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The Pros and Cons of Contracting

Thinking of becoming an IT contractor? Here is an overview of the Pros and Cons that will help you decide if this is the right route for you.

Pros:

  • Money: Because contracts are short-term, most employers are generally prepared to pay a higher rate than would be paid to permanent employees. The employer benefits because they only to pay for hours worked, i.e. they do not have pay for sick pay, training, or holidays.
  • Tax-Efficient: Contract work can be more tax efficient than salaried employment assuming organised tax planning through the contractor's business. Also, as tax is not deducted at source, contractors can earn interest on their income. Ask your accountant for details on this.  It is possible to pay tax at a lower rate than if you were a full time PAYE employee.
  • Flexibility: Contractors are free to change jobs on a regular basis.
  • Company Politics: Contractors are usually not involved.
  • Independence: A contractor is his or her own boss, and being self-employed can give great satisfaction.
  • Self-Training: Contractors can choose their own form of training (tax-deductible), and hence can keep abreast of leading technology.
  • Holidays: Not being fixed to set annual holidays. This means extended holidays may be taken in between contracts.

Cons:

  • Holiday/sick pay: Contractors receive no holiday or sick-pay when absent from work.
  • Paperwork: Contractors must keep records of all transactions so they can prepare Income Tax and VAT returns. This will be your responsibility.
  • Tax: The contractor is responsible for all tax payments, and these payments will have to be paid in full, on time, every time, otherwise you may have to pay a penalty!
  • Training: There is usually no in-house training provided to contractors.
  • Insecurity: Contracts are for specific periods of time and tend to range from 3 months to 1 year only. You must be prepared for the possibility that after completing a contract you may not pick up another contract for some time and in this event you will not be earning any money, nor will you be gaining experience for your next contract. Plan to be out of contract for 1-2 months per year. If you get into a long-term/rolling contract it might be less than that, but you need to be prepared.
  • Social Welfare: Contractors do not receive pay-related social insurance payments such as sick pay or unemployment benefits.
  • Costs: You will need to set up a Limited Company and you will probably need to hire an accountant. These are the main direct costs you need to consider if going contracting.  Typically an accountant will set up the company and do your accounts for about 1800-2000 per annum. In addition you will need to pay yourself for your own pension, health insurance, life insurance, gym etc.

How to calculate your daily or weekly rate:

On average an IT Contractor will earn about €10,000 – 20,000 more than their permanent counterpart, so if you are unsure of what rate you should be charging, you can use this as a benchmark. For example if your last permanent base salary was €50,000, you should benchmark yourself at €260 per day or €1300 per week.

When calculating your rate of pay, do not calculate it on the basis of working 52 weeks per annum, as you will never actually work a full 52 weeks in any year. As a guideline you should multiply your daily rate by 230 days to take into account holidays, bank holidays etc, so for example €250.00 per day is equal to a salary of €57,500 when you multiply €250 x 230. 

  

Setting up as an IT contractor

Do I need to set up a limited company? What's an umbrella company? Do I need an accountant?

These questions, and more, are answered in our next article, How to set yourself up as an IT contractor.

Date Posted:
2017-04-19 11:53:10

Posted By:
philip@pbrecruitment.ie



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p: + 353 61 450 679 /  + 353 61 633 650  
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PBRecruitment Ltd, Roselawn House, National Technology Park, Limerick, IRELAND.
PBRecruitment Ltd is a trading name of Philip Brady Recruitment Ltd, and is registered in Ireland as a private limited company (registration  No. 485423).