I've been thinking about going down the contractor route, but I have reservations (which I won't get into here because I don't want to bias anyone else's comments).
Ben Sinclair
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Those of you who've worked as a contractor and as a full-time employee, which did you prefer?
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Top comments (29)
I think there isn't a simple answer and the right choice can differ from personal circumstances, goals, country you live in, and also the company you work for. If I may offer my personal experience working in the tech ecosystem in India:
Employees are generally taxed more than contractors. In theory, they are supposed to enjoy certain benefits that contractors can't avail, such as:
and so forth.
However in reality, several companies (especially startups), you may or may not get several of the aforementioned benefits, and it is left entirely to the company to decide the compensation structure and benefits. After working with several startups as an employee (some of them were based out of San Francisco and were well funded, with an engineering team in India), I hardly ever had any real, tangible benefit working as an employee.
Now I work as a contractor, and honestly it has not much difference from my earlier experience as an employee anyway - and on the upside, at-least I get to save more on taxes. So for now, a contractor role is what I prefer (though my preference might change again in future).
I did have a perm job at IBM years ago, but have been contracting since then. The thing I like the most is: being hired and respected for my skills, nothing else. The client tells me what they want, I tell them how it should be done. And we both know it only lasts while it's mutual.
I don't get involved with the politics, I can focus on what I love (developing) and I don't need to take part in any disingenuous HR processes related to convincing me that I need to try a little harder to get that pay rise next year. The way to get a pay rise as a contractor is to find a better contract and hand in your notice or decline to sign the next contract (then you'll find out how much they actually think you're worth)
I'm sure it depends on the market as others have said, but for Android development in London and from what I've seen in Amsterdam and Paris, take home pay seems to be 1.5x - 2x as much for contractors. That makes sense because the client is paying for the privilege of being able to easily downsize you whenever they want, and you need to factor in that you have less job security in theory, and may only have work 50-75% of the time.
Having said that, I've been contracting for over 10 years and I've been out of contract for about 2% of that time. Usually if a contract finishes on Friday, I start the next one on Monday (2 weeks notice is enough).
My idea of job security is to be good at something there is a market for. I suppose if the Android market were to collapse I'd be applying to be a permie pretty sharpish ;)
I have to admit, interviewing every 6-9 months is a drag, but a) you get used to it and b) contractor interviews are nothing like the nonsense they get perm applicants to do
Not being involved in politics sounds like a really good deal.
Personally, I've not worked in too many places where it's been a problem, but when it has... it has!
Absolutely nailed it. You are being paid a premium for your knowledge and opinion so people tend to listen to you. plus you don't generally get involved in the power politics.
The UK tax authorities are really coming down hard on contractors with an assessment scheme called IR35 which is a series of contractual tests to see if what you are doing is disguised employment
1) use of own equipment
2) right to substitute worker (i.e. are the paying for you or your output)
3) who carries the risk for over-runs
4) autonomy of hours
And a couple more.
If are caught inside IR35 then you get very few of the tax benefits of running your 'business' through a limited company: lower payroll taxes writing off capital expenditures etc, but you still have all the overheads like insurance and filing fees. In addition most IR35 contracts are managed through an umbrella company who take your charged hours and calculate your payroll deductions and pass on the remainder and charge you £25 a month for the privilege, plus every company has to do electronic tax filing so you have to have one of the online accounts systems like QuickBooks, Xero or freshbooks which is another £20pm. Along with my PI/PL insurance this means I am paying out around £1400 in business expenses which are not claimable against the IR35 contracts and have to be covered by other income sources. UK contract rates are still significantly higher than payroll but it is not as advantageous as it used to be.
You are also unlikely to get any training so you have to factor in both time and cost to keep skills updated
Not a dev, but I lived in Scotland and worked as a contractor in community education many moons ago. The UK tax system as it was when I lived there was pretty forgiving for sole traders, and the tax reporting system isn't too complex.
