I am always impressed when I see contractors’ rates, compared to someone doing pretty much the same job, but full time. For example, in IT, you can easily charge £800 and up per day, which is what an average IT professional might make in a week or more. As a matter of fact, a study shows that contractor rates have been its highest since 2007. I cringe every time I need to get a contractor come over and fix something on my rental. But then, I remember a few things.
You only charge for the work you do on site. When you work in an office, you get to work, and as you open the door, you start earning money. As a contractor, the work you do ahead, answering phone calls, writing and emailing quotes, promoting your business and trying to score new clients is unpaid time. At the beginning, you may spend more hours doing that than actually working for a rate. And while it can be tempting to overcharge, since you spent so much time securing a client, this is the best way to scare them off and lose repeat business.
The same goes for the work you do after you finished a contract. You may have to write reports, or simply log in your hours to make sure your operation was profitable, tally your expenses, pay your business credit cards, your taxes, do your accounting… Which is why contractors can charge a higher rate than a full time employee.
You are on your own. Suddenly, you are your own marketer, accountant (although often hiring one just pays for itself in tax rebates you had no idea existed!), secretary and even office cleaner! I love outsourcing and I try to delegate as much as possible to my VA, who does the back office work. But still, I often find myself doing tasks that would not be in my job description if I would just stick to my profession. As a contractor, you have to learn a bit of everything, or pay for all the services you used to get for free when you were employed. It is an arbitrage, if your time is worth more concentrating on your trade, and you can afford to delegate, or otherwise would have to do it all yourself.
You pay a lot of taxes and insurance. Unless you work remotely, if you are in contact with clients you will need liability insurance. It may cover simple things such as any damage you could do to your client’s property or injuries to his workers, and if you are a builder you also need to get a building warrantee for your work, which isn’t cheap. On top of that, you also have to pay taxes directly, NI contributions and private job loss insurance if you want to, since you wouldn’t be eligible to claim unemployment benefits.
So while it seems nice to be a contractor and get to work when you please, accepting only the contracts you feel like working on, etc. For many the reality is different. I know some IT engineers who can work on contract for 6 months then stop working for a month or two and go on holiday, but those are not the norm. If you work on contract you can get dry spells and sit at home for weeks waiting for the phone to ring. Then spend 80-hour weeks wishing you’d gone on holidays instead of staring at the phone. While it can be a lucrative business, being a contractor is not for the faint of heart!
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