IT Contracting Advice

Shedite27

Hi guys,

I'm in a permanent IT role at the moment but am continually contacted by agencies asking about my interest in contact roles. Initially I was of the opinion "why would I give up a full time job", but the more I hear, the more I am interested in investigating further. At present the contract rate is almost double my annual salary (calculating at 220 paid days a year).

I have a few questions about how the take home pay would equate for both of these. Does anyone have any experience of how much of a "daily rate" would actually end up in my pocket. Is it likely to be more or less than my annual salary.

How much admin is required initially to set up a company to allow for contracting and how much time subsequently is required per week/month/year in admin time related to taxes etc.

Any replies greatly appreciated.

Nody

As a rough rule of thumb you need to pull in during contracting twice what you'd get as permanent to make the same money net. This is to cover holidays (not paid), sickness (not paid), training (not paid), PRSI taxes, booking keeping (usually done via umbrella but obviously cost) etc.

Upside is obviously that you're able to work when you want so to speak; downside is you're constantly going to make sure you got new contracts lined up as your current once finish to ensure you keep on getting paid. Also if there's a slump in demand you as contractor would be the first to be cut (easy saving).

Shedite27

Nody wrote: »

As a rough rule of thumb you need to pull in during contracting twice what you'd get as permanent to make the same money net.

Are you speaking from experience with that? Wouldn't have thought it would need to be that high.

Mrs OBumble

That's a ratio I've heard before.

Superficially it might look like it doesn't need to be that high .. until you factor in training and lost earnings when you are training not earning, public holidays as well as annual leave, some allowance for sickness, etc.

srsly78

It's not that high for IT. 25-50% more would be fine because there is so much work around in IT. OP the rule of thumb is to assume 200 working days, not 220. This covers holidays and down-time between contracts (which are often the same thing for contractors).

You may lose out on some tax credits (director doesn't get paye credit), and will have to pay accountancy fees (e1000 or less). Apart from that you pay the same tax as everyone else, but you can offset this by claiming expenses for various things (very complex, accountant will advise on this). Expenses can be quite lucrative depending on your circumstances, especially if you do business trips abroad (e190 unvouched per overnight in London for example). If you can swing some "work from home" you can expense a home office, this lets you expense a portion of your rent+bills (warning more complex rules apply!).

If you use an umbrella company make sure you don't end up paying employers prsi (extra 10% tax). If you are a Director you don't pay this.

Training is not something I have ever spent a penny on, you constantly learn as you work in my experience. The only time I would put money towards training is if there were conferences on in the Caribbean if you know what I mean

Also be prepared to get fired a lot, as mentioned above contractors are first to go. Easy come easy go...

KTRIC

I contracted in the past for many years and recently I've been hounded by agencies looking for me to do contract roles again. I'd be giving up security of a permanent position to live in a world of uncertainty.

Couldn't see myself doing that again to be honest.

dazberry

I've been contracting (third time around) for 6 years this stint, sort of fell into it reluctantly, sick of it now, just want to go back to permanent.

D.

srsly78

I would be sick of it too if the rates weren't so good. Just got laid off tho, on the lookout again

Shedite27

dazberry wrote: »

I've been contracting (third time around) for 6 years this stint, sort of fell into it reluctantly, sick of it now, just want to go back to permanent.

What's getting you down if you've been doing it for 6 years? Sounds like you've the best of both worlds? Or are ya still seen as somewhat of an outsider?

srsly78 wrote: »

I would be sick of it too if the rates weren't so good. Just got laid off tho, on the lookout again

How long do you expect to be out of work?

I'm looking for BA/PM work and seem to be getting emails every week about some role or another. Seems plenty of work in those fields in particular

BostonB

I thought 2x even more permanent rates would be needed if you factor in time between contracts.

Personally I had a pain dealing with agencies. They'd waste so much of your time. Send you to locations you didn't want to go, and roles which aren't suited.

That said the permanent roles with all the new taxes, the extra from contracting is looking attractive again.

srsly78

Yes agencies can be very annoying. They can't force you to go anywhere tho lol.... Just don't deal with the bad ones. Some of them can be really pushy, they actually get offended if you say you aren't interested in a role!

My favourite is when they ring you up with a fake job trying to fish for contacts: "Yeah... what was the name of your manager in <last role>?" Lately I've started making official complaints about these chancers, but usually they are the senior guys in the recruitment agency anyway >.<

The downtime between contracts depends on how good your are at marketing yourself unfortunately, and this requires dealing with the above.