I think National Insurance for sole traders is higher than for employees (as it is here in France where I'm currently contracting), as you're missing the employer contribution and have to make up for it yourself, but in general you save your employer money (NI as mentioned, plus liability insurance and business taxes, etc) so can often make that back with your base pay. You sometimes get trade offs when it comes to things like stipends and expenses, but those things are tax deductible on your end when you're self-reporting, so they're still a marginal benefit.
When I was contracting in The Netherlands, I needed to have multiple contracts per year and couldn't work more than 80% (or something) of my total billable hours for one company, but tagging in @s_aitchison who has more current experience than I do of the UK situation!
I'd definitely echo what @ellativity has said. Also depending on how much you earn you may need to register for VAT, which depending on where in the world you're contracting can mean you need to pay VAT as well as other tax/NI contributions.
When setting up as a contractor you need to factor in the time and/or expenses for dealing with all this tax admin when you think about what rate you would charge for your services. For me, I have zero appetite to get into the weeds on financial stuff, and because I contract solely with a US-based company there's additional numbers to get one's head around in terms of currency conversion etc, so I work with an accountant specialising in sole traders/contractors. It costs me £150 per year for their services, and they keep me on the right track with all these things and prepare my Self Assessment tax return. It's a real weight off 😅
Some other expenses you need to consider -
Professional indemnity insurance: Technically, as a contractor you could end up in disagreements with clients over work delivered etc, and you might want to think about picking up insurance to protect you against this. Some insurance companies specialise in this kind of insurance for contractors, e.g. in the UK With Jack is used by a lot of tech professionals (myself included)
Income protection insurance: Working contract to contract means you might be at a higher risk of sustained period of times without cash coming in. This could either be because of gaps between contracts, or e.g. maternity/paternity, ill health, injury. Income protection insurance can help in these situations and provide a bit more peace of mind.
Personal pension: With no employer pension contributions, it's on you to make sure you're planning for retirement so you don't have to keep up with latest javascript frameworks in the year 2072 💀
Holidays: Make sure any rate you charge for services also takes into account you're gonna need some days off, as you're not going to be paid for those!
As with all expenses you might rack up as a contractor, you can factor all of these costs in to your charged rate, so they're not necessarily a downside. They're just something you need to be mindful of, and regardless if you hire an organisation or accountant to help you with it, you have to budget some of your time to dealing with it all.
And it's boring 😂 To answer the original question, I would much rather not need to deal with all this stuff, although contracting can give the freedoms other people mention around choosing who to work with / what to work on (and potentially a higher income, but again, need to weigh against the expenses).
Oh yeah, there's the original question, of course!
I don't really have a strong preference one way or another, tbh. I'm generally terrible at admin and find it a total drag, but I've been contracting/freelancing on-and-off for most of my working life, so it's just a thing that happens now.
The biggest pain is the initial starting up of a business and understanding the accounting flows in different countries. I've contracted, which means registering businesses and handling my own taxes in 4 countries at this point, and it doesn't get any easier the more times I do it!
Yeah, it's true, once you get your head around the initial setup it's really not too much headache, especially if you decide to get an accountant to fill out your Self Assessment. And since I am a (happy) contractor despite my hatred of boring admin tasks, I guess currently the benefits for me are outweighing the negatives. I'd just rather have all the benefits without the boring admin (surely I'm not asking for so much 😂)
😅 That's bringing me out in a cold sweat just thinking about it
I moved from the UK to France 3 years ago and I'm still dealing with the last bits of having tax stuff to do in two countries and I have an accountant 🤦
Old tax stuff never seems to end, @erdo... Good luck with that! Hope you get to wave goodbye to HMRC soon!
Full time employee for me for sure, I've only ever contracted "between gigs" though. For me its about the "building something" not "doing a job".
The worst thing about being a contractor: suddenly realising you measure your time in money... If I take a day off that's £xxx...
