SAP, Oracle and IT professionals ultimately have two options to bring the money in. Permanent employment or freelancing. Whichever you way you operate or want to start operating, make sure you understand the benefits and downfalls of each route – and bear in mind that there is little stopping you from transferring between the two when it makes sense to do so.
For now I want to focus on understanding Contracting and what the benefits and downfalls are. It is often said that contracting involves a lot of additional work and stress than in a permanent position. There is no denying that freelancing involves some additional administrative work, however there are a number of benefits that many professionals consider more valuable than the extra work required. Here’s why:
The pros of contracting
The biggest reason why almost all SAP, Oracle and IT contractors (or contractors in any industry for that matter) decide to do so is for the financial benefits. Contractors can earn substantially higher hourly rates than permanent employees – double, or even more. This is because of the level of risk a contractor takes in comparison to that of someone who is ‘employed directly’ by an organisation.
As a contractor, think of the company as your client. The relationship between you and the company shifts heavily in the contractors favour and gives you far more flexibility over negotiating pay. In addition, depending on how niche your skills are, a client looking for a contractor with your areas of expertise is likely to pay exceptionally high rates to secure your services, especially if they place high importance on the requirement. Its simple supply and demand.
Another factor that affects the financial benefits in contracting is how you choose to trade. Without going into too much detail, you can either operate under an Umbrella Company (less tax efficient but more straight forward) or under your own Private Limited Company. For the greatest ‘take-home’ pay, operating under your own limited company is almost always the best option – and is easier than you might think.
Private Limited Companies pay Corporation tax on their taxable profits. You have a much better range of allowances and tax-deductible costs that can be offset against your company’s profits. The level of Corporation Tax is lower than income tax rates and therefore you benefit from paying lower levels of tax. Umbrella Companies effectively make you an employee of their own and calculate all contributions and deductions on your behalf. You can still claim certain expenses under an Umbrella Company, but you do not have the flexibility that a Ltd Company has.
When a contract is drawn up between the client and the contractor, an agreement is reached on working practices, conditions, deliverables and working hours/days. This gives a greater degree of flexibility than in permanent employment. As your own boss, it is important to understand that when you aren’t working, there is no income. So whilst you can choose the length of time in between contracts, there are financial constraints to consider.
Changing jobs can often be a nightmare. However with contracts, it is typically a lot more straightforward. You do not need to ‘climb the ladder’ to progress in the same way that you do in permanent employment either.
Skills & Experience
As a contractor, you will work in a variety of different contract roles, in many organisations and across a number of industry sectors. I’m sure you are aware by now that experience is absolutely critical in advancing as a Consultant.
With a number of projects under your belt, you can put together a very detailed CV that showcases the wide volume of skills and experience that you have obtained. In addition, you’ll also have an extensive reference list for future contracts.
So these are a number of benefits of contracting. What are the downfalls?
The downfalls of contracting
No guaranteed income
The biggest drawback of consulting, like the benefits, is related to pay. A contractor does not have a guaranteed income like a permanent employee does. If you aren’t on a contract, you won’t be earning anything. This doesn’t mean to say that this time is wasted – You could be investing some time into training and certification, or taking some much needed ‘down-time.’
For professionals new to contracting, negotiating rates and working conditions can be quite challenging. But here is where recruitment agencies, such as Whitehall Resources can help you out. WHR have very strong relationships with their clients and are always able to negotiate you bench-marked rates.
Tax & Contributions
It is a Contractor’s responsibility to manage their own contributions. This includes taxation, Value Added Tax (VAT) and national insurance. If you trade under an Umbrella Company, this is much less of an issue as it is accounted for in the payroll services that they offer. However, as a Private Limited Company you will either need to be very clued up, or seek help from an accountant. Nobody wants to get into trouble with the HMRC so it is definitely worthwhile getting professional accounting advice to keep the tax man away.
Career Development Limits
Contracts are geared around delivering to a client’s specific need. They normally insist that the chosen candidate will be highly capable and experienced in the job role. As a result, career development comes from increasing your wealth of experience. Traditional career development is more often found in Permanent roles where companies choose to invest in the development of the individual Consultant. However, a client may still choose to invest in their long term contractors, particularly when the contractor has a big input and experience of the company’s systems.
No Additional Benefits
Permanent employees get a whole host of benefits within their ‘package.’ Contractors get an agreed daily rate only. There is no sick pay, pension schemes, holiday pay or Christmas parties. As a result, it is crucial that you account for potential gaps in employment when ill, when heading off into the sunshine and when you read to hang up your boots.
An often overlooked drawback is the fact that constantly changing environments, colleagues and locations is not an easy thing to do. It takes a certain type of person to hack a freelancing lifestyle. This is especially the case in the field of SAP – wanting to stay in one location and have plenty of time for family and leisure is something that will only limit your success as a contractor, so be sure that you are well prepared for this.
To discuss your specific job requirements, give us a call on +44 (0) 1206 212101.
Have a look at our current permanent and contract jobs