BostonB

They can tell you the contract is in south Dublin, then a few days before start you find its on the other side of the mountains in Wicklow.

srsly78

Did you not go out there for a meeting/interview beforehand?

iMyself

My advice would be to do it as self employed, do not register a ltd company as it comes with an abundance of hassles. you also have to pay corporation tax. Agencies will tell you you have to be a ltd company, but legally they are talking BS. They say this because after 12 months you can claim to be an employee and have the same rights as a permanent employee, but this is true even if you are a director of a ltd company, it makes no diffference.

Register your business name yes, but you don't need a ltd company. A ltd company has to have a minimum of two directors, so it's obvious from the start that its the wrong appraoch for a single person "self employed" contractor.

So to recap, register your business name, file your tax using your Form 11 and tell the agencies you are a ltd company, they won't know any different. Invoices and VAT registration are in the business name, bank account will be your personal bank account. If they ask just say yeah I've a limited company.

Shedite27

Yeah I'm not sure people are talking about the same thing here. I'm in Business Analyst and Project Management, so generally they need a BA to help out on a new implementation for 6/9/12 months which normally tend to run over anyway. I'd definitely expect to be going for interviews before each role, and certainly wouldn't be "sent" anywhere by agencies. The only reason i'd use agencies would be to manage my taxes.

srsly78

Well iMyself above is certainly wrong. You DO have to have a limited company, or many of the clients will not deal with you. It's as simple as that. You won't pay any corporation tax because you won't make any profit - simples (big bonus to yourself).

Also you can claim a lot more expenses with a company - sole traders cannot claim unvouched subsistence allowance. The second director thing is easy, just give them no shares and make your mate/brother/whatever the director. You can still use personal bank account as a company, so no worries there.

I was a sole trader in the 90s, back then a company needed to be audited every year. Now it's a lot simpler (no more audits if you file on time), all serious contractors use a limited company. The umbrellas will even do it all for you for a price. The ROS system is very good tho so you can do most of it yourself easily. The hassle of an Ltd isn't that much more than a sole trader - I just get an accountant to do the annual return.

You can be caught out lying very easily but just looking up the VAT number. It will show as registered to an individual or to a company. Various multinationals have subjected myself and my company to loads of silly background checks (done by a third party) - this is not stuff I would start lying about.

And the most obvious point of all: limited liability.

BostonB

srsly78 wrote: »

Did you not go out there for a meeting/interview beforehand?

It was about 9 yrs ago this used to go on. They'd delete all companies details off all material you'd see, then have a meeting with the company in the agencies offices. You only got the full details when starting. It was quite common then. Haven't contracted since then, maybe they've stopped doing it.

Like above you couldn't get a contract unless you were a limited company or went through an umbrella. Companies when through agencies, never directly. Something to do with the company being liable for company PRSI if you were a long time on the one contract with the one company. (as a sole trader). Hence they'd break your contract frequently.

srsly78 gives the impression you can go from job to job quite easily now. So maybe that's all null and void these days.

srsly78

I've never had a "blind interview" like you describe, that sounds mad. I would certainly tell them to **** off if that happened, I don't even drive :P

dees99

I work as an IT contracter and i earn 200e per/day

I take home 67% of my gross income, this includes paying approx 400e in Employers PRSI and a 125e a month fee to contracting plus/CXC for an unbrella company

The alternative to an unbrella company is a limited company but you will have to save your taxes and make sure you dont spend them throughout the year and you will then have to have your books done by a chartered accountant which will cost 1000 - 1500e

You can claim feck all expences anymore, i used to be able to claim my lunch back every day but now all i can claim is my monthly phonebill and broadband bill. You can claim your bus ticket, parking etc but whoever mentioned claiming for a home office is incorrect, this was done away with at the start of the recession

My contract runs all year so i calculate things off a 46 year week, thats 4 weeks for holidays and 2 weeks for holy days and bank holidays etc. Who ever said you needed to earn double is completly inaccurate

I have been working on the same rolling 4 month contract since July 2011, im sick of it and really dislike it now. I went for an interview for a perm role in the IFSC last week and was called bacl in for a second interview tomorrow (Friday) and im praying i get it because i just want to take holidays again and not be completly broke the following month.