Depends on where you are located. In Canada, we have an integrated tax system, so there isn't a huge benefit to contracting (being incorporated on your own) than being an employee from a tax perspective unless you have an alternative source of income and can leave the income in your business account so it's taxed less. Gov't will eat you for taking out money with their CPP and payroll taxing.
From a flexibility standpoint, it comes down to what company you work for. Some are wising up and learning that developers need more felxible hours and a results based model instead of 9-5. They are also allowing more unlimited PTO and realising we need our time off. Contracting offers you the ability to be your own boss and is hugely dependent on good time management, setting boundaries for your work and life and also doing all the extra stuff that isn't engineering (marketing, client hunting, updating portfolio, accounting etc.). Some of that you can outsource and expense it and is a good learning experience but difficult in the beginning for sure. Also worth mentioning that health benefits plays a huge role. If your health is great and no chronic conditions, then you are in a better spot but if you have conditions that require consistent medical treatment, even eyecare or dental, this is where full time has a huge benefit (pun intended).
Contractors CAN earn more but this depends on if you have a good reputation and again dependent on your tax system. This usually takes 3-5 years average to achieve. Check out Josh Burns on youtube. He explains a lot how to get work on upwork and while its a grind, he goes through a lot of details which are relevant anywhere on being a freelancer and gives a realistic idea of what it's like in terms of time and effort. Some of his latest videos are a bit click baitey but focus on his freelancing ones. youtube.com/channel/UCQZ9jWTa3xpyU...
Who says you have to pick? I do both concurrently today. However, if I had to pick one or the other, FTE has enabled the most growth in my career and lifestyle.
How do I contract while holding a FTE? Asynchronously. I only take jobs where my participation during business hours is kept to a minimum so I can engage outside my normal FTE responsibilities.
I've been thinking about freelancing with something like upwork (I haven't researched so I don't know whether that's a good one) while I hold down a full-time position.
I think there is a distinction between freelance and contracting which is often missed or at least misunderstood. For me Freelance is a short discreet work-package that has a fixed price and scope and could normally be finished in a couple of sprints. Contractors get signed up for a fixed period of time with the aim of completing longer development pieces.
Of course these are on a spectrum and some freelance can turn into contracts and people's definition of short will vary.
Other distinctions for me is that contract work on the UK normally comes via a recruitment agency so the risk of non payment is mitigated
Freelance requires much more time spent of marketing, pitching and networking and the general day to day activities of running a business
The big choice you typically make is weighing up the benefits of permanent employment; holiday pay, sick pay, training, career progression vs earning less than a contractor.
Depends where you are in your career, if you are early on then I think being perm means you can take advantage of career progression. I would say thats the biggest thing you forgo.
Also you need to factor in now the whole IR35 legislation. You are effectively taxed as a permanent employee but with none of the benefits. This has made a huge difference to the contract workplace, contracts do exist that are deemed outside but they are not as common as inside roles. You will have to work through an umbrella company and I know a couple of these got hacked recently and contractors didnt get paid for weeks/months even.
I've spent time doing both. They each have their pros and cons, and which is right for you depends on your situation and preferences. Personally, I prefer being an employee (whether that's full-time or part-time).
That being said, I think a lot of people have a good idea of what being a full-time employee is like, but either don't know about or underestimate the downsides of being a contractor or self-employed consultant.
I'm using "FT" as an abbreviation for "full-time employee" here, but it mostly applies just as much to part-time employees, except for some of the benefits.
I've done both. I guess if I had to pick, I enjoyed being a contractor more. Here's why:
What I didn't like:
The freedom of picking projects as a freelancer is great. But, if you have no savings you should stick with an employee role. The basic rule of thumb is to have a year of salary saved before starting freelance work (or, start doing freelance work while having a job if your job allows that). If you don’t get job easily, you have money to keep you going.
Working for a good employer with good benefits makes life easier and promotes leaving the job with the job. Freelance work has a tendency to control your life because you don’t easily leave the job at the end of the work day.