Can't Decide Between a Permanent Job and Freelance Contracts?
10.04.2016The increasing popularity of freelance work means that some analysts are predicting that by 2020 up to half of the population will be self-employed. A study published last year on freelancer website peopleperhour.com called 'The Evolution of the On-demand Economy' has some interesting insights into the fast-growing world of freelancing.
The study found that the ready availability of short-term and temporary employees with many different skills is proving beneficial to growing numbers of SMEs, with some businesses able to save over £6.2K a year on staffing by outsourcing to freelancers.
With more people filling out self-assessment tax forms there is a greater need for book-keepers to assist people with taxes. There are also stronger calls to make the process of self-assessment easier for freelancers, and the government ambassador for self-employment David Morris MP was quick to set his sights on simplifying IR35 legislation.
With more and more people taking the plunge and becoming their own boss, we decided to take a quick look at the pros and cons of contract work.
First, let's look at the advantages:
Better rates of pay
The higher earnings potential of contracting is undeniable - sometimes the wage can be double that for permanent staff, although this is subject to factors such as supply and demand in the marketplace for your particular skill-set.
Tax savings
Historically, trading via a limited company means that you have more control over your finances because you can split money take from the company into salary and dividends, although the 2016 budget introduced a new tax on dividends.
You are the boss
You get to decide which contracts you work on, and how much work you take on. You have more control over your working days, and can work early in the morning or late at night if you are more productive then.
Acquire broader skills and experience
By taking on short-term contracts, you'll likely be learning skills and gaining experience faster than if you had stayed with one employer.
International work
Some of the contracts you take on may be abroad, which can offer wonderful rewards outside work.
Network building
The more projects you take on the more people you will meet, and you can find yourself working with a wide variety of people over a fairly short time. This can help you progress your career faster by expanding your network and helping you find further work as you are recommended by people you've worked with.
Now, some of the disadvantages:
Less job security
It's vital to plan ahead for times where there is less work available. Variables outside your control can mean that, no matter how impressive your skills and reputation, it may be difficult to find your next contract. You will need to put effort into staying in touch with your network, and having an eye to the next project and the next job to maintain a steady workflow and a steady cash flow.
You are the admin too
You will have a lot of paperwork to do in your own time: invoicing, accounting, tax. Even if you get a bookkeeper, you still have to be aware of your business finances and tax payments alongside your personal finances. The key is to do everything as you go so that you don't get behind with anything.
Job applications and proposals
You will be job hunting every few months, and/or writing lots of proposals for projects. This is something that can take a lot of time and energy, so be sure that you can handle the uncertainty and the need to sell yourself and prove yourself to new people regularly.
No holiday pay, no sick pay, no workplace pension or healthcare
If you want benefits that permanent employees enjoy (including pension schemes and private health care) then you will need to set these up yourself. You will need to make sure you can cover yourself if you are ever ill and out of work for a long period, and to make time for your holidays and other time off work.
No free training or equipment
If you do need any training or equipment then this will need to be paid for out of your own pocket.
Ask for advice!
If you have friends or acquaintances already working freelance, then do take the time to talking to them and get their frank opinion on the benefits and drawbacks. Being your own boss is liberating and fulfilling if you're that way inclined - but it is definitely not for everyone.
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