Try contracting for a while but there is nothing better than a perm job i believe!!

srsly78

It's only worth it on double those rates. What do you do? If you are writing software then you are being exploited

Also, I can claim for my home office because - I work from home a lot (with lots of business trips to the client). Do you see how that is allowable? It wasn't "done away with", they just announced they would crack down on the chancers that were claiming it fraudulently.

dees99

I work in a Trading Floor Support role. A mixture of desktop/cisco and telephony support.

iMyself

srsly78 wrote: »

Well iMyself above is certainly wrong. You DO have to have a limited company, or many of the clients will not deal with you. It's as simple as that.

Clients or agencies? I'm well aware of agencies stance on it but have never heard of clients insisting on it.

I have spoken to the revenue over this after having missed a null return and their advice was that I should never have been a limited company. I have also spoken to a solicitor and was given the same advice. you are a single person, self employed. Talk of using your mate as a director speaks volumes.

BostonB

I have know a good many companies that insisted on going through agencies. Makes no sense to me. You out forward someone who could do the job, the company would tell them to go through the agency. They don't get past the agency BS. The company and agency claim there's a IT shortage. Seen it loads of times. Madness. Kinda off topic though.

I enjoyed contracting. Lots of experience gained quickly. But you're just a number.

srsly78

My brother is the other director, and he is also a software engineer. He does have a permanent job tho, but has been tempted to take up contract work.

I was recently in touch with one of the largest companies in the world ($60 billion research budget), and they INSISTED I used an agency - even after me contacting them directly. I have been working for a smaller company directly tho, but even then I think my customer threw his recruitment agent mate a few grand for it.

@iMyself: I don't like having to administer a Ltd company, but everyone insists on it. It is worth it for me tho, since I work abroad a lot. How would a sole trader operate internationally? That would be a lot more difficult. If I spend over 6 months in another euro country I personally become tax resident there - but I still work for my Irish company.... think about it.

Ray Palmer

Yeap you need a limited company due to the company hiring you. As stated some will also insist you go through an agency too.

It is to do with tax liability risks and not the law as such. Companies insist on this so it doesn't matter what a lawyer tells you.

Double the salary is also not required there are a number of calculators about the give you an idea. Example below

http://www.virtualaccountant.ie

I have been contracting for years and every company I worked in had redundancies so as far as I am concerned there is no added risk due to the nature of IT.

Be sure you know the difference between daily rate and fixed term contracts. €200 a day IT contracting is a low rate. They normally are 3,6 or 9 months long. Most get renewed, every contract I had was renewed once at least.

You can't be a wall flower or work shy. Contractors are expected to hit the ground running and go find out information not provided.

I like it a lot and I don't get people who don't. They must live in some perpetual fear of when their contracts end. The reality is you should be earning much more so typlically earn a full years salary in 6-9 months. Good tax breaks on things like phones and computers along with phone bills, broadband etc...

irishguy

Can people tell me a few things:

1) How do you handle holidays, do you book them for the end of a contract and just take them even if they renew or are all holidays a last minute thing when you have no contract?

2) Does anyone have a sample contact I can look at (you can delete any details you want).

3) Does anyone have sample accounts they are willing to share, just to see what kind of deductions you could make and what you come out with.

From doing a few calculations if you were earning 50k in a permanent role with 25 days holidays, 10% bonus, healthcare, life insurance, 5% pension you would need about 70/75k on a contract to make the SAME money on the same terms. Dont forget about sick leave, bank holidays, jury duty, training, job security, nights out + any other perks companies give.


I hear the revenue are clamping down on IT contractors expenses. Being able to declare a room in your home as your ordinary place makes a big difference, but working as a software engineer how likely would you be able to do this. As your only going to have one client for say 12 months, obviously your going to work evening/weekends at your office for training/admin, few weeks between contracts in your office and if you could get 1 day per week at home. Do you think that would be enough for have your house declared as your ordinary place of work?

srsly78

Rates: e1-10000/day

Holidays: Contractors don't get holidays.

Calculations: Way off.

Expenses: You have to actually properly work from home to claim for it.

irishguy

srsly78 wrote: »

Rates: e1-10000/day

Holidays: Contractors don't get holidays.

Calculations: Way off.

Expenses: You have to actually properly work from home to claim for it.

Would you care to elaborate on your answers?

Ray Palmer

irishguy wrote: »

Can people tell me a few things:

1) How do you handle holidays, do you book them for the end of a contract and just take them even if they renew or are all holidays a last minute thing when you have no contract?

2) Does anyone have a sample contact I can look at (you can delete any details you want).

3) Does anyone have sample accounts they are willing to share, just to see what kind of deductions you could make and what you come out with.

