So far the contracting market has been busier than ever, and those who navigate the market successfully, have the potential to thrive. What’s not to love about contracting? The money, the flexibility, being your own boss and career development. As desirable as the advantages of contracting are, it does come with certain pitfalls and if you are thinking of taking the leap from permanent to contract, there are a number of things to consider.
1.Umbrella or Ltd Company?
After taking the leap into contracting, the first step any new contractor should take is to decide on the best business structure for them. Both umbrella and Ltd companies have merits, and ultimately it’s what works best for you. Deciding to go with a limited company, you become the company director, whereas if you join an umbrella company, you become an employee of the agency. Clearly the two options hold financial differences, but that’s not to say that you can’t explore both to find out what works best for you. For those new to the contracting sector, it might be wise to start with an umbrella company before becoming a limited company.
2. Treasure Chest
Before starting up in the contracting market, make sure you have saved yourself a ‘treasure chest’ to cover the cost of setting up your company? Have you thoroughly researched the costs of insurance, registering a limited company or the cost of an Umbrella Company’s management/advice fees. There’s not only the cost of setting up to consider, but also ensuring you have enough capital to cover your financial commitments during the initial period; work could be unstable in the early days, or perhaps your first contract is unexpectedly cut short and you find yourself back on the job market. There may also be travel/accommodation costs, have you accounted for this?
The third thing you should consider is travel. Are you prepared to travel for a new contract depending on supply/demand? I’ve seen both good and bad contract markets, when it’s good, you can get something on your doorstep, but when the market is bad or saturated you may have to travel further afield. It’s not unheard of for contractors to be commuting to another town, nationwide (often to the likes of London) or even to Europe on a daily/weekly basis. Are you prepared to commit to spending time travelling, and have you spoken with your partner about the implications this will have on your family life?
Compliance can be a daunting prospect when moving into the contracting space for the first time, to the point where people are deterred from even exploring the prospect for fear it’s too ‘complicated’. Do you have adequate insurance in place, do you need to have a valid Disclose Scotland or be Security Checked, are you aware of IR35 and the implications of the legislation, are you a director of any other companies? These are all questions you should be able to answer. I’m still amazed at how many people (often experienced career contractors!) are unaware of the various requirements for setting up a contracting business and getting onsite (with adequate protection and governance).
5. Day Rates
Our last consideration and some may consider the most important! Day rates. It’s clear that contracting can be financially beneficial if done effectively. How do you determine your initial day rate, what should you be asking for, what is a ‘good’ market rate? Fortunately, a lot of this information can be gleaned from recruitment consultancies, LinkedIn posts, salary surveys, job adverts and personal networks. Day rates often fluctuate, as they are reliant on the supply and demand of contractors in the market, and in the end client budgets will of course have an impact. Ultimately your gut instinct will play a huge part but take council if unsure.
If you are a contractor or are interested in becoming one, contact Gordon Willmott at email@example.com, who will be happy to discuss your next career move.