Contracting on the side while still employed; is it possible?
The working world has changed drastically in recent years.
The traditional 9-5 seems like a thing of the past as even employees strive for flexibility. Post Covid, as the working world continues to evolve and doesn’t look like resetting the remote-ability it brought, our agents have witnessed a sharp rise in self-employment and ‘employed contractors.’
But what exactly is this dual employment – where a person is both full-time employed and freelances as a contractor? And, writes Natalie Clark, head of HR and talent at Barclay Meade, part of leading STEM recruitment specialist Gattaca Plc, is it now possible to be contracting on the side while still employed? To enjoy both flexibility and security?
Hybrid please, after all; we’re post-covid professional approaching 2024
As 2023 makes way for 2024, the traditional boundary between full-time employment and independent contracting is becoming increasingly blurred. Many professionals today are opting for a hybrid model, where they maintain a primary, stable employment position while engaging in freelance or contract work on the side.
While this arrangement is possible – and is attractive for providing a unique blend of security and flexibility, it can be a little more complex than one might think.
From conflicts of interest to time management, there are some key factors to be aware of before trying to balance this dual status.
Contracting: what most of us mean
Before I outline the pros and cons of being an ‘employed contractor,’ let’s establish what contracting entails.
Typically, a contractor is a self-employed individual hired to complete specific tasks or projects.
Due to their primary focus on execution and delivering tangible results, companies usually engage with contractors for their specialised skillset. Right now, though, in such a candidate-short market (particularly within STEM sectors), we’re starting to see a significant increase in clients hiring contractors for additional support on specific projects that may not warrant a full-time member of staff.
Being self-employed, a contractor may operate through their own limited company, in which case they typically take on responsibility for securing their work, managing their own finances and setting their own work schedules (albeit to meet client-set deliverables or deadlines).
The benefits of being an employed contractor
From increased stability to skill enhancement, there are some significant advantages to becoming an employed contractor.
First, you have a full-time job which naturally means ongoing stability, including a steady income. But second, you’ll also secure employment perks such as annual leave which provides peace of mind.
For employees who decide to contract on the side, while they say freelancing can impact their free time, the immediate upside is that it boosts take-home pay by supplementing an already full-time salary. This may be why our agents have seen this sharp rise in employees who contract on the side, because during periods of economic uncertainty (like a cost-of-living crisis), it can improve financial resilience and provide extra income.
Other employees ‘go it alone’ at nights at weekends to explore their entrepreneurial spirit, effectively ‘testing the waters’ on what being in business would be like. In this sense, dual status is beneficial for offering the experience of self-employment, including flexibility and diversifying skills, but from a relatively safe and secure standpoint of having a full-time job to go back to!
If fulfilment is what you’re after as an employee, contracting can expose you to projects outside of your regular employment, including new industries, people, technologies, and skills. All of those feed into professional development and are conducive to broadening your skillset which may benefit you in your full-time role as well.
The disadvantages of being an employed contractor
But there are downsides and complexities to consider when branching out into self-employment while holding down a day-job.
First, be mindful of any conflicts of interest by thoroughly reviewing your employment contract to ensure there are no clauses that restrict you from engaging in external work. Restrictions are likely to be in place in relation to carrying out similar work for other parties as you do for your employer. If you are contractually permitted to freelance, be sure you are open and transparent with your employer about your intentions and what might be involved.
Second, consider and don’t estimate the need for effective time management. Balancing the demands of a full-time job with those of contracting requires effective planning, organisation and even personal scheduling -- with family, friends and contacts.
Be aware, striking a healthy work-life balance will become trickier when juggling multiple roles and responsibilities.
And so to avoid burnout, and safeguard your mental health, you will need to set clear boundaries and manage expectations of all those around you.
Next up, the legalities! As an employed contractor, you will need to be mindful of both legal and tax considerations, which can be a rather complex field. We advise you to seek professional advice from the outset and especially seek advice if the below makes you think you’ll struggle!
The legal landscape
Navigating the compliance side of contracting is incredibly important, including for your bottom-line. But staying on the right side of the rules is also vital regarding tax and IR35 because the area is heavily policed by HMRC.
These considerations will be key if you set up a limited company (in which you will be the director) to operate for your contracting side-career. The other options are to operate as a sole trader, or through an umbrella company.
If you set up as a sole trader, taxation is usually considered simpler than other business structures, as you are only required to register for a self-assessment with HMRC and file a yearly tax return reporting income and expenses.
Not all agencies engage with sole traders however, so you should look into the availability of the work you wish to do, before you opt for sole trading.
If you choose to operate as a limited company (traditionally the most tax-efficient route), while it can improve your credibility and provide more growth opportunities, it may involve more administrative responsibilities. Besides complying with numerous regulations, you are required to file annual accounts and returns with Companies House and maintain proper company records.
There may also be negotiations you’ll want to enter into around employment status. Typically, the end-client will be responsible for determining your IR35 status, but for smaller clients outside the public sector, you will likely be responsible for deciding your employment status and whether the IR35 rules apply.
If you plan to work via an umbrella company, however, you’ll become an employee of the umbrella company. Positively, the umbrella company will handle most administrative tasks on your behalf, including invoicing, payroll, and tax calculations. But the tax take is higher than (outside IR35) limited company working, and umbrella companies are not regulated.
Being employed and contracting at the same time, in a nutshell...
Nowadays, as the workforce evolves and many individuals continue what the pandemic started -- making us look long and hard at traditional work patterns, a dual-status career is absolutely viable, often to ensure our professional life better suits our lifestyle. But contracting on the side as an employed contractor shouldn’t be entered into lightly, even if flexibility and security appear easy to achieve. At the very least, you should understand the contractual, legal, IR35 and tax implications, or appoint an adviser who will understand them for you, but even then, the additional time management burden will be yours alone to shoulder, and to offset against the many advantages of working both for an employer and yourself at the same time.