Independent contracting has many advantages, but it is not without its drawbacks. So, what exactly does it have to offer?
To save money, businesses all around the world are turning to more flexible employment arrangements. Cloud computing is driving this shift, and it’s benefiting one type of worker in particular: contractors.
Contractors are individuals who work on a contract basis rather than as full-time employees. Each contract could last a few months, a few weeks, or even be a one-time project. Contractors frequently switch firms in a short period of time or work part-time for two or more companies at the same time.
It may appear that the contractor’s life is insecure in comparison to a salaried employee, but knowing that your abilities are in demand by multiple companies might really make you feel more comfortable.
There’s a lot to consider before determining whether or not becoming a self-employed contractor is right for you.
As a general rule, you’ll be treated as a contractor rather than an employee if you:
- Legally own your own business during every tax year
- Work for different companies during each tax year
- Have specialised skills or expertise
- Work on a temporary, short assignment or project over a limited duration of time and not on a constant basis
- Provide most of your own equipment
- Are able to make the final decisions about the projects you take on
- Possess specialised knowledge or skills
- Work for a client on a temporary, short assignment or project for a limited time and not on a permanent basis.
The advantages of working as a contractor
Being a contractor comes with a slew of benefits.
- You can be your own boss.
- Contract work offers more flexibility and, for many people, a higher sense of job security than traditional employment.
- Working for yourself offers you a better work-life balance.
- You’ll spend less time commuting, attending fewer meetings, and dealing with office politics, and you’ll be able to work the hours that best suit you and your lifestyle.
- You’ll have a chance to increase your earnings: As a contractor, you are compensated at the market rate for each hour of work you complete. If your skills are in high demand, you could earn a lot of money.
- Experiment with a new area of knowledge: Are you unsure if your abilities have a market? You can dabble in a new field without committing to a full-time position. If it doesn’t work out, you may easily and swiftly cut your losses.
Contractors frequently begin their careers as workers before venturing out on their own. They are well-versed in the pay scales and the kind of labour that is expected of them. If you’re unsure as to how much you can charge, check out sites like Upwork for prices and other details.
Keep in mind that you will only be paid for the work you complete. When you’re sick or taking time off, you’re usually not paid. There will be no business pension or retirement plan, as well as no corporate healthcare or dental coverage.
However, some people are capable of completing high-value tasks in a short period of time. Even after subtracting holiday pay, sick pay, and other perks, such workers can still make more money as contractors.
How far ahead do you think you are? Consider how much you might be able to charge per hour or per project. Then consider how much work you’re likely to receive. Now look into the costs of supplying your own health insurance, insurance for contractors, sick leave and vacation coverage, a retirement plan, and equipment, among other things.
Put these figures into your accounting software to calculate your likely earnings. Are the numbers correct? Only by carefully planning will you be able to tell when it’s time to go it alone. Before making a final decision, it’s a good idea to consult with a financial advisor.
Balance the advantages and disadvantages.
Being a self-employed contractor comes with some drawbacks. One of the most important is job rights; in most countries, you will not have the same legal protections as a normal employee. Here are a few things to think about as a contractor:
- You are only compensated for the work you do: During temporary lulls in workload, you won’t be able to pay your bills. You’ll need to budget carefully because this can be difficult.
- You won’t be eligible for any work perks: Your client is not required to provide you with health benefits or even to pay you the minimum wage (in some countries).
- Workers Compensation or similar plans may not cover you: It may appear unfair, yet you may not be treated equally with other employees.
- You will not be a part of the organisation for which you are contracting. They are not required to invite you to business meetings or include you in strategy or planning talks. Some full-time workers may resent you if they believe you make more than they do.
- Equal opportunity employment regulations may not apply to you: This varies by country; some governments apply the same laws to contractors as they do to employees, while others do not.
How do you begin?
If you’re ready to work as an independent contractor, follow these steps to get started:
Set up your business: Prepare a business strategy that includes information such as your prices, expenses, and projected growth. At this point, you should seriously consider engaging an accountant to help you design a realistic and professional plan.
Separate personal and commercial banking: This makes managing your accounts much easier.
Obtain insurance coverage: The most important ones are usually professional indemnity and public liability. To learn more about independent contractor insurance, click here.
Invest in high-quality accounting software: Accounting software can be used to keep track of spending, send invoices, and lessen your tax work at the end of the year.