As a contractor you with need to fill in and submit your timesheets to the client and potentially the agency to record the hours/days you have worked at the client site.
Logging your time
Depending on your contract you will need to record the hours/days you have worked and submit this on a weekly or monthly bases.
Once your timesheet is submitted, typically the client (usually by your line manager) will sign this off.
When you start a new contract you should always establish who will be responsible for signing your timesheets and who will do this if your line manager is away.
Don't run into the situation of falling behind on your timesheets as a lot of clients find it critical for their project planning for contractors to keep on top of their timesheets and submissions. In turn this will affect when you get paid also.
Submitting your timesheets to your agency
Agencies tend to have different approaches to submitting timesheets. Sometimes they may have their own system that, once your timesheet has been approved by the client, you must sign into and upload a screenshot of your approved timesheet with the number of hours/days worked for their records. Others may directly link to the client timesheet approval so you do not need to do anything more with your timesheets. Or in rare cases, they may still be using paper based timesheets in which case you will need to photocopy the signed timesheet and send it to them.
You typically need to submit your timesheet in a fixed time window to make sure you get paid on time and DO NOT MISS the cute off date or you will need to wait until the following week/month.
Invoicing
A limited company contractor will typically send the agency an invoice with the total hours/days worked for that week/month. If your company is VAT registered you should include the net contract fees for the period and include the VAT amount (contract fees + VAT payable).
An umbrella company will usually involve submitting your timesheet to the umbrella company and they will invoice the agency on your behalf.
Payments
You should read your contract carefully and review the payment terms and conditions of your contract. Often agencies pay weekly, within 7 days of receiving your invoice. If you have a limited company this is usually paid via BACS into your company bank account. If through an umbrella company the agency pays the umbrella company and the umbrella company will forward on payment minus fees and deductions.
You should use an online timesheet and invoice management system such as TimesheetHours.com to make sure you do not fall behind or forget to submit any timesheets/invoices to your client and agency.
Tuesday, 10 January 2017
Thursday, 1 December 2016
Limited vs PAYE Umbrella Company
PAYE Umbrella company
You as the contractor are becoming an employee of the umbrella company. You submit your timesheets to the umbrella who will in turn, invoice the client (or agency working under) for the work done by you. You will then be paid as a PAYE employee - umbrella fees.
You're usually allowed to claim some basic expenses, however be cautious of umbrella companies that offer special expense policies as they may be encouraging tax avoidance through fraudulent expense claims. This will come back to you if you are not careful!
You typically take home around 60-65% of your contract wage by using a PAYE umbrella company.
Limited Company
You will need to form a limited company and open a business bank account. If you get an accountant they should be able to help get things running. You will then become the director of the company controlling invoicing, company bank account and decides how much to pay yourself (through salary and dividends).
The Limited company contract can either by directly with the client or the agency.
The company can claim tax free expenses for things like travel, subsistence, hardware, software, training, stationary, professional subscriptions, business telephone, accountancy fee and some other expenses relating to the business.
You typically take home about 75-80% of your contract wage through your limited company.
Here is the basic pros and cons to both:
Limited Company Pros
PAYE Umbrella Company Pros
You as the contractor are becoming an employee of the umbrella company. You submit your timesheets to the umbrella who will in turn, invoice the client (or agency working under) for the work done by you. You will then be paid as a PAYE employee - umbrella fees.
You're usually allowed to claim some basic expenses, however be cautious of umbrella companies that offer special expense policies as they may be encouraging tax avoidance through fraudulent expense claims. This will come back to you if you are not careful!
You typically take home around 60-65% of your contract wage by using a PAYE umbrella company.
Limited Company
You will need to form a limited company and open a business bank account. If you get an accountant they should be able to help get things running. You will then become the director of the company controlling invoicing, company bank account and decides how much to pay yourself (through salary and dividends).
The Limited company contract can either by directly with the client or the agency.
