What You Need to Consider Before Making the Decision to go Into Contracting

As someone who contracted for over 10 years I can advise it is an extremely rewarding and fulfilling experience. You are your own boss, you don’t have to play office politics and your earning power can increase.

But there bumps in the road and it isn’t all plain sailing. Here are some of the issues you should consider before you take the jump to contracting.

  1. The administrative burden – for those on a PAYE Umbrella this will centre around providing your time-sheet to your umbrella service and your agency on a weekly or monthly basis. But as it provides you with your pay this will feel like work that’s worthwhile. If you have a personal limited company, there will be a lot more administration involved – especially on the expenses front. You will need to ensure you keep copies of all the allowable receipts, compile and provide them to you Umbrella service monthly. This may take quite some time every month.
  2. No sick leave or annual leave entitlement – Normally, in your permanent employment you have a minimum of 4 weeks holiday a year. You are also entitled to take a certain amount of paid sick days per year. Contractors don’t have these entitlements – if you are on sick leave OR if you take time off you miss out on your day rate for each day you don’t work. As a result, you need to factor this in when negotiating your day rate – plan for at least 6 weeks off per year between sick days, public holidays and holidays.
  3. Fallow periods between contracts – great being a contractor in a boom market when you can have more than 1 contract offer at a time and there is the potential to move from 1 contract to another. Then there are periods when like 2008-2009 when the market tightens and there are more contractors than contracts! In that instance, it is important to up-skill through relevant training and work your network hard to get a new contract. At any rate, contractors need to realise that there will be fallow times and to budget according – put aside 10% of income into a fund for such a scenario if you have a limited company. If you are using a PAYE Umbrella solution you will be paying employers insurance, so you will be entitled to social welfare for periods between contracts.
  4. Payment issues – this is a serious concern for contractors. Being involved in a payment chain means that there could be delays in your payment. An Agency or Umbrella can delay a payment to you if the client delays paying them (some clients have a long lead time contractually before they pay). It’s important to discuss with whoever you are working through and ensure you understand the payment terms before you commit to the contract. Some contractors wait up to 6 weeks for their 1st payment!
  5. Impact on family/home life – prepare yourself for long hours, weekend work sometimes etc. You may also have to work away from home for extended periods. This will have an impact on home-life – partners and children but in the pursuits of the right contract at the right rate you may end up having to do this.
  6. Mortgage issues – ‘Computer says no’ in the Bank – If you are the contractor you will know it isn’t easy to get a mortgage – the banks invariably want 3 years’ worth of company accounts etc if you have a limited company. You are also in a different bracket for evaluation when you are a company director than if are a salaried employee. Being part of PAYE Umbrella service will make this process easier and may make it easier to get a mortgage but when dealing with the banks they want a ‘sure cert’ paid pensionable salaried application so if you can get your mortgage before you go contacting make sure you do!
  7. Pension and health insurance – contractors must pay this themselves. Even though you will be paid a premium for your contracting and these are partly tax-deductible you will still need to budget to pay them. So, before you make the move to contract, calculate what these are worth for you as part of your permanent job and calculate these costs into your contracting rate.
  8. Be prepared to continually market your services and business profile – You will have to consider the time you will need to allocate to work your network, build good relationships with agencies and consultancies to ensure you have a steady flow of work. Your LinkedIn profile will be of paramount importance in this and especially how you structure it.

Finally, just remember to take control of your contracting career as it is just like how Harley Davidson talks about controlling your life when he says “When writing the story of your life, don’t let anyone else hold the pen“!

Accounting Pro is Ireland’s premier contractor accounting service.  We are here to help you, the busy contractor and/or company, with all your accounting and payroll needs. We are both an umbrella company and umbrella corporation and we can create your limited company. We are on your side, always. To learn more about what we do please review https://www.accounting-pro.ie/  and contact us by email:  info@accounting-pro.ie or phone us 01 6933370. For the UK see Accounting-Pro UK. “What You Need to Consider Before Making the Decision to go Into Contracting” is an article written by Accounting-Pro Ireland for the benefit of everyone. Feel free to share it but please give attribution on a CC BY-SA license.