IT Recruitment Agency - HWSelect London

Given the unprecedented times we are living through, employment and job security are often at the forefront of our thoughts. The unfortunate combination of Covid and Brexit has left many on furlough, facing redundancy or actively seeking new employment. Due to the current economic downturn and business uncertainty, companies need to maintain employment flexibility. Therefore, an increasing number of available jobs are no longer permanent positions but contract assignments.

There are pros and cons to contracting. Some people love the variation, flexibility and higher earnings. In contrast, others prefer the stability of ongoing employment and benefits such as sick leave and holidays. While contracting may not be your first choice, you may find it is the only option available. Here's a quick guide to get you familiar with the basics.

 

Securing a Contract

There are usually two different routes for securing a contract. Either directly through the hiring company or through an IT recruitment agency. Most large companies prefer to engage contractors directly through an IT Recruitment Agency. It provides legal distance and protects the company from future employment claims.

 

Contracting and IR35

Contracting is not as straightforward and profitable as it once was due to the complexities of IR35. One of the first things you will need to do before accepting a contract is to establish whether or not it falls under IR35. You can consult a qualified tax expert to help determine the IR35 status of a potential contract. There is a big difference in income as a contract under IR35 will decrease your net income by around 25%. Therefore, the contract status will influence the rate you request for the role.

 

Payment Structure

There are two structures you can use as a contractor. You will either incorporate and set up your own limited company with you as the Director. This option is best for contracts outside of IR35. It gives you the maximum financial and tax benefits available as a contractor.

 

Alternatively, you can contract through an umbrella company. An umbrella company is obliged to deduct PAYE tax whether your contract falls under IR35 or not. As a result, if you plan to use an umbrella company, there is no real need to set up your own company as well. It will just add cost and extra administrative duties.  Most recruitment agencies and employers will have a preferred umbrella company they can recommend. Fees for services will vary, as will pay frequency, so it is always worthwhile doing your research.

 

Day Rate vs Hourly Rate

When accepting a contract, it is essential to understand the type of pay on offer. Some contracts pay an hourly rate, and others are a fixed day rate.

 

With an hourly rate you will bill for the exact number of hours you work. Some companies cap the number of hours they will pay per week at 35 and 40 and any additional hours worked will need to be approved in advance. Ensure you know a company’s policy before working significant extra hours. Day rates are based on a standard workday of 7.5 or 8 hours. Typically there is no overtime payable, but often you can flex the hours to compensate for any overtime you work.

 

Regardless of a daily or hourly rate, as a contractor, you will not receive pay for any sick days, annual leave or public holidays. You will also not receive any penalty pay for working weekends or public holidays.

 

Moving from permanent to contract employment can be a daunting prospect but it is probably far easier than you imagine. The key to successful contracting is negotiating the correct rate at the start. You need to understand your tax obligations and net pay before you commit.