From doing a few calculations if you were earning 50k in a permanent role with 25 days holidays, 10% bonus, healthcare, life insurance, 5% pension you would need about 70/75k on a contract to make the SAME money on the same terms. Dont forget about sick leave, bank holidays, jury duty, training, job security, nights out + any other perks companies give.


I hear the revenue are clamping down on IT contractors expenses. Being able to declare a room in your home as your ordinary place makes a big difference, but working as a software engineer how likely would you be able to do this. As your only going to have one client for say 12 months, obviously your going to work evening/weekends at your office for training/admin, few weeks between contracts in your office and if you could get 1 day per week at home. Do you think that would be enough for have your house declared as your ordinary place of work?

1) It depends, I book some for the end of a contract and hope I will get a renewal. Then take the renewal starting when I come back.
Some I take during a contract or just when I am between contracts. But I am only between contracts by choice.
2)Not many will give you that. They are very simple. Your company is signed to work for an agency and there is normally a break clause of 4 weeks.
3)Not a chance you will get that. Search some accountant website and you will get the idea. There is actually a lot of uncertatinty when it comes to what is allowable and not. I have seen accountants argue over it so anybody claiming they know for sure is probably wrong as proffessional accountants disagree.

Job security IMHO is very rare in IT as companies drop lots of people so regularly I haven't seen many really have it.
Jury duty can be legitimately be avoided for self employed people. So not a concern.
Nights out normally include contractors in the company you are working for so you don't miss those.
Training is an expense you can claim so can be quite affordable plus you learn more contracting than you will in one company.
Pension plans are pretty tax efficent and company contributions don't actually amout to a lot so there is not a massive difference maybe 3-4k.
Health care is a tax deduction but you pay BIK so cost less than you think. Maybe €500
Insurance life,illness etc... is tax deductable so not a massive expense. One reason it is given as a job benifit by a company.
Hoildays are the big one you notice as a day not working seems like you are losing money but you aren't once you consider you planned for days off.
Sick leave is a risk but that is why you take out illness insurance for major problems. Normal sick leave from a company is not great for long term illness. The cover of a few days is nice but many don't allow more than 4 days in a year and you just get social welfare after that.

As for bonuses lots of companies don't pay them or only give a portion espically performance related ones where nobody ever gets the entire amount.

Holiday benifits may increase over time but when you change jobs you are often dropped back down to the standard time of. You get 25 days in the job you are in because you worked there a number of years but change companies and you go down to 20 again.

When you work out the rate it tends to be based on a 20 days a month that breaks out hoildays and bankholidays. I go for 19 myself which is an extra 12 days off a year which is 62 off a year, take bank holidays away plus good Friday is 52 days off a year. I rarely get to do that but I can and it covers sick days and every 2 years I have a big holiday.

You may have an office expense even though it is not your regualr place of work as you need an office for your administration anyway. Travel and food allowance can't be a claim but the rent and broadband for the room are legitimate as is the computer and mobile phone.

Effectively your phone allowance could offset the extra expense of health insurance.

A big issue is unpaid overtime which most permenant jobs have. You very rarely do this as a contractor and certainly won't be doing overtime regularly without being paid.

€55k perm is closer to €65k contract with the similar benifits but you will have a new phone and computer. Even at that I am talking about that with all the insurance and assuming you get your bonus.

The other thing to note is staying in one company often means the expertise you get paid for there is non transferrible. Knowing the ins and out of one set of systems doesn't mean you can handle something you are unfamiliar with or either new technology or old technology.

Tax advise is very subjective and I only give my understanding and am not debating with people about how they understand it. I trust my accountant.

Shedite27

Thanks for all the feedback guys, all very helpful. I was investigating using an Umbrella Company to avoid having to set up my own company, at least initially. Someone like Prima seem to suggest that I get to keep up to 72% of my expected daily rate. Does anybody have any experience with them (or someone similar).. http://www.prima.ie/calculator

Also, does anybody have any experience of getting a mortgage while employed in a contracting role. I'd imagine banks aren't too keen on the idea but any first hand stories would be appreciated.

Ray Palmer

Shedite27 wrote: »

Thanks for all the feedback guys, all very helpful. I was investigating using an Umbrella Company to avoid having to set up my own company, at least initially. Someone like Prima seem to suggest that I get to keep up to 72% of my expected daily rate. Does anybody have any experience with them (or someone similar).. http://www.prima.ie/calculator

Also, does anybody have any experience of getting a mortgage while employed in a contracting role. I'd imagine banks aren't too keen on the idea but any first hand stories would be appreciated.

