Although the contracting sector offers many rewards, the decision to leave the security and benefits of full-time employment isn’t one that should be made without careful consideration. While prospective contractors stand to gain greater flexibility and the chance to increase their take-home pay, contracting usually involves added responsibilities as well as a degree of risk that some people can find stressful. In this article, we look at the questions that potential contractors need to ask themselves as well some important factors they should consider before deciding whether or not to take the plunge in 2019.
Am I suited to contracting?
Contractors are independent agents – this means that the buck stops with them. There’s no HR department to sort out problems and no colleagues to help you out with a deadline. Not everyone is suited to contracting, and you need to be realistic about your personal characteristics. Contracting can be stressful, especially with the added legal and financial responsibilities of running a limited company. You also need to be fairly proactive when it comes to looking for work, both directly and through recruitment agencies, if you’re going to get the best contracts on offer. For many people, the risk of not finding continuous work and the lack of employment benefits are major hazards. For this reason, prospective contractors also need to establish if there’s a market for their skills in the contracting sector. When you’re thinking about taking the plunge into contracting, ask yourself the following questions and then discuss these with someone who will give you an honest and objective opinion:
- Do I enjoy working on my own?
- Am I able to organise my time and motivate myself without a 9-5 schedule?
- Do I have people who depend on me financially?
- Can I tolerate an element of risk and uncertainty when it comes to my monthly pay cheque?
- Am I proactive enough to market my skills and continuously invest my own time and money in developing them?
- Do I have the ability to take care of paperwork and meet the responsibilities of running my own business, including keeping up to date with government legislation?
- Am I resilient when it comes to rejection and managing my expectations?
- Are my skills in demand?
- Do I have a sufficient level of expertise to hit the ground running with little help or guidance from others?
Is there a contracting market for my skills?
Contractors need to think about the particular services they can offer and how these could translate into the contracting market. Take a realistic look at your portfolio of skills, including transferable ones, and work out which you can best pitch to a potential client. The trick is not to exaggerate your credentials, while also taking care not to undervalue yourself. Clients will expect you to be up to date with your industry, including all the latest standards, practices, technologies and techniques. You’ll quickly get found out if you stretch the truth about your abilities. While employers make a long-term investment in permanent employees, contracting is about using specific skills to meet a specific goal, so you must demonstrate to the client that you have expert knowledge of their business and the problem they want solving.
Which contracting sector(s) could my skills apply to?
Even if you have expert knowledge in your sector, if that sector is weak or flooded with competition, then it might not be the best time to take the plunge. Starting out in contracting can throw up unexpected issues and challenges, so you want to make sure that you’re on reasonably firm footing with the strength of your sector. Even if you’re confident about selling yourself as the best in an oversubscribed field, with no contracting experience behind you it could be a struggle. There are several options open to you if your sector is struggling:
- Bide your time and wait to see if the market will change
- Consider taking subcontracting roles that will build your contracting experience while alleviating some of the initial pressure on you
- Look at alternative sectors to see if your skills could apply there
Some contractors may find that the last option offers them the best opportunities. If you have skills that can apply across sectors then it makes sense to look for the strongest sector to begin your contracting career. The ability to move between sectors is a significant advantage and will give you a greater choice of contracts and the likelihood of more continuous work. Alternatively, if you have any niche skills such as a high-level technical qualification or the ability to speak different languages, consider whether your skills could apply to a niche growth sector with less competition and greater earning potential. For example, both construction and engineering achieved good growth rates for 2018, but the associated support services around both these industries each posted double-digit sales growth. Forbes reported that mining support services for oil and gas ranked among the top 10 fastest-growing industries, as did building-finishing and architectural services in the construction industry. IT also shows good potential for diversifying into niche markets in 2019, with cyber-security and artificial intelligence continuing to lead the top tier of this lucrative sector. For contractors working across science and IT, biotechnology is another booming sector.
Should I use a recruitment agency or deal with the client directly?
There are benefits to both dealing with clients directly and using a recruitment agency. If you’re just starting out in contracting then an agency can reduce the time you spend looking for work. In addition, it’s often the case that agencies have access to some lucrative contracts with larger clients who don’t want to directly engage contractors. Once they have your details, an agency can put you forward for a wide variety of roles and optimise your chances of gaining consistent employment. For those who feel they want more control over their contracting career, or who have already forged relationships with companies, then dealing directly with the client is also an option. This involves more effort to gain a contract and ensure that you are working within the law. In reality, there’s no reason why you can’t make use of both options, using an agency to ensure steady work while also speculating on direct contracting opportunities with new clients.
Should I use a limited company or an umbrella company?
If the lack of a safety net is what’s holding you back from taking the plunge into contracting, then using an umbrella company could be the best way forwards. Umbrella companies give you many of the benefits of employment such as statutory benefits, while also taking care of your invoicing, taxes and payroll. This takes you out of the admin loop and frees you up to focus on your work. Using an umbrella company also leaves you clear of worries over IR35, which can be a significant advantage with the uncertainty surrounding this legislation. The drawbacks are that that using an umbrella company will curtail your take-home pay and the expenses you can claim for. If you’re business savvy and ready to strike out on your own, then a limited company has its own set of benefits. Importantly, you’ll take home more of your pay by setting up a limited company, which will also enhance your professional credibility with many clients. Forming a limited company also gives you limited liability protection in the event that something goes wrong. The drawbacks are that, as the owner of a limited company, you’ll have increased legal and financial responsibilities, not to mention the paperwork that goes with them. If you choose the limited company option you could benefit from using some of the support services available for contractors, such as specialist accountants, tax consultants and insurance companies.
