Have you ever considered contracting but not sure how it works? We have collated and answered some of the most frequently asked questions our recruitment consultants get asked about contracting.
How do I become a contractor?
Contractors work on a business-to-business basis and therefore have to use an umbrella company or set up their own Personal Limited Company.
An umbrella company is a service that is used by multiple contractors at the same time. The umbrella company, for example Fenero, will manage everything on your behalf and process your salary payments, including the deduction of taxes. This is normally the best option for first-time contractors, people considering contracting in the short-term or contractors who want to focus on their work without having to worry about the administrative burden.
A Personal Limited Company is a type of privately held small business entity that is only used by the contractor who set it up. They are normally set up for someone who is considering contracting in the long term or for contractors who earn high daily rates. They are the most tax efficient way of working and gives you more control. However, there are more administrative duties associated with this way of working, which is time consuming compared to an umbrella company.
Do contractors earn more than permanent employees?
Yes, contractors will typically earn more than permanent employees. The reason for this is that they are experienced in their field and therefore can charge a higher daily rate. They also pay less in taxes and are also able to deduct their expenses.
Will I have to do my own taxes and accounts?
It depends whether you are set up through an umbrella company or whether you have your own Personal Limited Company.
If you are set up through an umbrella company, you will not have to do your own taxes/accounts but if you have your own Personal Limited Company, you will be responsible for your own taxes and accounts or will need to hire an Accountant to do them for you.
Do I get paid holidays and/or sick leave?
As contractors are not employed by their clients, they are not entitled to any employment benefits such as holiday pay or sick pay. However, this is normally not an issue because a contractor’s increased pay is enough to cover these benefits themselves.
Can I get a mortgage?
Yes, you will be able to get a mortgage if you are a contractor. However, you will need some experience as a contractor. Banks will typically look for a minimum of 12 months working as a contractor to make sure that you are able to pay your mortgage each month.
Will I have to continuously look for new contracts?
If your contract is due to end, our Recruitment Consultants will help you look for a new position or find out if an extension is a possibility. Most IT contracts will initially be for 6-12 months and a very high percentage of these contracts will extend well beyond this timeframe. However, if your contract does not extend, our Recruitment Consultants can assist you in finding your next contract in a quick turnaround time.
Can I take time off between contracts?
Yes! If you have a contract ending with one company, you can take as much time as you like before you decide to look for your next contract, although ideally you will not want to leave too big of a gap on your CV. Taking a break between contracts can also be more viable from a financial perspective because of the higher earning potential associated with contracting, compared to a permanent job.
Does it look bad on my CV if I have had several contracts?
Not at all, as long as you state that these jobs were contracts. Having several contracts shows that you have expertise in your field and a wide variety of experience in different companies and industries.
If you would like to make the move from a permanent job to contracting, get in contact! We have a dedicated team of Recruitment Consultants who work solely with contractors and clients who require contractors.
Written by Michelle Corry