It is not a myth that you can earn vastly more as a contractor than you could as a permanent employee, but it’s not a given either. A senior permanent employee can earn nearly as much as an equivalent contractor, but will, in addition to his or her salary, have a range of benefits that aren’t offered to the contractor. These can include pension schemes, private health care, car allowances, professional development funds, to name a few; however, such roles do tend to be very senior, and are few and far between.
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; this can potentially progress your career more quickly.
So if you have the skills and you can stomach the lack of stability and security, then chances are that you will thrive in a contracting role. However, if you are in a good job with prospects, and you enjoy the culture and environment in which you work, staying put might be the best option.
Here are some advantages of being a contractor:
Better remuneration. As a contractor you should receive more for your services than permanent staff. It is worth remembering that even if the equivalent contractor rate is much higher than the perm rate, the cost to the company is lower.
Factors that affect how much you are worth include the economic climate and supply and demand for your skills in the market place. Companies often use contractors because they want them to transfer their skills to their permanent staff, since contractors often have a higher level of technological competence.
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.
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. Changing projects on a regular basis gives you a chance to update and further your skills and to learn from the best. In general, contractors have more advanced skills than their permanent counterparts, which will give your career a boost.
International opportunities. Some fields offer ample opportunity to work abroad on international assignments.
Build your network. Undertaking contract work allows you to build business contacts and if a client likes your work they will be happy to hire you again or recommend you.
Some disadvantages of contracting
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. As a contractor you will always have more administration work in your spare time than you would if you were a permanent employee. You must read up on how umbrella companies work, and may also need to hire an accountant to ensure you are compliant and tax-efficient.
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.
Short-notice holidays. Essentially, these don’t exist. You need to plan your holidays for when you have gaps between jobs.
Holiday and sick pay. Again, these are a thing of the past, so ensure you make provisions for any eventualities.
Skills training. One way of looking at this is that you may get free training and skills development on the job, but if you do need to go on a course, you will have to pay for it from your own funds.
The reality is whether to freelance or not is seldom an easy question to answer, as permanent and contract work can have just as many advantages as disadvantages. Ultimately it boils down to your priorities and lifestyle.