The company can claim tax free expenses for things like travel, subsistence, hardware, software, training, stationary, professional subscriptions, business telephone, accountancy fee and some other expenses relating to the business.
You typically take home about 75-80% of your contract wage through your limited company.
Here is the basic pros and cons to both:
Limited Company Pros
- Very tax efficient
- Claim more expenses
- Flat VAT rate
- More paperwork involved
- Not good for contracts earning < £25K a year
PAYE Umbrella Company Pros
- Easy to use, just need to enter timesheets and expenses (usually through website).
- Everything is deducted for you (NI, TAX, etc.) so you receive the final payment.
- Good for short term contracts.
- Good for contracts < £25K per year.
- Good if you are unsure if contracting is for you so you can test the market.
- More expensive than Limited.
- Reliant on third party umbrella company to get money, deduct fees and expenses and then pay you.
Contracting Payment Example
Let's look at a simple example and say you found a contract paying £400 a day. This is how the stats would stack up (as of
2016):
- Your net take home income per month would be £4,663.
- Your gross revenue would be £82,500.
- Deducting any expenses you have for the year e.g. £11,000 would result in a profit of £71,500. (This profit is 86% of your revenue).
- On your company profit you have to pay 20% corporation tax which would equate to £14,300.
- You would also need to pay your personal taxes on your dividends which based on the income above would be £9,240.
*The tax man will fund up to 46% of a pension for you! This would mean you can efficiently contribute up to £4,166 per month into a pension, of which the tax man pays £1,545. However, for each £100 contributed, your take home pay reduces by £54 and the tax man will pay the rest :)
To command the same salary in a permanent role you would need to earn an annual gross salary of £83,610 to match £400 a day as a contractor.
To look at other rates you can use this free take home pay calculator that is provided by timesheethours.com here: http://timesheethours.com. Just select the free calculator.
Should I be contracting?
Hi, I've been contracting for over 10 years now both in the U.K. And abroad. This blog has been set up to provide useful tips and useful information about my experience as a contractor.
Making the move from permanent to contracting can be both a daunting and exciting time. To think you could be earning more for doing the same job. It almost seems like a no brainer right? But before you decide to go contracting you need to way up the pros and cons to make sure it's the right move for you.
One of the main things to consider is that as a senior permanent employee you can earn nearly the equivalent amount as a contractor. As a permanent staff however you can get a range of additional benefits that aren't offered as a contractor.
These can include private healthcare, pension schemes, car allowances, professional development, paid training and bonus' just to name a few.
In many ways, the greater earning potential that a contractor enjoys is compensation for the lack in job security. More effort needs to be invested to maintain steady workflow, and depending on a range of factors including your skills, reputation, timing and the state of the economy, you may find it difficult to secure your next contract.
The contract market tends to be highly counter-cyclical, so in a boom, you may find that the market is actually tougher than in a bust.
On the flip side, what you lack in security and stability, you gain in having more flexibility and freedom. You are also more likely to work on more varied projects and gain more experience with different technologies and working constellations.
So if you feel you have skills in an specific area and you don't mind the lack of stability and security then you can thrive as a contractor.
Here are some of the main pros and cons of being a contractor:
Pros of being a contractor
Cons of being a contractor
The reality is that contracting and permanent work can have just as many advantages as disadvantages. Ultimately it boils down to your priorities and lifestyle. Just way up your pros and cons specific to you and I would always suggest having savings that would cover you not working for a few months initially.
Making the move from permanent to contracting can be both a daunting and exciting time. To think you could be earning more for doing the same job. It almost seems like a no brainer right? But before you decide to go contracting you need to way up the pros and cons to make sure it's the right move for you.
One of the main things to consider is that as a senior permanent employee you can earn nearly the equivalent amount as a contractor. As a permanent staff however you can get a range of additional benefits that aren't offered as a contractor.
These can include private healthcare, pension schemes, car allowances, professional development, paid training and bonus' just to name a few.
