@wurthhr.com.au
  3. Unfair dismissal threshold – $158,500 (maximum payout is $79,250) – does not include super
  4. Maximum salary employers have to pay super on – $235,680 pa ($58,920 per quarter)
  5. Tax-free component for eligible termination payments – $11,341 plus $5,672 for each year of completed service
  6. Super guarantee – 10% from 1/7/21 (then .5% yearly increase to 12% from 1/7/2025)
  7. ATO rate for use of own vehicle – 72c per kilometre (no change from last year)
  8. Payroll Tax NSW – 4.85% tax kicks in on amounts above $1,200,000 pa

Be sure to double-check these figures yourself or with your accountant.

The exit interview – worth the trouble or a waste of time?

Most of us would have taken part in an exit interview at some stage of our careers. You know, it’s the “Claytons” interview – the one you have when you’re not applying for a job! A lot of HR people swear by them but I’m not so sure. I’ve put together a list of reasons why I don’t think they’re worth the investment.

  • Surely, if you only find out the reasons a person is leaving your company after they’ve left, then it’s too late!
  • Reasons for leaving tend to be very personal. It’s difficult to find common threads in the data gleaned from exit interviews
  • Exiting employees might be concerned about what’s going to happen to the information they give you
  • Who is the best person to conduct the interview?
  • Most companies who conduct exit interviews do them just after the person has left with no follow-up further down the track. People have said that they didn’t want to state their real reasons for leaving because it might negatively impact former work colleagues still working in the business
  • What to do with all that data anyway? Managers usually don’t want to know or at best think it’s HR’s problem to manage. In my experience, managers tend to take little responsibility for unwanted staff turnover
  • I did some work for a business that conducted exit interviews for a range of different clients. My boss used to get very concerned whenever a contentious issue was uncovered during the exit interview. It felt as though she only wanted to give her clients good news about their business otherwise they might stop using her to gather unwelcome data!

What to do instead

  • Closely examine your recruitment practices so that new hires have the best start to their time with you. The 1st 6 months are obviously vital – problems need to be addressed/poor fits need to be moved on
  • Revamp the way you recruit your people managers – focus more on soft skills rather than technical ability
  • Once hired or promoted, ensure managers do their job – ie manage their staff by having regular one-on-ones and team meetings. Link people management to managers’ bonus structure
  • Consider using a 360 degree feedback tool
  • Seek employee feedback on a range of issues and do it often. Make the results visible, talk about them and make changes to the way things get done
  • Survey ex-employees 3 months after they’ve left, rather than straightaway. Share the data with senior management and work on the top 3 reasons why people have left
  • Work harder to create an harassment-free workplace. Training to raise awareness and safeguards for whistle blowers are the keys here

Unwanted staff turnover is a huge problem for businesses. It’s been estimated that the cost of replacing a good employee with 18 months’ service can be as much as 2.5 times their salary package! Exit interviews have dubious value – your money might be better spent elsewhere.

HR update

  1. Modern Award increase 1/11/20

Over 70 of the 122 Modern Awards will increase their minimum wages by 1.75%, effective 1/11/20.

If you have Award-covered employees you need to ensure that they are being paid to at least the new minimum wages from the first full pay period on or after 1/11/20.

Here are some of the affected Awards:

  1. Black Coal Mining Industry
  2. Building and Construction General On-site
  3. Clerks Private Sector
  4. Miscellaneous
  5. Professional Employees
  6. Storage Services and Wholesale
  7. Telecommunications Services

For the full list of the Awards changing from 1/11/20 click here:

https://www.fairwork.gov.au/about-us/news-and-media-releases/website-news/the-commission-has-announced-a-1-75-increase-to-minimum-wages#group-2

Don’t forget that the remaining 27 Awards will increase by 1.75% from 1/2/21. I will update everyone closer to the date. 2 of these Awards are:

  1. General Retail Industry
  2. Hospitality Industry (General)

2. Superannuation

From 1/7/21, if your new employee does not elect a super fund for their super guarantee payments, you will no longer be able to simply deposit the money into your Company’s default super fund, as you have been doing.  Instead, the Federal Government will be providing software (when, we don’t know) for employers to search online to find an already existing fund that your new employee has previously used. You are then required to deposit your employee’s super money into that fund until such time as the employee elects a different fund. I know – go figure!

