An Insight into IT Contracting

Written by Aoife Conway | Dec 15, 2020 1:01:22 PM

Until I started working in IT recruitment, I didn’t know the world of contracting existed, but I quickly realised how common it actually is. In my almost 9 years in recruitment, I’ve gotten to know the pros and cons that go along with it for the contractors themselves, and the companies that take them on.

In researching this series of articles, I spoke to various people from each side of the contract divide to get their opinions on contracting, and the highs and lows of what many see as an unstable, and sometimes stressful, career choice.

Contracting PLUS

For part one of this series, I spoke to Jennifer Doyle at Contracting PLUS to get her insight.

Jennifer is manager of the Solutions Team who deal with contractors from every industry and every sector. Her team get questions from first time contractors to long time contractors, from agencies, to job seekers considering dipping their toe in the contract market for the first time.

As experts in their field, they give the facts to people considering a move to contracting and allow them to decide if it’s the right move for them. If it is, they are on hand to go through the different solutions on offer and help each contractor pick the right one for them.

Accounting companies, like Contracting PLUS, are generally the first port of call for anyone considering contracting. Let’s face it, if the money isn’t going to be better than your current salary, then it’s probably not a risk you’ll be willing to take.

You can get a good insight into the financial process of contracting; timesheets, invoicing, tax, what you can expense, and all the other fun stuff. You’ll be able to see roughly what you will come out with after tax each month, which is important to know in advance before committing to a day rate.

Jennifer talked us through the benefits of contracting, and the financial aspects of it that need to be considered.

Benefits of Contracting:

  • Earn More Money: Independent Professional Contractors receive a higher rate of pay than employees for the services they provide. Your experience and skills will determine your daily rate and by being a subject matter expert and consistently upskilling you can boost your rate further.
  • Gain Experience & Upskill: Moving from project to project means that you gain experience and have exposure to new teams, cultures, and processes. Moving between clients won’t be viewed negatively, as it’s common to the industry where work is project based. Building your experience and broadening your perspective will only boost your attractiveness to potential clients.
  • Flexibility: As an Independent Contractor, you’ll have more freedom. Of course, you’ll likely still need to work toward project deadlines, but you have more control over your schedule. You can plan breaks between Contracts to take time with family or travel.
  • Tax Benefits: Through a Limited Company or an Umbrella Company structure (What is an Umbrella Company?), you can make generous pension contributions and claim business expenses related to work (computer equipment, phone bill, working from home costs). These expenses help reduce the amount of tax you pay. A specialist accounting service provider like Contracting PLUS, will give you tax saving tips and quality advice on business expenses so that you make the most of your contract earnings.
  • Be Your Own Boss: You’ll be your own boss. You can choose the projects that interest you and have greater control over how, when and with who you work. As an Independent Contractor, you can avoid office politics and instead focus on building your own professional network/brand.

Contracting is also attractive for Companies looking to engage top talent. Jennifer spoke about how contracting offers companies the ability to be agile, scale for projects and ensure that they are working with top talent. Contracting has been growing in popularity and, even during COVID-19, we see no signs of this trend reversing.

 

  • Employee Benefits: As a contractor you earn more money in lieu of ‘employment perks’ which you don’t get, such as holiday pay, healthcare, bonuses. With this extra income, you can choose to opt for health insurance, pay into a pension, or you might decide to use the extra cash for something personal. Contracting PLUS can provide advice on guidance on how to make your money work best for you.
  • Social Welfare Benefits: Under the self-employed contribution of PRSI, you still make contributions towards Old Age Pension, Job seekers Benefit and paternity/maternity benefit. Regardless of how you work, you should seek expert financial advice to ensure that your long-term wealth is protected.
  • It’s Easy: A common misunderstanding is that becoming a Contractor is going to be a lot of hassle or take a lot of time. That’s not the case! You can simply step into an Umbrella Company and have an Umbrella Provider, like Contracting PLUS, look after your invoicing, payroll and taxes for you.

