We’re often asked for advice from candidates considering a move into contract employment. Ultimately, this decision always comes down to personal choice and suitability of the individuals circumstances, but we wanted to share a few areas to think about when considering contracting vs permanent employment in technology:
Pros of Contracting (potential negatives of permanent roles)
1. Flexibility
Contracting can provide a degree of independence which many enjoy. You can be your own boss and take on projects when and where you choose, often allowing gaps between contracts for travel, training or personal hobbies and commitments.
2. Variety
Many people feel they get bored, stale or too comfortable working with one company for an extended period. Contracting offers the possibility to work for several companies and even different industries.
3. Financial
Contractors generally have the potential to earn significantly higher hourly or daily rates compared to permanent employees, but this comes without the benefits package that's enjoyed by permanent employees. Your rate would depend on a number of variables including experience, contract duration, whether it sits inside or outside IR35, the specific industry / market conditions etc.
4. Lack of Corporate Politics
Not everybody feels the need to climb the corporate ladder to further their career. As a contractor you can often be spared much of the corporate politics and focus on the project that you have been hired to help succeed.
5. Building Your Business Network
By changing your workplace on a regular basis, you quickly build the number of people who have first-hand experience of your work and therefore your business network can grow at an exponential rate.
6. Entrepreneurial Freedom:
Contractors have the freedom to manage their own business, set their rates, negotiate contracts, and choose the clients you want to work with and the projects you want to work on. This level of autonomy can be appealing for those with an entrepreneurial mindset.
Cons of Contracting (positives for remaining a permanent employee)
1. Lack of Security
Looking for a job is almost a full-time job in itself! As a contractor you have to be prepared to regularly do this (in many cases, contractors are continually searching for the next project) and the consequence of not managing this properly, or a change in market conditions, is often gaps between contracts with no money coming in. You also need to be prepared to be replaced or let go once a project is completed or if there is a change in the client's requirements or budget.
2. Additional Headaches
As a contractor you will either need to set up and manage your own limited company or employ an umbrella company to do this for you. Whilst this should not be an overly onerous or expensive task, it's something else that needs to be considered. The admin that goes along with this includes managing your own taxes, accounting, invoicing, and legal obligations, which can be time-consuming and might require help from a professional.
3. Lack of Training
As a contractor, the opportunity for training and development can be rare in comparison to permanent employees – as a contractor the expectation is usually that you will do this in your own time at your own expense, which can lead to a lack of career progression.
4. No Additional Benefits
As previously mentioned, contractors will expect to receive a higher basic rate of remuneration, but then will have to make their own provision for pension, healthcare and life assurance, and will often not receive any annual or project-based bonus which a permanent employee might.
5. Higher Expectations to Perform
Permanent employees are normally afforded a longer period of time to settle into a new role, but the expectation of a contractor is normally that they would need to hit the ground running and be effective from day 1. Make sure you know your specialist area well enough to be able to do this.
6. Difficult to Return to Permanent Work
Once you have chosen to pursue contract work, it’s often then quite difficult to go back to permanent employment if you need or want to for personal reasons or are forced to by market conditions. Employers are often reticent to take on ex-contractors for the fear that they will get bored in a longer-term role, or that the reasons that made the candidate go contracting in the first place may reappear if personal circumstances or market conditions change.
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We’d generally advise junior candidates to consider staying in permanent employment for the first few years of their careers. The average career lasts in excess of 40 years, allowing ample time to explore contracting opportunities later on. By spending the formative years of your career in a good permanent environment you’ll have access to training and support structure for you to not only hone your technical skills, but also to develop confidence, discipline, business acumen and communication skills, all of which will be needed if you’re to take on contract positions.
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What’s IR35, and what does it mean for contractors?
IR35 is a set of rules in the UK that determine whether a contractor should be treated as an employee for tax purposes. It helps the government ensure that contractors are paying the right amount of tax and not avoiding their responsibilities.
If a contractor is "inside" IR35, it means they’re considered like an employee. They have to pay taxes and National Insurance contributions, just like employees. The government looks at factors such as the level of control the contractor has over their work and who decides when and where they work to determine their status.
If a contractor is "outside" IR35, they’re treated as self-employed for tax purposes. They have more control and independence over their work and are responsible for managing their own taxes.
Contractors need to understand IR35 rules to make sure they’re following the law. It's important to consult with accountants or tax professionals to ensure you’re paying the right amount of tax and complying with the rules.
Please note that IR35 rules are specific to the UK, and other countries may have different regulations for contractors. You can read more here: Understanding off-payroll working (IR35)
At Burns Sheehan, Pamela Carolina Silva, Operations Compliance Manager, handles all our compliance and ops concerns within the business as well as managing our contractor support function. For further advice on navigating the market, reach out to Pam.
📧 Pamela@burnssheehan.co.uk
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If you’re considering a role as a contractor, speak to recruiters who specialise in the area you work in for the best up to date helicopter view of the state of the market. Feel free to reach out to any of us here at Burns Sheehan should you wish to hear about our current contract opportunities, discuss your employment options, or if you're after some insight and advice into the current state of the hiring market.
Director of Finance at Burns Sheehan
According to the June 2023 UK Report on Jobs by KPMG & REC, temporary billings in London increased for the 7th consecutive month. This trend is evident among many of our clients who are actively investing in their contract workforce.
Before an organisation releases a contract role, it's crucial for them to ensure IR35 compliance and determine if it falls inside or outside IR35. The determination of the role will have tax implications for you as the contractor, and will impact the day rate charged. Inside IR35 roles result in lower take-home pay, prompting higher day rates than outside contracts as a compensatory measure. As a contractor, it’s important to seek specialist advice tailored to your circumstances if you’re unsure about the status of any contractual roles you apply for.
The rate benchmarks we have provided serve as a general guide, but individual roles will vary based on several factors. If you're looking for a new contract role or would like to discuss any of the above, take a look at our live roles or reach out to one of the team.
If you have additional questions, please contact us at IR35@burnssheehan.co.uk.
For further insights on the contract market download Technology Hiring Report and head to page 22 for our full Contractor pay rates and wider information on the IR35 status.
⬇️ Download your free copy today.
If you’re looking to hire contracts in your technology teams this year, and are after some expert advice on navigating the market, reach out to Managing Director Chris Spranklen.
📧 chris@burnssheehan.co.uk
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