IPSE warns restless staff against seeing contracting as a quick buck
IPSE has cautioned permanent employees struggling with New Year job blues against getting into professional contracting to make a quick buck.
The UK’s contractor body issued the alert after an agency advised a full-timer keen to double his pay if he freelanced that now is a “great time to change” jobs including to a contract role.
'Liberating, but costly'
And while neither the recruiter nor IPSE yesterday directly cited IR35 – which can massively reduce contractor take-home pay, the body listed more than 12 costs of contracting.
Andy Chamberlain of the Association of Independent Professionals and the Self-Employed (IPSE), did caveat that ditching a 9-to-5 for contracting can be a “liberating experience”.
But the dozen or more costs that first-timer contractors tend to face risk taking the gloss off.
'Employee benefits lost, business costs gained'
“Pensions contributions, redundancy pay, taking time off – either for holidays or when sick – training, and equipment, are all costs which will typically be borne by the self-employed individual themselves,” Mr Chamberlain began.
“But it’s not just [losing] employee benefits that need to be considered. There’s also business costs such as tax investigation insurance, public liability insurance, professional indemnity insurance, bookkeeping and accountancy.
“And self-employed work in some sectors is highly competitive, so many will want to invest in marketing, setting up a website, paying for ads and seeking professional help to enhance their CV and LinkedIn profile.”
'Daunting, at first'
Ahead of its next contractor confidence index (the latest index shows 75% of contractors predict their costs to surge by 12.4%), the association said costs were just one of many factors not to overlook if considering quitting full-time employment for freelancing.
Often, these costs contractors face aren’t entirely new, they were always there – it’s just that “previously they were handled by your employer,” said Mr Chamberlain, IPSE’s policy director.
“While managing these costs might seem daunting at a first glance, freelancers can find contract work to be fulfilling and highly lucrative,” he said.
'I'm a contractor at heart'
As if almost on cue, a long-time contractor took to LinkedIn to announce his foray into full-time work had come to an end because, “something just didn't feel right.”
“So after many years contracting, I took the decision last year to venture back into the world of permanent work,” he wrote.
“Unfortunately, after starting I quickly realised how much I enjoyed the experiences that being a contract worker was able to provide, and that at heart, I still was one.”
The recommitted contractor, a Business Analyst continued: “The people were great, the project was great, and the company were great, but something just didn't feel right.
“So, from Monday of next week, I am back in the world of self-employed and available for…[the following skills on a contract basis], either near Bristol or remote.”
'Contractor income comfortably covers contracting costs'
Fulfilment seemed to be the missing piece for the analyst, but financial fulfilment is also achievable too as a contractor, even if there are initial costs to bear.
IPSE’s Mr Chamberlain reflected: “If [newcomers to contracting] can successfully manage the admin and marketing side of their business, many find the income they are able to generate comfortably covers their costs, leaving them in a stronger financial position than they were able to achieve as an employee.”
The Intermediaries legislation, revised in April 2021, seems to be the one exception.
'Financial impact of IR35 is massive'
Posting last night, a contractor finishing up his “first and last” inside IR35 contract explained:
“Think £700 a day sounds good? It does! In reality it equates to about £350 a day net, and that doesn't include any ongoing expenses like hardware, software licenses, and when needed outside IR35, insurances and indemnities -- and these are annual, so it’s not great for going inside [but then] outside IR35 [elsewhere].”
Now exploring opportunities in the US and permanent jobs in the UK, he added: “Not forgetting no sick days or paid holiday [as a contractor either]. Oh and no medical or dental insurance, that's all on me [too]. I don't know what I was thinking. I didn't expect the effects of IR35 to be as significant as they are. The financial impact is massive.”
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