Over the last couple of weeks, I’ve had lots of chats with people thinking about contracting, so I thought I would try to distil some of that advice into a blog post.
It’s a chunky post so here’s an index:
First of all some context
Pro’s of contracting
Con’s of contracting
Getting started
Finding contracts
Budgeting
Conclusion
First of all, some context.
There are many different types of contracts and contractors, so advice may vary.
I think it’s important to give some context around my experience so you can work out how relevant it is to you. I’m a Delivery Manager, mainly working around the digital government space in the UK and usually on 6-12 month full time contracts delivering a specific project. I’ve worked both inside and outside IR35 (I’ll cover what that means later on) and usually work on one contract at a time. I’ve been contracting for 3 years, I have worked in IT/Digital land for 20+ years and was a civil servant for 14 of those.
It’s fair to say the contract market is tricky at the moment, 2023 and the first half of 2024 have been pretty quiet and I know a lot of folks have struggled to find work. Personally I’ve been very fortunate, but you should familiarise yourself with the state of the market you’re in. If you don’t have a sense of the contract market, you can chat to recruiters; they’ll give you a clear eyed view of where things are.
Pro’s of contracting
Starting contracting affects your professional and personal life, so I’ve broken it down as such:
Professional pro’s
The breadth of Experience.
Changing where you work every 6-12 months is a great way to see lots of different contexts, problem spaces, and similarities. It gives you a real sense of what to apply in different contexts. What worked at one organisation won’t necessarily work at the next, developing that sense is a really important super power of contracting in my opinion.
You are listened to.
I have to admit that for a long time as a permanent employee, it used to infuriate me that contractors would come in and say much the same things we had been saying as staff but would be listened to.
Over time, I learnt to accept that if the right outcome was being reached then how it emerged is less important. As a contractor, I’ve found that your opinion seems to carry more weight, and that comes with a level of responsibility to be truthful. Be honest about what isn’t working; as a contractor you are expendable and that means you can say the things that employees maybe can’t or won’t say (or aren’t listened to). Be constructive, propose solutions, and acknowledge or credit others in the organisation saying the same thing if it’s a success.
A commercial relationship can sometimes make it easier to get stuff done.
You have more levers if you hit dependencies, you can lean on the contract to help unblock things. You are often removed from the day to day politics that can slow things down. This can still be tricky to navigate if your contract has a clause to help improve processes, contribute to communities of practice, or help develop permanent staff. But generally it is easier to get stuff done.
Networking.
Often you’ll be working with new people, I cannot emphasise enough how important your network will be. It’s always fun delivering things together, support one another and develop those relationships.
Personal Pro’s
The pay.
Let’s be honest, contractor pay is usually better than permanent, but it can come with fewer benefits. Leave, sick pay and pensions come out of the money your company makes, if you are inside IR35 these benefits eat into your day rate so make sure you budget accordingly.
Being your own boss.
I personally put this very much in the pro camp. You’re responsible for the success or failure of the contract, I enjoy that accountability. It can be daunting at first but it’s very empowering to feel fully in charge of your destiny.
You truly set your development path.
Similar to being your own boss, you have full control about how you go about learning and developing (and you really really should!).
You control the budget.
There’s nothing to help you make clear eyed decisions than knowing the money to do something is coming out of your pocket. You re-evaluate the benefit of taking a contract, doing a course, going to a conference with a much deeper perspective than when it’s someone else’s money.
Con’s of contracting
Professional cons
You rarely get to see something through to the end.
If you are someone who thrives on seeing the end result of what you’re delivering, that doesn’t always happen. Yes, you can see progress, especially in environments doing continuous delivery (but that is still rarer than places like LinkedIn would have you believe).
If you’re in a more transformative role you’re unlikely to see large-scale change, you need to be able to identify and accept the smaller indicators that you’re making a difference sometimes.
You see the same problems time and time again.
This can be frustrating, you can get a sense of having solved this before and not take quite as much pleasure in doing it all again, maintaining motivation can be difficult in this scenario.
There can be a lot of time between starting a conversation about a contract, and actually starting the contract.
Getting the timing right between contracts can be tricky, you might start conversations about your next contract before your current one ends, but it’s rare to be able to go perfectly from one contract to another. In fact delayed contracts seem to be a trend in 2024, be prepared for this, it’s rare you’ll actually sign anything until right when the contract starts so there’s no guarantees.
Personal cons
You don’t always form deep relationships with the people you work with.
This could easily fall into the professional cons, often you’ll be working with different people on contracts. This is great for meeting new people and learning from a wide pool of knowledge, but it can be hard to build deep bonds with people who you might work with for years in a regular job.
Build your network, not just in a professional sense but in a personal one too; make sure you have people you stay in touch with or just regular friends! Contracting can be lonely, and co-working spaces can help to build relationships with people; Its interesting hearing about the things other co-workers do too.
Everything official happens at the very last minute.