When the economy falters or a company goes bust, you could find yourself out of a job regardless of how you work. As a Contractor, while there’s no guarantee of the next Contract, you can create your own security. Grow your experience, hone your skillset and work with lots of companies so that your skills remain in demand. That way companies who need work done, will always need what you have to offer.

Contractors

There are three things that every contractor I spoke to brought up as the primary reasons the life of contracting is for them.

The money! This was a big factor for everyone in deciding to contract in the first place and remains something that’s considered a huge benefit. When you’ve been working in permanent roles, the money in contracting can seem ridiculous and almost too good to be true. What contractors can save (or spend!) each month can far outweigh the additional benefits a permanent role would offer.

Flexibility is key for a lot of people, in particular parents of young children. You’re not constricted to 4 weeks’ holidays each year which can be invaluable. You can take extended breaks between contracts and be relatively confident you’ll find another role or, if you’re lucky, that the company you were contracting for will keep a position open for you to return to.

Not having to get involved in the “politics” of a company is a huge advantage for contractors. It allows them to get their job done and not have to worry too much about anything outside of that. This isn’t the case with every contract; ultimately the longer you stay with a company the more involved you’re likely to be, but it certainly makes things easier to begin with.

There are other positives, outside of these three obvious ones.

  • It is generally less stressful; you’re working on specific projects so there’s less responsibility on your shoulders around people and performance management.
  • You have the opportunity to move around more than a permanent person in order to gain experience with different technologies or in different industries.
  • You can essentially create your own career path and opportunities as opposed to following a structure set up by an organisation that might not necessarily suit your plans.
  • Managing your own finances can be a learning curve for most contractors but it gives you the freedom to choose how to do it, for example what health insurance or pension plan to go with.
  • Everyone I spoke to feel that it’s much less risky to be a contractor than in a permanent position.

As a contractor, you have the luxury of moving around and, as a result, take a chance on accepting a contract that you think might not be a fit. Ultimately you know you’re only there for a certain amount of time which takes the risk of accepting something you’re unsure about out of it.

In comparison, anyone who is accepting a permanent position knows that it needs to be the right fit as they don’t want to be seen to be leaving after a short time.

The idea that a permanent role is more secure these days doesn’t necessarily hold true; as we’ve seen with COVID-19, just because you are in a permanent position doesn’t mean you’re any safer than your contracting colleague.

Nobody is living in a fantasy world and there are drawbacks to everything in the professional world, contracting is no exception.

  • There can be a bit of pressure when it comes to contract renewal time, and you certainly need to work hard in order to keep your contract.
  • There’s the hassle of looking after your own accounts but, if you’re not the most organised person, you can easily set yourself up with one of the accounting companies. This is also a good idea if you’re just starting out as a contractor and you’re unsure if it’s for you long term.
  • You have to be careful you don’t get stuck in the same narrow skillset; that’s why it’s important to have some idea of your career path.
  • Short term contracts can be an issue, but the majority of contracts are 6 months in length and do roll over; you’ll get a good sense yourself if the work is there to keep you going long term.
  • Some companies have a negative attitude towards contractors, and at times you can end up being assigned remedial work that permanent staff don’t want to do.

Asked if they would look at permanent roles in the future, most said yes, but…

  • …it would have to be a good package,
  • …it would have to tick ALL the boxes.
  • …it would need to be for a very specific role.
  • …it would have to benefit my career in a way that contracting wouldn’t.

One contractor I spoke to had decided to go permanent for a stint for career progression; she joined a consultancy and wound up on a client site doing the same thing as she would if she were contracting, only for a lot less money. As a result, she went back contracting as soon as she got the chance.

Another did mention that when starting a family, the stability of a permanent job can be good.

