Leaving the perceived comfort and security of a permanent job to become a contractor isn’t an easy decision to make, but it’s one that could see you reap the rewards of more challenging work, your own clientele, higher pay and more flexible working arrangements. But before you put the pedal to the metal, it’s good to give yourself an MOT.
The decision to jump from a permanent ship to a freelance raft isn’t one best taken in haste. There’s a few things you should probably ponder before taking the plunge.
Know thyself (and keep it moving)
Socrates was definitely onto something when he said, “know thyself” (even though we’re reasonably certain that his classical philosophy wasn’t intended for the 21st century contractor community).
Take a good look at your portfolio of skills, work out what your speciality is and which skills – including transferable ones – that you can best pitch to a potential client. The trick is not to over-egg or undervalue your credentials. The former will likely see you get found out (eventually) and the latter will see you left crying in your soup for selling yourself short.
Once you’ve worked out what your skill set is, you’ll need to maintain it. More often than not, clients expect contractors to hit the ground running with chameleon-like powers of adaptation, so you’ll have to be up to speed on all the latest standards, practices, technologies and techniques.
A contractor at the top of their game is one that stays abreast of all these things and more. They keep it moving.
Know the client (and their problem)
Contracting is a completely different animal to permanent employment.
Employers make a long-term investment in permanent employees whereas contracting is more piecemeal – it’s all about trying to convince a specific client that they should use your services to meet a specific goal.
You do this by demonstrating to the client that you have a near-encyclopaedic knowledge of their business and the problem they want solved. The clincher is when you showcase your skills and experience that make you the best person for the job by a country mile. Clients hire contractors to fix a problem, so that’s what you need to sell.
Know when to take the plunge
Timing is everything, especially in the contracting world.
Just as Rome wasn’t built in a day, the odds are that your contracting empire won’t be either. So, take your time setting up as a contractor. Avoid quitting your permanent job impulsively (if you can help it). Instead, lay the foundation, build the walls and secure your position by carefully plotting your exit from the 9-to-5.
Work out a mental timetable for your resignation and eventual exodus from permanent work, making allowance for a tidy and professional winding-down of your current role. It could pay dividends down the line as your boss may be more partial to agreeing:
A shorter notice period.
A phased handover (where you work part-time hours in the last few weeks).
Before you hand in your notice, take a look at your contract of employment – especially the notice and termination clauses and any post-employment restrictive covenants. You won’t want to fall foul of either, so be sure to serve the right amount of notice and abide by any post-employment limitations, such as not soliciting or enticing clients or colleagues from your current employer (for however long your contract says).
It makes good business sense to keep your employer sweet throughout. At best, you may need a reference from them. At worst, you may need your old desk back if things don’t work out!
Know how to take the plunge
Get under an umbrella or go for a limited company? That is the question.
Will you seek the seemingly safer refuge of an umbrella company or will you go it alone as a limited company?
Get under an umbrella
The good news is you don’t have to take the contracting skydive as a solo operative – you can always do a tandem. But rather than having a skydive instructor strapped to your back, you can fall back on an umbrella company which, for some, strikes the perfect balance between giving you the independence of a contractor and the convenience of an employee (essentially, the best of both worlds).
An umbrella company removes the stresses and strains of getting to grips with things like your accounts and taxes. It issues your work invoices to your recruitment agency and, once payment has been made, you’ll be paid via PAYE.
You’re much less likely to feel out of sorts with an umbrella company because all your tax obligations are sorted for you in much the same way as when you were a permanent employee. This takes you out of the admin loop and frees you up to prioritise the business of getting clients, delivering results and making the moolah!
Using an umbrella company also means you’re free from IR35 worries, which is a huge plus in anybody’s books.
Go for a limited company
There’s a lot to be said for forming a limited company:
Higher take home pay.
Ability to claim more expenses (than an umbrella company).
Limited liability protection in the event of things going awry.
Credibility with new clients. Some actively prefer not to engage the services of non-limited contractors.
If the thought of handling your own taxes fills you with more fear than Judge Dredd, you can always outsource them to a specialist accountancy firm familiar with dealing with contractors.
The contracting question: are you a duck or a fish?
Taking the leap from permanent work to contracting isn’t for everyone. Some take to it like a duck to water, others like a fish out of water.
Ultimately, only you can decide if you’re a duck… or a fish.