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Contracting vs permanent employment

Interested in earning double the wage of a permanent employee?  The latest buzzword on the market is “contracting” with individuals earning substantial amounts; it can certainly be tempting to convert to this whole new world.


You may be under the illusion that it is a myth that you can earn vastly more as a contractor than you would an employee but you shouldn’t assume that it is guaranteed.  If you consider a senior member of staff that is an employee on a permanent basis, yes they can earn just as much as an equivalent contractor but they also have access to a large range of benefits which are not available to the contractor.  These can include but not limited to pension contributions, holiday allowance, car allowances and private healthcare.


So in some ways the earning potential that is available to contractors is to compensate for the lack of job security.  A lot more effort needs to be invested in order to maintain a steady workflow and a lot of consideration needs to be made if the contractor is planning on taking a holiday.  Other things to take into consideration is that due to the current state of the economy it can be very difficult to identify where their next contract is going to come from.  The contract market can change in a flash.

However contractors may lack stability and security but they do welcome the flexibility and freedom that comes with the position.  Furthermore contractors will often enjoy a varied work life as they get exposure and experience with a large range of different sectors enabling them to potentially progress very quickly.


So if you have an individual that relishes the idea of contracting and can cope with the lack of stability and security then contracting is for you.  Alternatively if you prefer to be in an environment with a stable salary each month then fixed employee will be the option for you.



Some of the benefits of being a contractor


You are likely to receive more for your services than you would as an equivalent employee.  But do take into consideration the economic climate and the supply and demand for your skills.


You are the manager of yourself.  You can choose whether you want to accept work or not.  You work on your own preferences


Option to use an umbrella company or run the company as a limited company.  Either way there are considerable tax savings to be realised.  


The option to work on projects that have varied timescales.  Hopefully if you work with some big names this will enhance your CV and also give you some fantastic skills which are transferable.


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As previously mentioned there are some disadvantages to take into consideration with the major one being the lack of job security.  In addition to this you will have lots of administration work you will need to keep on top off that you would not have with an employee.  Consider hiring an accountant who will ensure you remain compliant and are tax efficient.

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