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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