Should I Go Contracting?
When it comes to contracting and what it entails it's a good idea to establish the difference between a contractor and an individual in a permanent role.
A contractor's working lifestyle is quite different in comparison with the number one factor being money and flexibility. You can potentially earn up to double the net income and you're essentially your own boss.
In today's fast paced business world many companies are turning to contractors since they can provide the skills for a project that permanent staff may not have and are cheaper to hire due to the lack of requirement to provide sick pay, holiday pay and National Insurance. Companies also prefer contractors as they may teach other employees their skills and wisdom which is normally due to their level of technological knowledge and capability.
Another aspect to consider is that although you may be paid more, whether that's on an hourly rate or daily you won't get the same perks of permanent employees as stated above. Before you go contracting it's important to do your research and understand the advantages and disadvantages of contracting. Technojobs have put together a summary of the benefits and pitfalls of what it means to be an IT contractor.
The Advantages of Contracting
Here are some of the positive points and benefits of being a contractor.
A contractor normally receives a higher net income for their services than permanent staff which is a big attraction for anyone thinking of going down this route. Despite the higher contract rate in comparison to a permanent rate, the lack of added benefits e.g sick pay and holiday means the cost to the company is lower so contractors can earn more but not cost so much.
With the right kind of advice from accountants you could potentially decrease the amount of tax you pay. Using an umbrella company or becoming a limited company can also save you on tax making contracting more profitable.
Contractors can be more independent than permanent employees with the freedom to work when you choose and for however long you like. You can take as much or little holiday as you like and changing a contract can be an easier process than changing jobs.
You're Your Own Boss
The important thing to know about being a contractor is that the company you work for is not your employer but actually your client meaning you're essentially your own boss. You can select your own contracts and choose whether or not to accept work to your own personal preferences.
Developing your CV and Skills
Experience is a key factor to contracting. Not only do you gain and develop your existing skills but you also have the opportunity to build a plentiful CV that highlights your experience and provides a list of references. This also helps build a network of business contacts with the added possibility of a client recommending you to another company or rehiring your services.
The Disadvantages of Contracting
As desirable as the advantages of contracting are it does come with certain pitfalls. Some of these are:
Depending on the company, most short-term contractors may not have the same security as permanent employees. Another aspect is having skills that are no longer in demand therefore it's important to stay focused on your personal development and skillset.
Applying for New Contracts
You will need to look for new contracts regularly to ensure you're not out of work for long periods. It's a good idea to be on top of this and anticipate any potential new contracts by the time your current one ends or maybe renegotiate your existing contract.
Lack of Perks or Added Benefits
If money is all you need then this might not much of a disadvantage to you but a contractor will not get the same benefits and ‘perks' that permanent employees receive. There is no sick pay or any holiday pay and you can forget about the 20% discount at the gym. Still, you could be receiving more money so that might not be a concern to you but it's a good idea to account for any annual leave and sick pay that may occur during your contract.
Constant Changing Environment
Being a contractor can potentially be a lonely working lifestyle. Not that you'll necessarily be working alone but as each contract ends and a new one begins at a different workplace you'll always be working with new and different people. Although this means you're building an impressive network of individuals and experts, the reality is you never get the time to make friends or get to know someone in the time of your contract. Again, this may not be a concern to you and comes as an expectation of the role but building decent relationships with peers and clients can be valuable. The other concern is having to prove yourself again and again in new environments.
Administration and Legislation
If you're running as a limited company or using an umbrella company you may spend a lot of your time on administration which can be difficult and time consuming at times. If you have trouble with IR35 and other legislation can potentially remove a number of financial benefits and employment offers.
Getting Started as a Contractor
If you have weighed up the pros and cons of contracting and have decided it's for you then there are a few steps required to get yourself started as a contractor.
Research The Market
Look into your market to make sure there is demand for your skillset. Check job sites and contact recruitment agencies to see what is available and your suitability towards them.
Set Yourself Up
The first proper step into contracting is setting yourself up as a company. You have a choice between setting up a limited company or operating under an umbrella company. You will need to look into IR35 too as this can affect all contractors who do not meet HMRC's definition of ‘self employment' which can result in higher taxes. As a contractor, you should be able to benefit from tax advantages and benefits compared to a permanent employee.
Find a Contract
Once you're set up and have researched the market it's probably about time you found your first contract. You can search online at Technojobs to find contracts suitable for you. As contracts can last anything from 6 to 18 months plus it's always good to keep an eye on the job market and anticipate any potential contracts you can take on when your current one ends.
As stated before, gaining experience and building a network is a great way to find new opportunities and be recommended to others.
A company will hire a contractor for their skillset, knowledge and services. However, mistakes can happen and you may want to protect yourself if a company decides to take legal action for anything that may cause problems for a company. You can protect yourself against claims with professional indemnity insurance which not only can give you peace of mind but can cover legal costs and compensation for correcting mistakes. This has become a requirement for many contracts.