Day rate or salary: what an AI hire really costs you
6 minute read. Updated 2026-08-08.
A day rate buys days, not a person. Contract work at the Machine Learning Engineer median of £575 a day has no holiday, sick pay or pension, and stops the moment the work does. A permanent hire at the £76,000 median salary costs more once employer pension and National Insurance are added, and keeps costing that whether or not there's enough work to fill the year. Choose based on whether the need is bounded or ongoing.
2 different things being compared
A day rate and a salary appear to answer the same question, but they price 2 entirely different things. A day rate prices a unit of work with no obligation attached. A salary prices a standing capability that exists whether or not there is a task in front of it that week.
Comparing the headline numbers directly, £575 a day against £76,000 a year, tells you almost nothing, because neither number is the number that actually leaves your account.
What the permanent salary doesn't show you
The £76,000 median salary for a Machine Learning Engineer, or £71,000 for AI roles broadly, is what appears in the job advert. It excludes pension contributions, which the employer pays on top, and it excludes employer National Insurance, also paid on top. It excludes any bonus or equity too. The number in the advert is never the number leaving your account each month.
It also keeps costing you in months where there isn't enough work to justify it. A permanent hire brought in for a 6-month pilot doesn't stop costing money once the pilot ends. Either you find them the next 18 months of work, or you carry the cost of a notice period and the conversation that follows it.
What the day rate doesn't show you
A contract day rate has no holiday pay, no sick pay, no pension, and no payment for the weeks between engagements. A contractor charging £575 a day is not banking £575 a day, 365 days a year; they're pricing in the certainty that some months will carry no invoice at all.
If the engagement runs inside IR35, the client determines that status under the off-payroll working rules, and where a contract is taxed as employment through an umbrella company, the deductions reduce take-home substantially. Neither the day rate nor your invoice reflects that; it happens on the contractor's side, but it shapes what rate a good contractor will actually accept.
The arithmetic, shown
Take a bounded piece of work: 20 days to scope and build a working pilot. At the Machine Learning Engineer median contract rate of £575 a day, that's £11,500, done, with no further obligation on either side once it's delivered.
A permanent hire at the £76,000 median salary costs that whether the pilot takes 20 days or 6 months, plus employer pension and National Insurance on top, whether or not the pilot succeeds. If the pilot is genuinely bounded and the outcome uncertain, the contract route costs less and carries less risk.
The comparison flips once the need stops being bounded. If you need this kind of work every month for the next 3 years, repeatedly re-engaging a contractor at £575 a day for 20 days a month works out to £11,500 a month, or £138,000 a year, well above the £76,000 median salary plus its employer costs. Ongoing need is where permanent hiring wins on price, not just on continuity.
IR35 and who decides
Since April 2021, medium and large private-sector clients make the determination of whether an engagement is taxed as employment, not the contractor. Get this wrong and the tax risk sits with you, not with the person you engaged. Factor the cost of getting the determination right, usually legal or specialist advice, into the true cost of the contract route.
What you're actually buying
A day rate buys days. It doesn't buy the ramp-up time a permanent hire spends learning your systems in month one and getting faster by month 6. It doesn't buy the institutional knowledge that compounds over 3 years in the business. It doesn't buy someone available on a Tuesday afternoon because something broke, unless that's the specific day you've booked.
A salary buys a person, with everything that entails, both the upside of continuity and the downside of paying for a quiet month. The right choice follows from the shape of the need. Bounded, well-scoped, time-limited work favours the contract route even at the higher day rate. Ongoing, recurring need favours a permanent hire even though the sticker number looks smaller, because the alternative is re-buying the same capability from scratch every time it resurfaces.
What to do about it
- Compare true cost, not headline numbers: add employer pension and National Insurance to a salary before comparing it to a day rate.
- Remember a day rate has no holiday, sick pay, pension or paid gap between engagements built in.
- Use contract hires for bounded, well-scoped work where the day rate structure limits your risk.
- Use permanent hires for ongoing, recurring need, even though the headline salary looks smaller.
- Get the IR35 determination right; the tax risk sits with the client, not the contractor.
- Don't compare a day rate to a salary without first turning both into a cost for the same period of work.
Questions people also ask
Is a contractor always more expensive than a permanent hire?
Not for bounded work. Take a 20-day pilot at the Machine Learning Engineer median contract rate of £575 a day: £11,500, and no obligation once it's delivered. A permanent hire at the £76,000 median salary costs that whether the pilot takes 20 days or 6 months, plus employer pension and National Insurance on top. The contractor is usually cheaper for short, well-defined work. Permanent hiring wins once the need is ongoing rather than bounded.
What does IR35 actually mean for cost?
IR35, the off-payroll working rules, decides whether an engagement is taxed as employment. Since April 2021 the client makes that determination for medium and large private-sector businesses, not the contractor. If the engagement falls inside IR35 and runs through an umbrella company, deductions reduce the contractor's take-home substantially, which affects the rate a good contractor will accept even though it doesn't change your invoice directly.
Does a day rate include holiday and sick pay?
No. A day rate is payment for a day worked, nothing else. There's no holiday pay, no sick pay, no pension contribution and no payment for the time between engagements. A contractor's headline rate has to cover all of that, which is one reason it looks higher than a pro-rated version of a permanent salary for the same number of days.
How do I compare the 2 fairly?
Turn both into a cost for the same unit of work. Multiply the day rate by the number of days the job actually needs. For the permanent side, take the salary and add employer pension contributions and employer National Insurance, then consider how many days across the year the role is genuinely needed. Whichever number is lower for your specific shape of work is the one to act on, not the headline figure alone.
Where the figures come from
Every rate and salary quoted in this article is a median or percentile of figures advertised in UK job postings over the six months to 8 August 2026. They are not rates paid, and the gap widens at the top of a range.
- IT Jobs Watch, UK contract rates, 6 months to 8 August 2026, read 2026-08-08.
- IT Jobs Watch, UK permanent salaries, 6 months to 8 August 2026, read 2026-08-08.