A recent report from APSCo identified that temporary placements within the Finance and Insurance industries had increased by 85% YOY, which may be a reaction to the increase of salaries in the sector which have risen by 8.9% YOY. With figures like this, it is easy to see why many people consider switching to contracting at some stage in their career. The main reasons include:
* To use it is as a way back into work after a career break
* To skill-up in a certain area
* To gain more experience from working in a different team/function
* For more work flexibility
* For financial reasons
The benefits and arrangements suit people so much that many of them remain as long term contractors and would never consider returning to a permanent role, and now many people are considering contract positions because of the flexibility it provides.
However, the switch-over from working as a permanent employee to contracting isn’t that straightforward and there are a number of considerations to think about before taking the plunge.
1) Is contracting for me?
As well as providing many benefits to you, there are a number of reasons why employers look to employ contractors. Before you sign any documents or purchase any materials, it may be worth considering if you are able to fulfil the employer’s key requirements from a contractor before you go any further.
Be ready to work: One of the main reasons that companies hire contractors is because of their track record of dealing with similar projects or that they require little or no training to be able to start as soon as possible. So you need to be prepared to be ready to work when your assignment begins.
Be flexible: Most contractors are appointed for project based work or to fill interim roles. Therefore you must be able to quickly fit in with the team that you are placed with and establish good working relationships quickly.
Be adaptable: You should be happy to adapt to different work environments, working hours, office etiquette etc. – all which will differ for each client you work for. An ability to deal with change and tolerate corporate issues that would not concern you would be advantageous.
Be trusted: If your contract allows you to work from home or offsite, a contractor should be able to build trust quickly so that the client is comfortable allowing you to work outside the office.
Be communicative: Within every sector there are close networks of contractors. It is important to form positive relationships not only with your new colleagues and fellow contractors but also employers and agencies. All of these people might be useful sometime in the future.
2) Am I legally allowed to be a contractor?
As with any job role, it is essential that you can provide your agency or employer with the correct right to work documents for the country that you are going to work in. As a minimum, these usually consist of:
• Work permit
• Visa Application
Also, make sure that you research the legal requirements for the country that you are looking to work in. Some application processes are reasonably straightforward but others can take some time, so make sure that you are prepared in advance with all of the documents that you need and start the process as soon as you can.
3) How do I get paid as a contractor?
There are a number of options for setting up to work as a contractor. It is important that you understand the advantages and disadvantages of each and which option suits you the best. If you do not comply with one of the following compliant payment solutions below, you could be putting the agency, your employer and yourself at risk.
Umbrella Company: The most straightforward choice when it comes to contracting, as most Umbrella Companies will do most of the behind the scenes administration for you. They will also handle all of your tax requirements but are a UK based service only and will charge a fee for the service. You will typically take home 60 – 65% of your contract by working through an Umbrella Company.
HFG work with a number of APSCo approved Umbrella companies.
To see the current list please click here.
Limited Company: This option would take longer to set up than an Umbrella company, but you will become a director of your own business and it is the most tax efficient option. You will need to open a separate business bank account, appoint an accountant and the process involves a lot of administration. However the benefits include taking home 75 – 80% of your contract amount when working through your own Limited Company.
Management Company: This is mainly a solution if you are looking to contract abroad. Management Companies support contractors by facilitating local registrations, tax requirements and any other matters. The advantage is that you are assigned a local specialist who will know the rules and regulations to follow without you having to do the leg work.
New legislation means that all employers/agencies are now required to report on all payments made to their workers on a quarterly basis. Therefore it is essential that all contractors are fully compliant in the location or jurisdiction that they are working in to avoid any penalty charges.
4) Understanding taxes
Tax is probably one of the most complex things to consider when becoming a contractor. If you opt for an Umbrella Company they will sort out most of your tax requirements for you. However if you choose the Limited Company option, there are a number of tax concerns to take into consideration – especially if you will be working abroad. The main taxes to be aware of in the UK as a contractor are:
Tax on dividends
VAT (but only applicable if your business is VAT registered)
From 6th April 2016 a new legislation came into effect meaning that certain contractors will not be able to claim tax relief or a disregard for National Insurance contributions (NICs) on travel and sustenance expenses that they gain as part of a working day.
Any worker employed through an Umbrella Company or a Limited Company director working inside IR35 can no longer claim for travel and subsistence costs as expenses and incur tax relief on these costs.
To find out more about this particular legislation and also IR35 Legislation please click here.
If it does apply to you, then all payments to the intermediary (i.e. the agency/Umbrella Company or Limited Company) must pay any tax and NI contributions due.
Make sure you are aware of tax differences in different countries. It is Important that you are aware of the difference in rules and regulations if you are going to be working outside the UK.
As mentioned before there is a lot more paperwork to complete when working as a contractor.
Documentation: As a minimum requirement HFG asks all contractors to provide the following for new assignments with our clients:
• Passports & Visas – if required
• 2x years of references
• Proof of address
• Certificate of Incorporation (Ltd company contractors only)
• VAT certificate (if the Ltd company is to be VAT registered)
• Proof of business bank details (Ltd company contractors only)
Criminal and credit checks may be done on the client’s request
Timesheets: Contractors are usually required to fill in timesheets on a weekly or monthly basis. These will need to be signed by a manager to be approved and are usually either online or paper forms.
Invoices: Invoices are usually accompanied by a timesheet and will itemise the services that you have offered to the client. Payment times may vary so you will need to be organised and prompt when completing invoices and timesheets.
Bank Account: All Ltd company contractors must set up a separate bank account for all company payments.
Contracts: This information will vary depending on the details of your assignment. Make sure your contract adheres to any rules or regulations for the country that you are working in.
Expenses: As a contractor you will need to start collecting all expenses in order to get them signed off by a manager and added to your invoices.
Insurances: You will be required to purchase and hold relevant insurance for the duration of your assignment. The main policies that are asked for by agencies and other intermediaries is Professional Indemnity Insurance and Public Liability.
Sickness & holiday pay: Contractors are not usually paid for any time off that they may need to take, so ensure that you set aside enough money for any incidentals.
If you are looking to move into contracting please contact one of our consultants to discuss your options and current roles that are available.
– HFG –