In many ways, the greater earning potential that a contractor enjoys is compensation for the lack in job security. More effort needs to be invested to maintain steady workflow, and depending on a range of factors including your skills, reputation, timing and the state of the economy, you may find it difficult to secure your next contract.
The contract market tends to be highly counter-cyclical, so in a boom, you may find that the market is actually tougher than in a bust.
On the flip side, what you lack in security and stability, you gain in having more flexibility and freedom. You are also more likely to work on more varied projects and gain more experience with different technologies and working constellations.
So if you feel you have skills in an specific area and you don't mind the lack of stability and security then you can thrive as a contractor.
Here are some of the main pros and cons of being a contractor:
Pros of being a contractor
- Flexibility and Freedom - If you really wanted to work 6 months a year as a contractor and take 6 months off travelling you can without feeling guilty at the end of your 6 month contract! (But be careful not to stay out of the market for too long otherwise it can give a negative impression).
- Better remuneration - As a contractor you should receive more for your services than permanent staff.
- Tax savings - Use an umbrella company to ‘run’ yourself or go into business with a limited company. Both options will likely save you considerable amounts of tax and make contracting even more profitable. If you agree to a contract of more than 24 months, keep in mind that you won’t be able to claim site-based business expenses.
- Expense certain items - You should be able to expense certain things related to your work such as training, software, laptops, etc.
- You are your own manager - As a contractor you choose whether or not to accept work so you can select contracts according to your own preferences. Job variation leads to skills. Contractors normally take contracts ranging between 3 and 12 months in duration. By working on shorter contracts you will gain experience faster, work on more varied projects and hopefully get some big-name companies on your CV.
Cons of being a contractor
- Job security - Entering a weaker market, termination of your project, or having skills that are out of demand are all threats to your job security. Stay on top of your development and plan for rainy days.
- Administration - You should get an accountant to make sure you are compliant and tax efficient but on top of this there will be additional work from your side. E.g. entering your receipts, signing documents, meeting with accountant to discuss, reading up on umbrella, IR35 and other regulations.
- Applying for contracts - Imagine job-hunting every six months; this would drive most people crazy, and it’s worth keeping this side of contracting in mind.
- Holiday = No Pay - You should always factor in the fact you will take at least 2/3 weeks off a year which will be unpaid. I've seen contractors not wanting to take any holiday off because they don't get paid! Another option is to plan your holidays in-between contracts (this will require planning well ahead).
- Lack of training - You are being hired as an expert in a specific area. Although you do tend to pick up new skills on the job you will not be hired for something you don't know so you may find yourself paying for training courses if you would like to pick up new skills.
- Your contracts could be as short as a few months long - You may be out of work for a while. I've had several jobs, especially in finance, in the past that although I had the job offer it took a further 3 weeks for background checks to be approved before I started. In total it was 4 weeks I was out of work!
- Lack of communication on renewing your contract - It's happened to me a few times in the past where the manager said I should be getting renewed but with a week left in my contract has turned around to say they won't be renewing.
- You can get messed around by head hunters - Good head hunters are worth keeping in contact with. If I had a £1 for the number of times I've been interviewed for contracts where actually the company are looking to fill a permanent role I'd be a rich man!
- Getting stuck in a niche - You have to bear this in mind that if you don't pick up your skills you can be stuck in a niche which in the future could make it very difficult to find a new contract.
- Saying goodbye! - I've made many friends through previous contracts but unfortunately unlike permanent your role will come to an end and you'll have to start all over again in a new work environment.
- Transferring your skills - I see this as a con because it means it's putting me out of a job but it's normal for the company wanting you to transfer your skills to their permanent staff.
The reality is that contracting and permanent work can have just as many advantages as disadvantages. Ultimately it boils down to your priorities and lifestyle. Just way up your pros and cons specific to you and I would always suggest having savings that would cover you not working for a few months initially.
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