3. JobMaker

If you employ a person from October 7 2020 until October 6 2021 you may be entitled to a wage subsidy from the Federal Government.  A broad summary of the conditions are:

  • The new employee must be between 16 and 35 years old
  • They must have been on Job Seeker, Youth Allowance or Parent Payment for at least one of the 3 months prior to their commencement date with you
  • Hiring the person must increase your headcount and payroll (the July-September quarter of 2020 will form the basis of the assessment for both headcount and payroll)
  • Employees can be full-time, part-time, fixed-term or casual
  • Backfilling a position will therefore not attract the subsidy
  • There is no decrease in turnover test like there is with JobKeeper
  • Eligible employers will receive $100 per week for new employees aged between 30 & 35; $200 per week for new employees aged between 16 & 29
  • Employers receiving JobKeeper payments are not eligible
  • There are other eligibility rules – please contact me for more details or speak to your accountant

4. JobKeeper changes

A new eligibility test from end September 2020 until March 2021 may mean that you are no longer eligible for JobKeeper payments for your employees.

You now have to show at least a 30% decrease in turnover between July-September 2020 and the same quarter in 2019 to remain eligible.

Payments have changed too – $1,200 per fortnight for employees working 20+ hours; $750 for others.

Don’t forget that you can become eligible again if your turnover decreases by 30% or more in the October-December 2020 quarter, compared to the same quarter in 2019. In any case, if you have been receiving payments up until the end of this calendar year, you will need to reassess your eligibility in January 2021, once you know your numbers for the Oct-Dec quarter.

Payments will be further reduced in the new year – $1,000 per fortnight for employees working 20+ hours; $650 for others.

Please ensure that you seek professional advice on these complicated matters before taking action. The above should be taken as a very broad summary of some of the changes affecting employers and employees. It is not intended as, nor should it be used as, specific advice for your business.

An open letter to recruiters

Dear recruiters,

I understand your job is a tough one. You have 2 clients, one paying you, the other trying to impress you to put them forward to your paying client. I know you spend your time trying to strike a balance between pleasing your client and keeping good candidates warm and focused on the job you’re trying to fill.

I have a few random thoughts I’d like to put forward to encourage discussion:

  1. We often hear you say that you’re too time-poor to return candidates’ calls, read resumes or give feedback to unsuccessful applicants. I don’t understand this – what else are you doing in your job as a recruiter if not returning calls from hopeful applicants, reading resumes and cover letters and giving people the bad news that they’ve been unsuccessful. It makes no sense that you claim to be too busy to do what should make up at least 75% of your job!
  2. You often include the following statement in your ads: “Only short-listed applicants will be contacted.” This is such an arrogant thing to say and belittles the efforts of a lot of serious job seekers. Is it really so difficult in this modern age to at least let people know that their application is not going to progress?
  3. You word your ads in such a way as to exclude anybody who doesn’t tick every single box of your paying clients’ specifications. Most of the time you’re looking for someone who has done exactly the same job in their previous role. Your defence is that your client wants people to be “job-ready”. This is just plain wrong and you know it! As a recruiter, you should be adding value by strongly urging your clients to seek people who are looking for their next challenge, where there is at least a 25% gap in the new role for the new hire to sink their teeth into and make them more likely to stay in their new job because it’s challenging and provides them with new skills
  4.  To only hire job-ready candidates is short-sighted and costly in the long run for your clients. A big part of your job should be to stand firm and convince your clients of the benefits of strategic recruitment. I understand your reticence to do this as it could lose you the gig and your boss will not be happy
  5. To filter out unwanted applications (supposedly the main cause of your busyness) why not insist on a cover letter with every application? This would weed out 80% of unsuitable applicants. To cull even further why not insist that each potential applicant call you for a 10 minute chat before submitting their application?  This may seem like a lot of work but I guarantee you’d only get calls from really motivated and potentially excellent candidates. No cover letter or screening call means no chance.

I trust this letter will generate a healthy debate on a contentious issue that most of us in HR have struggled with over the years.

Yours sincerely,

David Wurth

(HR consultant and some-time recruiter)

 

This Working from Home Thing

Much has been written about this topic. Almost everyone seems to have fallen in love with the idea of working from home (WFH). Well, as an HR consultant, I’m saying WTF!

