You've decided to go contracting, but you're not sure where to start. This is for you! Contracting can be a great way to get experience in different companies, without being tied there permanently. People get into contracting for many different reasons; the flexibility to take some time out when between gigs, the opportunity to experience different industries, or simply because you can earn more money. Whatever your reason, we've put together this guide to help you get set up!
Before jumping into contracting, it's good to be aware of everything that goes with it.
As a contractor, you can either be on a Fixed Term or a Day Rate.
Fixed Term means you are employed for a specific period of time. You will have the same entitlements as a permanent employee, including being paid a pro-rata salary, but only for the duration of your contract.
A Day Rate contract means that you are also employed for a specific period of time, although your contract can be extended. You will also be paid by the day, where you invoice monthly, as opposed to a pro-rata salary.
There are pros and cons to being a contractor. The pros include a higher rate of pay, flexibility to take time off between contracts and the opportunity to get experience in different companies, but some of the cons would be that you don't get company benefits like health insurance etc. and, if your contract isn't renewed, having to frequently look for new roles. This shouldn't deter you, but it's good to be aware of.
More often than not, you'll be earning a daily rate. Some people are flexible with their rate, depending on the length of the contract, so it's good to have a range in mind.
Contractors usually take home about 30% more pay, but keep in mind that it doesn't include pension payments, insurance etc. Here's a handy way to calculate your day rate:
[Your day rate] x 230 (working days per year) = Amount you earn as a contractor
[Amount you earn as a contractor] x .75 (this is benefits etc.) = Annual salary
Example! €400 x 230 = €92,000 per year, contracting €92,000 x .75 = €69,000 per year, as a permanent salary plus the usual benefits
This is quite important. As a contractor, you will set yourself up as a limited company (more on that in a moment) and you can choose whether you want to file your own taxes, or work with a company who will do all of that heavy lifting for you. You can pay an accountant, or you can go under an umbrella company.
An umbrella company essentially puts you on their payroll. You send an invoice each month and they will deduct the necessary taxes and charges. Easy! We have a few that we can recommend - just get in touch! You can sign up under their umbrella, or set up your private limited company through them (where you send them your monthly expenses etc. and they look after the tax), or else you can fly solo and set up your own Ltd. company and do your tax returns yourself. It does cost money to set up your own Ltd. company, so it's worth spending some time figuring out what works best for you.
Invoicing is quite straight forward. At the end of each month you will fill out a timesheet which will be supplied to you. After filling it out you ask your hiring manager to sign off on it, and then that's sent to the agency/ payroll. If you've been employed directly by a company for your contract, then they will process your payment. If you've been employed through an agency for your contract, then your invoice will be sent to them. Depending on whether you've gone under an umbrella company or set up your own Ltd. Co., you'll either send it directly to the agency or the umbrella company will send it. There's not too much to it, but as soon as your approved timesheet has been received by the relevant person, your payment will be processed!
Discover how you can simplify this process with Naoi here.
Make sure you are aware of what date your invoice needs to be submitted by. If you send it early it doesn't mean you will be paid early, so you need to keep this in mind. Payments may also take a couple of days to process, depending on the bank.
The time will come when your contract ends. Maybe it's been extended a couple of times, or your fixed term has come to a close. If you want to move straight on to another position, without having any break in between, then give yourself a couple of weeks runway to search and interview.
Generally speaking, companies want contractors to start as soon as possible, so it may not be worth looking for something if you still have a couple of months left on your contract. A few weeks should be fine! If you're in the position where you'd like to take some time off between contracts then you can absolutely do that, but make sure you've planned appropriately and give yourself enough time to find something new when the time is right for you.
When this time comes, know your day rate/ salary expectation and availability. Make sure your CV is up to date with your latest experience and you'll be snapped up in no time! With naoi, you can update your profile, attach your CV and ask for recommendations too from employers.
At some point, you might decide that you want a change from contracting and want to move into a permanent position.
Some people are life-long contractors, others do it just for a short time, and others do it when they need to.
If you decided that you'd like to make a switch to a permanent position, there are a few things to consider: Your salary as a permanent employee will be less than you earned on a day rate. This is totally normal. You will, however, get things like annual leave and benefits! If you've been contracting for an extended period, think about why you want to become permanent.
This may come up in an interview, as employers will want to understand if you will stay with them Speak to your recruiter about this change, if you're working with one, as they will be able to help you prepare for interviews and advise the hiring manager of your reasons for wanting to switch from contracting.
If you have any questions about becoming a contractor, or need any extra information, feel free to get in touch! We're happy to help!
Email hello@naoi.io and we’ll be in touch!
