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Start-Up Guide :: Before you start contracting

Published on Feb 13, 2008 |

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IT contractors and other freelancers tend to be highly skilled professionals who are hired by client companies to plug short term gaps in projects. Contractors are typically hired on 6 month or 12 month contracts to fulfil a specific role on a project.

Contract rates vary a great deal according to your skill set, but typically contractors are better paid than their 'permanent' employee counterparts, however there are a large number of things to consider before deciding if contracting will suit you.

Unlike permanent employees, as a contractor you will effectively be your own boss - free to a great extent to decide when and where to work (subject to the strength of the market for your particular skills).

Typically, you will also be responsible for running your financial affairs (via a limited company, umbrella company, or more rarely as a sole trader), and reacting to changes in the supply of contract work.

To be successful in a professional sense, clearly you need to be an expert in your chosen field (the rates will typically reflect the level of expertise required for a given role), however being successful in a lifestyle sense is perhaps a more important consideration before deciding to go it alone.

Contractors tend to be fairly self-sufficient, able to work on their own as well as in teams. You must be able to deal with lean times as well as boom times - if you're lucky you may get extensions and be on the same project for years, but there may well be gaps when you're out of contract for months at a time. This insecurity is something many people cannot deal with, so they prefer to stay as permanent employees.

If you're happy that you would relish the chance to work on your own and be responsible for finding work, you will also need to fulfil a number of accounting and administrative obligations. Fortunately, there are a number of specialist contractor accountancy firms out there who deal solely with freelancer and contractor clients, so all the hassle of paying yourself and the tax authorities can be taken care of with a monthly fee.

There are many benefits to becoming a contractor - you instantly gain a great deal of freedom and the chance to decide when and where you work. If you choose the right legal structure to work under (limited company, etc.), you're also likely to pay less tax than a permie. However, you must be able to deal with the lean times and the responsibilities with come with effectively running your own small business.