Permanent vs Contracting

The reasons they give us are different. One constant is the financial benefit – contract rates can easily double that of a permanent employee and the tax advantages of operating through a Limited Company mean that you will take home even more of that increased income. Carving out a career as a professional freelancer or contractor is hard work, but can be extremely lucrative.

The other reasons we typically hear are more diverse. Some people love the flexibility of being their own boss, deciding who their clients are, choosing when to work – and choosing when to holiday! Others say they are able to broaden their skills and experience far more quickly than in a fixed permanent role, with the freedom to take on challenging contracts and devote time to learning. We also increasingly hear that permanent employment isn’t what it was… with less job security, declining salaries and disappearing employee benefits; a twelve month contract can offer just as much security as a ‘permanent’ role.

Whether you are considering making the jump or have been made redundant and have found yourself forced in the direction of contracting, some of the upsides are broken down below…

The Benefits of Contracting

Financial Rewards

Everybody needs to eat and keep a roof over their head – although contracting can be rewarding in many ways, it’s rare that money isn’t at the top of people’s lists.

• Higher pay rates. Contractor pay rates are typically much higher than permanent equivalents – if a permanent equivalent even exists! Specialist skills are in short demand and command higher fees. Experienced contractors can afford to pick and choose contracts, pushing fees higher in some sectors. In addition, the short term nature of the work means that a premium is often paid.
• No unpaid work. Unlike salaried employment, many contractors bill by the hour and charge overtime. Doing away with unpaid overtime not only increases your income, it also feels much fairer!
• Tax efficiency. A Limited Company offers opportunities for tax planning far above permanent employment. A contractor accountant will help you draw funds from your business in the most tax efficient manner, to minimise your overall tax liability.
• Business expenses. In addition to the tax planning benefits, you can offset the costs of necessary business expenses against your tax liability.

Skills and Experience

Unlike a permanent position, contracting allows you to take on a wide variety of work and experience a variety of working environments.

• New challenges. Nothing builds your skillset faster than taking on new challenges. Contracting allows you to apply your own talents to new situations and projects, gaining valuable experience in the process.
• New sectors. Many skills you have acquired will transfer across sectors. Freelance work offers an unparalleled opportunity to experience new markets and make new connections.
• New environments. Working with different businesses can give you an excellent insight into company cultures, processes, structures and operations. This experience can be invaluable when seeking consultancy roles or returning to permanent employment.
• New people. While contracting, you will met other contractors, find new clients and make connections across industries. As your network and reputation grows, so will the contract opportunities you find – and the rate you command!

Flexibility

The freedom to choose your own clients, hours and methods of working can be a breath of fresh air, after being chained to your employer’s desk!

• Independence. Once you are established, you are likely to be able to decide where to work, who to work for, when to work and how long to work for.
• Freedom to negotiate. When taking a new contract, you are able to negotiate not just pay, but potentially also working hours, workplace location, working conditions and payment terms.
• Freedom to switch. Changing contracts is usually far easier than changing jobs. Notice periods and post-employment terms are far less restrictive when freelancing– and sometimes non-existent!

Personal

Contracting isn’t just a change in your working patterns – it is also a change in your working relationships. Many people prefer the ‘feel’ of contracting, when compared to being a permanent employee.

• Different treatment. As a contractor you are often brought into an organisation as an expert in your field. You are more likely to find that people defer to your opinion and you have a certain amount of credibility, just by being introduced as an expert contractor.
• Different criteria. A permanent employee is hired to fit into an organisation long term – personality and demeanour are often as important as experience and ability. A contractor is hired to solve a particular problem – your skills are paramount.
• Different objectives. When working as a permanent employee, you often end up focusing on how to climb the ladder and function in harmony with the business. As a contractor, you are focused on solving the task at hand, with the knowledge that the next step in your personal development may take place somewhere entirely different.
• Different perspective. Coming into an organisation as a contractor gives you an outside perspective on its structure, processes and operations – and sometimes, an additional level of freedom to suggest improvements or changes!

The Disadvantages of Contracting

Despite the upsides, contracting isn’t for everybody. The lack of long term certainty and the cycle of working and job seeking, does not suit everybody’s personality and circumstances. Before making the leap, it’s worth considering the following:

• If you are not used to negotiation, agreeing your own payment terms and working conditions, can be stressful. A recruitment agency will be able to help you.
• You have more personal responsibility for your own finances, including tax returns, expenses and VAT. However, a good contractor accountant will help with the worry of these!
• Your long term future is more ‘up in the air’. Even the most successful contractors, with excellent reputations and large networks, won’t necessary know where they will be in a year. If you value stability above all else, look for long term contracts or stick to a permanent role!
• The array of options can be daunting at first – it’s more complicated than permanent employment. Check out our new contractor guide to demystify some of the jargon.
• You won’t get traditional perks of employment, such as sick pay or holiday pay. It is vital you manage your finances properly to cover anything unexpected.

We hope this guide has given you a clearer picture of what’s involved in the world of contracting and helped you make up your mind if you are planning on switching.

If you would like further information or want to become a contractor, please call us on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.