Contracts are usually drawn up and signed at the last possible moment as understandably no one wants to commit to things that aren’t nailed on certainties, this can be nerve wracking and you have to judge the probability of something being likely to turn into a solid proposition. Similarly contract renewals are usually very last minute, often to within a couple of days of the contract ending, you need to judge the likelihood of the renewal happening and make your plans accordingly. Don’t assume it will be renewed until you’ve signed it!
Leave can be tricky.
You’re more mindful of the impact of leave on the contract, I know some contractors who won’t take leave during a contract. I do but I’ve changed the way I take it. Whereas before as a permie, I would usually take 2-3 weeks off, I now usually take leave in week-long chunks to give a bit more flexibility.
I’ve not found any issues with taking 1 or 2 days or covering appointments during contracts, if anything it’s been easier than as a permie as everyone knows you’re they’re not paying you.
Gaps between contracts can be difficult.
First, if you have a family, it’s rare that time between contracts falls at useful times such as school holidays. Second, plan for gaps and make sure you have a decent buffer saved up to cover them. Aim for at least a year, especially in the current climate.
Thirdly, it can be really really easy to just mooch around and before you know it your back on the next contract, make plans for downtime, be that having a bit of fun, doing some training, writing that blog post you’ve been putting off, or just networking and catching up with folks. I’ve found opening my calendar up to catch ups with people to be really beneficial for my own mental health during these periods.
You are expendable
Arguably that’s the point of hiring contractors, but if things are going badly you’ll be the first to go. If this does happen to you, and it’s not your fault, ask for references and endorsements so it’s clear why you were let go early (this hasn’t happened to me but is what I think I would do). Make sure you maintain your financial buffer whilst on contracts (see budgeting).
Getting started
If you’ve got this far and you still fancy giving contracting a go here’s some tips on getting started.
Build your network
I cannot stress enough how important your network will be to contracting success and it’s something you can develop before you start (I would recommend you do).
Join meetups; go to conferences (better still, talk at conferences, many support first time speakers and you get in for free!); blog your opinions; engage with people on LinkedIn (shudder); have a voice. Be reciprocal, give as much as you take.
Talk to other contractors, or find a mentor
You’ll learn lots from other contractors and in my experience everyone is pretty forthcoming with advice, better still find yourself a mentor someone you can ask the questions you may be embarrassed to ask other contractors and who can offer more regular guidance and advice.
Get your CV in order
Make sure your CV is ready to go and keep it maintained. I find the best thing that keeps me motivated to do this is to have it published online somewhere. Have a PDF or word version too that you can mail to people so they can feed it into their CV scanning machines. I used to have a lovely graphical CV but ditched that to aid the AI machines being able to read it.
There are some claims that you can add invisible prompts to your CV, I have no idea if that helps or not and I haven’t done it but it’s tempting, the machine learning equivalent of adding “If you read this line I’ll give you £5” to large documents.
Work out your day rate.
Perhaps the most difficult bit of contracting is working out what you’re worth. Speaking to recruiters and other contractors can help you get an idea (I’ve generally found contractors to be much more open about day rates than employees on a salary).
You need to think about your experience and how much you need to earn (see budgeting). Then the hardest part, have the conversation about day rates. Always always always start with a day rate that makes you slightly uncomfortable to ask for, best case you get what you ask for; worst case, if they really want you, yu’ll be able to negotiate down. Don’t start low, no one is going to offer you more than what you ask for. If you’re looking at inside and outside IR35 contracts, work out your day rate for both.
Finding contracts
I’ve been very lucky, all of my contracts have come from word of mouth (hence why I put so much store in networks) but below is advice I’ve had from other contractors…
Use job sites
Jobsites are still a useful way to find contract roles, they can be a great way to spam your CV’s to lots of roles all at once, it can take 2-3 weeks to get a response some time so bear that in mind. You can also use advertised roles to anticipate future needs. So for example if you’re a developer you could look for contracts looking for discovery type roles and contact the recruiter early to say you would be available for future phases.
Join talent pools
Lots of agencies have talent pools and you should join them, they can sometimes be a little esoteric or require being recommended by someone (yay networks!) it’s a useful way to get notified of contracts early. It’s worth contacting the person who manages the networks occasionally so you’re fresh in their mind, not all roles will be advertised out to the network if there is a quick turnaround.
Talk to recruiters
If you don’t have a big network or mentor, recruiters are your next best bet. You hear horror stories of recruiters trying to put people into roles they aren’t suited for but that hasn’t been my experience, talking to lots of them gives you a good sense of what reality is, usually conversations aren’t much longer than 10 mins so it’s not a big time sink to talk to lots.
Go through previous messages
If you’ve turned down contracts because you weren’t available it’s worthwhile checking in to see if the role is still open, or whether there are other opportunities.
Contract types
One of the things I get asked about the most is what is IR35 and what it means? It’s worth saying I’m not a contract lawyer and there are loads of good articles on IR35 and what it means but my basic mental model is:
Outside IR35
You are contracted as a company who are providing a service. To do this, you probably need to set up a company. This should also mean that you work as needed to provide the service and not like a standard employee, including choosing your hours, providing your own kit and setting your work. Money comes into your company rather than to you.
