It’s not the easiest of decisions to take the plunge and become a contractor instead of being in regular paid employment as a company employee. However, more and more people are now taking that plunge because they see the potential benefits of working for themselves or setting up their own company to contract for work.
A contractor is an individual who enters into a contract for a fixed term to do a specific job, or series of jobs, for a third party. There are, as in any work arrangement, advantages and disadvantages, but for entrepreneurs who like to work hard and retain a degree of control over what they choose to do, contracting is an ideal mechanism to achieve that.
Are contractors confined to one economic sector?
Contractors are often associated with the construction industry, where plumbers, joiners, plasterers and other skilled laborers are employed on short term contracts to build a house, a series of condominiums or business premises. Yet this is by no means the whole picture. Contractors work in sectors across the board, as accountants, financial advisers, bookkeepers, lawyers, nurses, business planners, cleaners and carers, to mention just a few. Anyone who hires out his or her services, to multiple employers over a period of time, is in the business of being a contractor no matter what the sector.
Advantages of being a contractor
Many contractors cite the degree of freedom and control they gain from working this way, and though there may be downsides when work in certain periods is not as plentiful; the much higher fees that contractors can charge will help mitigate this. Rates are high, and employers will pay them, because a contractor has the skills and experience to hit the ground running and carry out the required piece of work or project quickly and effectively.
The financial benefits of being a contractor can be very significant, especially if the contractor runs the business in a tax efficient way.
Forming a limited company can safeguard personal resources, as the risks are borne by the company rather than the individual or others involved. There are many ways companies can entirely legally limit the amount of tax they pay, leaving more in the pot for the contractor.
One possible fly in the ointment is the amount of administration needed to comply with employment and financial legislation, and often these are not found in-house. The contractor will then contract an accountant to help with this aspect. However, there is another way to obtain help and support.
Using an umbrella company
An umbrella company takes on the responsibility for pay, tax and business expenses for a contractor, freeing them up to concentrate on developing more business through contacts and networking. The contractor will pay an agreed fee to the umbrella company and will have other aspects of the business, such as getting invoices paid and being covered by a range of insurances, taken care of. It’s a useful and cost-effective method of taking the administrative necessities away and putting them in the hands of an effective and competent specialist.