Here are the main problems:

  • ZZZoom burnout – it’s exhausting having meeting after meeting, especially when you’re the only one in the room
  • A lot of people don’t actually have space for a home office (not everyone has a place to live either)
  • Not everyone has great internet quality
  • The normal social interactions associated with work have simply disappeared
  • Isn’t your home supposed to be where you spend your life away from work?
  • Has anyone ever been fully trained in how to work effectively from home?
  • Who has considered the work, health and safety (WHS) issues associated with WFH?
  • Reports of domestic violence have risen alarmingly because people now have no respite from their abusive partners
  • Life/work balance is not necessarily improved as some report working longer hours than they used to and at times when they would have normally spent with their loved ones.

Here’s my list of what should happen:

  • Make sure employees are fully set-up to work from home including the provision of adequate IT and home-office equipment
  • Get everyone properly trained in the technology required to work remotely (Zoom, MS Teams, Webex etc)
  • Use a buddy system to maintain social interaction
  • Provide access to counselling services for those whose personal circumstances might be adversely affected by WFH
  • Have weekly one-on-ones with direct reports
  • Have employees complete a WHS checklist of their home office and include photos of their office set-up – both the checklist and photos should be assessed by a qualified WHS person
  • Ensure employees have established a daily bandwidth of hours during which time they are deemed to be working.

Working from home looks like becoming the norm rather than the exception. We need to better prepare our employees to meet the challenges of a newly-defined workspace. HR should take the lead by guiding employers to provide a safe and healthy environment for their employees.

The Fair Work Commission

I thought it might good to share some learnings based on a few Fair Work Commission (FWC) cases I’ve been involved in recently. I’ve helped people on both sides of the table – employees and employers – so some of my observations will apply to only one group or the other.

These are very general thoughts and are definitely not to be taken as any sort of HR or legal advice. If you require advice on an unfair dismissal case (whether you’re an employer or an employee) I may be able to offer assistance as a paid agent.

  • The FWC cannot hear cases where the dismissal was a genuine redundancy.
  • If you’ve been retrenched you will need to demonstrate how your termination was a non-genuine redundancy. Here are some things to consider:
    • If you’re covered by a Modern Award or an Enterprise Agreement you should have been consulted about the redundancy
    • Even if you’re not covered your employer has to investigate redeployment possibilities for you
    • As an employer, you might want to suggest your employee have a support person with them at the termination meeting
    • Redundancy should be a last resort and not entered into as a disciplinary process to get rid of non-performing staff
  • If you’ve been underpaid by your employer on termination (eg they didn’t pay you severance pay that you were entitled to, they miscalculated your notice period or didn’t pay out your annual leave) then you should take your claim to the Fair Work Ombudsman (FWO) first. It will advise you on your best course of action which may include taking your employer to court. The exact legal remedy will vary from state to state.
  • The FWC does not correct underpayments. It awards a monetary amount if it finds that you were unfairly dismissed. The maximum the FWC can award is 6 months of your salary with a current cap of $74,350.
  • The FWC cannot award you damages for hurt, humiliation or distress brought about by your dismissal.
  • The first meeting you have will almost certainly be a phone hook-up with a FWC conciliator. This person’s role is to settle the matter before it goes to a formal hearing.
  • The fee for lodging an unfair dismissal claim is currently $73.20. In some cases, this fee may be refunded to you.
  • The employee’s application is made on a Form F2. You have 21 calendar days from the day after your termination to lodge your F2.
  • The employee is called the applicant and the employer the respondent who completes a Form F3 in response to a claim.

 

The Concept of 70/30

Whenever I’m training people in presentation skills or the Certificate IV in training and assessment, I often make reference to something called 70/30. I made up the name myself but the concept itself is very well known in training circles.

It refers to the percentage of time that a facilitator aims to have their course participants actively involved in the course content – 70%. The remaining 30% is for the facilitator to present course content, usually technical information that needs to be imparted by a subject matter expert. Quite often, during the 30% facilitator-centered part of the training session, presentation software like PowerPoint or Prezi is used, usually pretty badly. That’s just one of the reasons why we try to limit the time where the facilitator holds centre stage in the training room. But that’s the topic of my next blog.