Umbrella companies are relatively expensive for what they do but worth using first time out. Ask them what you claim. Some will say travel and food which is unlikely but won't let you buy a computer. So finding out what they suggest you claim is worth finding out. Your contract will be with the them so you can't really change once you start off with them during the first contract.

Mortgages are difficult for any self employed people to get so consider that a no go without a few (5) years under your belt but the same applies for lots of perm positions if you haven't been there two years.

dees99

I would like to point out that it no longer possible to claim a computer as an expense. I bought a Microsoft Surface a week before going to New York for Black Friday and tried to claim it back but was told you could'nt anymore.

i did buy a new Nokia lumia and was able to claim the full cost of that b ack including my phonebills every month going forward! But i just got a new perm job on 51k so i dont even care about this stuff anymore!

srsly78

If it's for business purposes of course you can expense it. Who said you couldn't claim it back? Your umbrella? Are you talking about import charges or vat instead?

dees99

Im talking about claiming anything back for it. Like i mentioned already i bought it last October, i had asked CXC previous could i claim it back and was told i could. I went ahead and purchased it only to be told that it didnt count as a work expense so basically i had to pay for it in full. I know you are saying that you can claim it back, but trust me you cant!!

srsly78

This is why you shouldn't waste time and money with umbrella companies.

If you are a proper contractor (self-employed) then you can claim back stuff in accordance with revenue guidelines.

dees99

Yes but the fees are higher to have your taxes and books balanced at the end of the year. You have to save money all year in order to be able to pay your tax and if you go through CXC for a limited company then its 250e a month for fee! There is ups and downs!

dees99

Also i have been working in this contract since July 2001 and i dont even own a laptop. So i guess a computer/tablet is not a necessary business expense!

srsly78

No. Umbrella company works out way more expensive, employers prsi as well on top. The only overhead of a ltd company is accountancy fee of e1000 or less.

The Umbrella company does not set these rules, the revenue does. Umbrella companies just disallow anything that they can't be bothered processing.

dannny1

I just have a quick question, I am in the middle of my first contract as a director of an umbrella company. It's through a recruitment agency, so I send in my timesheets, my boss in the company approves them and the accountant gets transferred the money from the agency.

I have been offered an extension when the contract ends in July and the company want to know how much more I want.

My question, can I just cut the recruitment agency out after the initial contract is over? I'd rather not deal with them and it would be easier to just have a contract between me and the company I am working for and cut out the recruitment agency altogether.

Also, id there a minimum daily rate that once gone over you would set up a ltd. company instead of an umbrella company?

Thanks in advance.

jimmycrackcorm

When I was a contractor having my own limited company, I got caught out losing my PAYE allowance so that I only discovered later in years that I still didn't have it once I went back to a permanent job. Fortunately I was able to claim a good few years tax refund.

srsly78

dannny1 wrote: »

I just have a quick question, I am in the middle of my first contract as a director of an umbrella company. It's through a recruitment agency, so I send in my timesheets, my boss in the company approves them and the accountant gets transferred the money from the agency.

I have been offered an extension when the contract ends in July and the company want to know how much more I want.

My question, can I just cut the recruitment agency out after the initial contract is over? I'd rather not deal with them and it would be easier to just have a contract between me and the company I am working for and cut out the recruitment agency altogether.

Also, id there a minimum daily rate that once gone over you would set up a ltd. company instead of an umbrella company?

Thanks in advance.

You probably cannot cut the recruitment agency out, your contract probably has lots of nasty clauses about exclusivity etc. Also they may have a deal themselves with your customer.

You can however cut the umbrella company out, it's cheaper to just run things yourself with the assistance of your own accountant. Should save at least e1000/year there.

Regarding minimum daily rates, it's not worth being a contractor for low rates no matter what method you use. If you don't earn much then there isn't much tax to pay, so tax efficiency becomes irrelevant. More important is class A prsi contributions so you can get JSB (this means use an umbrella as a normal employee not a director).

DublinWriter

dannny1 wrote: »

My question, can I just cut the recruitment agency out after the initial contract is over? I'd rather not deal with them and it would be easier to just have a contract between me and the company I am working for and cut out the recruitment agency altogether.

This can really backfire if the company you ultimately work for are tardy when it comes to paying suppliers. Smaller Irish companies can be a nightmare in terms of getting paid.

Perhaps the only good thing about agencies is that they will, and should, pay contractors' invoices quickly.

Also bear in mind that most agencies will put in a clause about not working for their client directly after your contract is finished. Even without that, you may sour your relationship with the agency in terms of future work.