Six things to consider before becoming a contractor
Are you tempted to give up your permanent role for the benefits of contracting? Our experts share their advice to ensure you’re fully prepared before committing to this lifestyle change.
Contracting is a fantastic opportunity for you to take control of your career, and for some people, it’s the best decision they’ll ever make.
But, leaving a permanent role doesn’t come without risks, so don’t let yourself get caught out by thinking the grass is always greener on the contracting side.
To help you make this decision, we’ve invited two of our experts to share some important advice on what to think about if you’re considering the switch…
1. Do you have the right mentality?
“When considering a contract role, you need to think long and hard about your motivations for making the move,” says Carly Adams, director of contracting at Robert Walters Hong Kong. It’s all about having the right reasons for making the switch, she adds. “Is it to grow your experience in a new industry, learn and enhance your skills, or achieve a better work/life balance?"
Wayne Bennett, business director at Robert Walters UK, explains: “As an experienced recruiter, I can tell that someone is perfect for contracting because they get excited about delivering projects and seeing what the next challenge is. If you’ve got the right mentality for contracting, you’ll always want to give the best service to the client and make sure you become an invaluable member of the team regardless of how long your contract lasts.”
2. What are the financial implications?
“The salary attached to contracting roles will largely depend on the nature of the project and the demands in the market at that time,” says Carly. Most companies will offer a gratuity completion bonus which can be included in the salary package, while others may offer an increase on basic salary to move into a contract role, she says, adding: “The financial implications depend on the individual’s lifestyle.”
Depending on the role, candidates might need a significant pay increase to help cover additional outgoings and make the switch worth it, explains Wayne, saying that in some sectors, such as IT, contractors should be aiming to earn at least twice as much as a permanent salary. He adds, “You might be away from home a lot, and you’re not guaranteed work, so you’ll need this extra money to act as savings to cover additional travel expenses, living expenses and employment gaps.”
“And don’t forget to check when you’re going to be paid,” advises Wayne. “Agencies will only pay you once they’ve been paid themselves, so if they’re on 60-day payment terms, that means you’ll have to wait two months for your first pay cheque.”
3. How will the change affect your lifestyle?
“When thinking about taking a contractor position, the impact on your lifestyle — particularly if you have a family — should be one of the most important things you consider,” says Wayne, explaining that this is often overlooked by candidates who focus too much on the financial side of the role and less on the practicalities and the impact it’ll have at home.
“Depending on the location of the job, the type of role and the contract length — some contracts can be up to two years — you could be faced with a complete lifestyle change,” he explains. “Some contracting roles might be outside commutable distance and if you have to live away from home, you’ll need to factor in both the financial cost and the impact on home life. For example, living in Newcastle for five days a week is very different cost-wise to living in London and if you have children, you’ll probably only get to see them at weekends.”
4. Will you set up as a limited company or use an umbrella company?
“When you’re a contractor, all the benefits you used to receive as a permanent employee you now have to manage yourself,” says Wayne. Using an umbrella company is one-way contractors can get help in sorting all these issues, he advises. “You pay them to handle things like tax, pension contributions, and holiday entitlement, although obviously all this comes at a cost and the umbrella company could take as much as 15% of your salary through their fees.”
The other option for contractors is to set up as a limited company. “If you set yourself up as a limited company, you’ll take home more money, but you’ll be responsible for things like your own pension plan and submitting your own tax returns,” warns Wayne, adding that contractors may need to employ an accountant to help deal with the financial side of things.
5. What impact does contracting have on benefit packages?
“If the benefits of a new role are important to you, make sure you discuss them with your potential employer before making the switch,” advises Carly, noting that these benefits could include medical cover, annual leave and a ‘completion of contract’ bonus. As she adds, “contracting is becoming increasingly popular, so benefits are now on par, or even more attractive than those offered for permanent positions. This makes it more appealing to permanent employees to make the move into a contract role.”
6. Do you have all-important soft skills as well as the technical know-how?
“On average, 70% of well-performing contractors will be considered for a permanent role within the company when their contract ends. This is often because of the soft skills contractors possess, as these are the skills that really set them apart from the rest,” says Carly, emphasising that a positive attitude and willingness to learn are important soft-skill traits candidates looking for contracting roles need to possess.
As Wayne notes: “Technology and business have changed so much over recent decades. For example, IT workers, have gone from sitting quietly at the back of the room to leading whole organisations through digital transformations.
“This means they now have to be able to talk to the business, understand what they need, and translate the technical aspects into a workable space that the business can use.” He adds: “IT is no longer separate from the business, it’s a driving force, and as a result, programme managers, business analysts, CIOs and CTOs can now effectively communicate with other stakeholders across the business. It’s hard to underestimate just how important soft skills have become.
Should you make the move?
Any change of job will always require serious thought, but, due to the transient nature of contracting, the move from permanent to contract will often require more thorough consideration. As Carly states, “candidates need to consider what their main motivations are when moving careers” to ensure that they’re making the right change for themselves and their family, as well as their future career development.
Want to find out more?
Take a look at our latest roles or get in touch with one of our consultants for more information.