Lastly, some hints and tips from the contractors I spoke to for anyone new to contracting:

  • Setting up a limited company and a business bank account. This can be done by your accountant or your accounting company. If you’re contracting long term, this is the most cost efficient way to manage your finances.
  • Keeping track of all your expenses. Don’t leave it until the last minute to dig out your receipts. Keep track of them as you go, and it’ll save you a lot of hassle come year end.
  • Be conscious of your timekeeping if you’re billing hourly.
  • Continuous education and upskilling are important. Don’t let yourself get stuck in dated technologies or concepts
  • Don’t be afraid to move on from somewhere that’s not aligned with your career goals. That’s the beauty of contracting!
  • Know your contract market; if you do, there’s not much difference between contract and permanent roles. Keeping in touch with recruiters, ex colleagues and ex managers is a good way of staying in touch with the contract market in general and may lead you to your next role.

Hiring Managers

On the hiring side of things, it can be unclear to some as to why managers would recruit contractors instead of permanent staff, how they go about it, and what the differences are between managing a contractor as opposed to a permanent staff member.

One person I spoke to recruited contractors when working for an outsourced provider. The reason behind this is pretty standard in the market; contracts can be won and lost at short notice and, as a result, hiring contractors for the duration of the projects with the knowledge that they can be let go if anything went wrong takes the pressure off. Another said that they were a good way of managing temporary peaks in workload. Due to the fact that they move around more often than your average permanent employee, they can be seen as having a wider breadth of experience.

Other benefits to going down the contracting route are the budgetary flexibility, the ability to scale up and down resources when needed, and the access to more specialist skill sets, like automation and security.

Cost is another aspect; despite the high day rates that contractors charge, it is still cheaper overall to hire a contractor as opposed to a permanent person when you take into account the benefits, PRSI, training etc.

In terms of day to day management, there’s not much difference to managing permanent and contract staff; it’s all down to the individual staff member. Although it can be a bit more work up front; it’s important to put a plan in place around how you plan on integrating them into your team, especially if you’re a company that doesn’t hire contractors too often. Managers are also less likely to invest time in a contractor to start with; a big reason behind hiring contractors in the first place is that they can “hit the ground running” and require less training than a permanent person might. If a contractor is struggling with work, management are less likely to invest time on personal improvement plans as opposed to what would be in place for permanent staff.

Overall, contractors are seen as a quick fix for a likely temporary problem, whereas permanent staff are a long term investment for companies.

Some hints and tips for managers hiring contractors:

  • Not enough effort goes into managing contractors; they need to be treated well, the same way you’d treat your permanent staff, and they’ll stay.
  • Keeping an eye on contract end dates is something that a lot of companies don’t pay attention to; if a contractor is a month out from their end date and haven’t heard on an extension, they’ll start looking around. Something as simple as being on top of these is a way of getting better resources and keeping them.
  • Build up a good relationship with the companies providing you with contractors; put the time and effort in to ensure they understand the skills and personalities you’re looking for.
  • Be aware of the difference between a “professional contractor” – someone who has chosen this as a career path – and someone who is taking a contract to keep them going until a permanent position comes along.
  • Be wary of contractors who have stayed in the one company for a long time; they tend to need more direction

Recruiters

And now for my two cents!

As a contract recruiter, I will always sell the benefits of contracting. The money, the flexibility, the ability to move around relatively regularly without a worry of how it will look in your CV.

But ultimately, us recruiters are going to be biased so you won’t get a fair reflection of why contracting is a good career choice. They’ll naturally want you to consider it if you’re a good candidate for their role.

If contracting is something you’re considering, definitely give it a try. Talk to us at FRS recruitment, talk to Contracting Plus, talk to colleagues or friends that are in contracting, and talk to any hiring managers you know that recruit for contractors. Get a broad picture in your mind of what it’s about and make a decision based on that; nobody can tell you if it’ll be the right move for you, so you won’t know until you try. If you go for it, and it doesn’t work out for whatever reason, you can always go back into permanent employment. The only way you’ll know for sure, is to try it!