How do I incorporate 70/30 into my training sessions?

You’re probably doing it already but you call it something else. The very simple trick is to vary your delivery strategies so that they focus mainly on your course participants. You want them to be actively involved in their own learning and not just sitting there passively as you flip through your no doubt beautifully crafted PowerPoint slides.

Which delivery strategies allow you to do this?

  • Question and answer
  • Brainstorming
  • Group work
  • Demonstrations
  • Case studies
  • Role-plays
  • Games

are a few examples. Each strategy has its own pros and cons and you need to vary your use of them.

One last thing to remember is that by using these strategies you give up control of your class to some extent. But that should be a positive thing  – adult learners usually respond well when they have a say in how they learn.

 

 

 

How to set your fees as a freelance developer

This article was originally published by JetCake.

One of the trickiest parts of making the shift from full-time to freelance is learning how set your hourly rate. There are many factors to consider when going from salary to hourly, including your level of expertise, added costs for health insurance and other overheads, as well as your time and the project scope. The further along you are in your career, the more you can charge; but setting your rates too high can disqualify you from many opportunities that can bring professional development and build your portfolio.

We’ll take you through the various parts that make up a salary calculation and help you determine how to optimize your offering for the best possible rates. But, if you’re looking for a quick benchmark, CodeMentor reports that experienced developers based in the US are asking for between $60 – $100+ per hour; developers based outside the US ask for between $40-60, depending on where they’re from. 

Here are some tips for setting your hourly rate as a freelance developer.

Fixed-rate, hourly rate or retainer? 

The first step to setting your rate is to determine how you’re going to be paid. There are three ways to charge as a freelancer: 

  • Fixed-rate: a fixed-rate project is one in which the price is agreed upon in advance. The final cost doesn’t change, regardless of how many hours you spend doing the work
  • Hourly rate: more flexible than the fixed rate, the hourly rate means an hour paid for an hour worked. Some companies ask developers to track their time for more transparent invoicing
  • Retainer: “retainer contracts are based on an hourly rate, but specify the number of hours and weeks the freelance developer is to be retained for,” writes CodeMentor. For instance, a client can reserve a developer’s time, ensuring their project will get priority for 20 hours per week for 10 weeks. 

The way you charge – fixed, hourly or retainer – depends on the scope of the project and the type of work you’re asked to provide. Fixed cost contracts are generally not suitable for developers unless you’re already experienced in setting expectations, scheduling milestones and adhering to your timeline. Since one report found that more than 83% of software projects aren’t carried out as initially planned, you could lose a lot of money when a fixed-price contract goes off schedule. For this reason, many developers stick to retainers or hourly contracts. 

What’s the market rate?

The next step is to learn more about the market in which you’re competing for work. Price your services too high, and clients will go to someone more affordable. Discount your work too much, and you’ll struggle to make ends meet. 

As we mentioned previously, freelancers charge different amounts based on where they live. Cost of living varies dramatically depending on your home country; a developer in San Francisco must charge more than a developer in the Philippines. Keep this in mind as you compete for contracts. Your level of experience is also an important factor. When you’re just starting out, you may want to discount your rates slightly to help build a portfolio of work and a reputation. Ask for client testimonials as you go. Your reputation as a freelancer is crucial to continuously grow your business. 

Lastly, price your services based on your unique offering. Are you well-versed in a specific language? Can you work faster than most coders in your area? Do you know how to design an app that never crashes? Price your skills higher to attract clients that are more discerning when it comes to quality and expertise.

What are your overhead costs? 

There are some administrative costs you must factor into the overall rate calculation. Freelancers have to pay taxes as well as healthcare, professional development costs, software subscription fees and other things for which your company may have historically picked up the tab. 

One freelance developer who has gone through this process notes, “You’ll have to pay all your own Social Security and Medicare taxes, and you’ll pay your income taxes out of whatever you have saved yourself. Make sure you factor this into your rates and that you save for it. I’ve generally saved 20% for taxes, but last year that wasn’t enough for me. I’m saving 35% this year.” If you’re unsure how much you should save for taxes, speak to an accountant who can provide more information about your tax bracket and the according rate. 

Still not sure how much to charge? Check out CodeMentor’s rate finder tool or get in touch with the experts at JetCake to learn how to join our network.