Inside IR35
You are working as an employee on a temporary basis. This is more like any other employee, but probably at a higher day rate. Money comes to you and is taxed as PAYE at source.
Lots of contractors are very anti-inside IR35. Personally, I’ve done both, and I’ve found that starting out contracting inside IR35 lessens the steepness of the learning curve as you don’t need to set up a company; you just need to choose an umbrella company. Additionally, Inside IR35 contracts tend to pay weekly, so if you are low on capital or just starting contracting, this can be really helpful.
There’s not a lot to say about umbrella companies; they sort out all your pay and take a cut for it. I use paystream, I’ve never had a problem with them.
Other contract considerations.
Make sure you read the contract and don’t be shy if there are clauses you aren’t comfortable agreeing to. Often things are added as boilerplate templates and will contain things you may not be comfortable with. Things to watch out for:
- IP ownership, contracts will state they own the IP of anything you produce during the contract. If you value owning your own content then challenge the clause.
- Notice periods too, sometimes they can be setup for the customer to terminate the contract on a shorter notice period than the supplier (you).
- Non Disclosure Agreements. Do you want them to be reciprocal, i.e. if you are asked to not share information, the same agreement should apply to the client.
Setting up a private limited (ltd) company.
If you’re taking on an outside IR35 contract you’ll need to set up a private limited company. Whilst this is more daunting, it isn’t too difficult and is quick to do. GOV.UK has an excellent step by step guide. You can usually get a company setup in under a week so there’s no need to go to the expense of setting one up in advance.
Get a password manager, you’ll be setting up accounts with companies house and HMRC at the very least. Saving credentials early on will save you a world of pain down the track.
Be mindful that setting up a company will require some upfront costs (another reason inside IR35 contracts can be useful if you’re starting out with not much capital)
- Company setup costs
- Business bank account
- Professional indemnity
- Hiring an accountant or financial advisor
- Purchasing equipment, such as a laptop and software
Plus you won’t get paid until your first invoice payment date, this can be 2 months after you start (invoice sent end of first month, with a month to pay) so make sure you have enough money to cover this.
It’s worth reiterating that a good accountant is worth their weight in gold, in fact unless you have a strong background in accounting, they are essential. They’ll probably save you as much as they cost.
For example when I was starting out, my accountant spotted I was paying PAYE to HMRC twice and sorted it out for me. HMRC’s website is very confusing it’s now a kind of a mish-mash of gov.uk styles and some god awful 90’s CMS, it can be very hard to navigate around, paying an accountant helps massively.
If your accountant doesn’t do financial advice, it’s worthwhile getting a financial advisor too.
Investing in bookkeeping software is worth it too, especially if you are going to go without an accountant, a lot of products these days link directly to HMRC services allowing you to submit your taxes directly through them.
One other consideration is that your details will be held on the companies house register. If you work from home and aren’t comfortable with your home address being publicly available there are lots of services that offer virtual addresses that you can use. Often co-working spaces will offer this as an add on.
edit the first version of this post had public and private limited companies mixed up. On the whole as a contractor, you’ll be setting up as a private limited company, usually you will be the sole shareholder rather than allowing others to invest in shares in your company. For more information check out this article on the differences between ltd and plc.
Budgeting
I cannot stress the importance of budgeting enough, whether inside or outside IR35. Contracting is a temporary thing and you need to stow money away for a number of reasons:
If you’re outside IR35 you’ll be taxed on a yearly cycle, both personally and corporation tax. You need to setup a pension as you probably won’t get state pension support. You need money to cover periods between contracts, how much depends on your attitude to risk, but 6 months to a year is what I aim for. You need to think about potential ill health or other periods where you may not be able to work.
When you’re just starting out it can be helpful to set yourself a budget of whatever you were earning as an employee and to save the rest, you won’t notice the difference as much as if you start spending straight away.
A pension is a very good way to save money as there are tax benefits that your accountant can explain better than me, but you won’t be able to draw any of this money until 55 at the earliest (and lots of accountants recommend not drawing until you retire due to compound interest.)
If you’re on an inside IR35 contract and depending on your pension situation, it’s worth setting up a SIPP ( personal private pension ). You can make pension contributions via your Umbrella company to lessen your income tax each month
Investing is another option but again be mindful of how easy it will be to get the money when you need to, it’s worth budgeting for what you need access to versus what can be invested more long term. Again many accountants can offer financial advice for you personally as well as for your business.
It’s worthwhile reviewing your budget as you take new contracts on, if you’ve saved a buffer but have managed to start a new contract quickly, you can then build a new buffer on the new contract and invest the old buffer in a more long term savings account for example.
In conclusion
Contracting is a great way to gain loads of experience, and being your own boss is fun, but it’s a big jump, hopefully this post helps you make a clear eyed decision. Good luck!
Thanks to everyone who contributed to this post:
Emily Webber
Neil Vass
Sam Villis
Sandeep Chahal
Leanne Griffith-McHugh
Steph Grey
Chris Oldwood