Working as an independent contractor vs employee ?

Jelle1880

Hi,

I got a job offer today for a company in Cork that offers me a great wage.

Now, greedy as I am I said yes, I could use the money and need a change of job asap. When I got the contract sent to me it said that it would be as an independent contractor, so not an employee.

Some people immediately told me to refuse it since it would mean that I would be responsible for everything myself, ranging from taxes to health insurance etc.

Is there really that much of a difference, and what potential benefits/downsides would there be to it ?

Stheno

What's the difference between your current salary and the rate you've been offered?

Jawgap

Yeah, you're pretty much responsible for everything and they can terminate you at (probably) 28 days notice.

You will have none of the usual employee protections.

That's why the money being offered is so good.

Jelle1880

Stheno wrote: »

What's the difference between your current salary and the rate you've been offered?

From around 25k to 33k, so it's definitely worth thinking about.

Jawgap wrote: »

Yeah, you're pretty much responsible for everything and they can terminate you at (probably) 28 days notice.

You will have none of the usual employee protections.

That's why the money being offered is so good.

That termination doesn't seem that much different from most other jobs, isn't it often a month or so notice period ?

Jawgap

Jelle1880 wrote: »

From around 25k to 33k, so it's definitely worth thinking about.



That termination doesn't seem that much different from most other jobs, isn't it often a month or so notice period ?

Except you don't have to show cause when finishing a contractor.

It may be a great opportunity depending on your family circumstances etc and like everything there advantages and disadvantages. I spent three years working freelance and it was great having the independence.

Jelle1880

It's not necessarily freelance, it's still in the office from 9-5.30 and all that

What worries me most is that they mentioned (as if it's the most normal thing in the world) that I wouldn't pay taxes for the first year. That sounds amazing but no doubt there is a bad side to it, for example a massive tax bill after that year ?

I also read (but this may be outdated) that the tax rate is substantially lower too as an independent contractor ?

gerard2210

What line of business is it? Will you be entitled to holidays? Will you be responsible for getting a replacement if you go sick or take holidays?

Jelle1880

gerard2210 wrote: »

What line of business is it? Will you be entitled to holidays? Will you be responsible for getting a replacement if you go sick or take holidays?

It's IT.

The contract doesn't mention any of those things it seems (just that it's in accordance with Irish law, but who knows what that means...), doesn't sound too good to be fair...

Sparko

You will need to do income tax returns yourself (or engage an accountant) as you won't be a PAYE employee. Just something to consider if you're not familiar with the process already.

Will you be required to invoice them for your services? You may have to be register for VAT and submit VAT returns.

Jelle1880

Sparko wrote: »

You will need to do income tax returns yourself (or engage an accountant) as you won't be a PAYE employee. Just something to consider if you're not familiar with the process already.

Will you be required to invoice them for your services? You may have to be register for VAT and submit VAT returns.

That is mentioned in the contract yes. Every end of the month or something like it.

The first part was why I wasn't too sure about it, I don't really believe that what she says about not paying taxes for the first year is true, more likely you pay all your taxes after that first year ?

Stheno

Tbh the whole thing sounds a bit strange.

Does the contract actually say you will be paid 33k per year?

Most contractors who work as contractors work off a daily rate, get no holiday or sick pay etc.

I'd be wanting a bit more clarity if I were you, if they are giving you a yearly rate, you need to clarify if that is inclusive or exclusive of holidays/bank holidays etc.

How do they say they will pay you? Do they mention a paydate or do you have to invoice?

And that brings up VAT as well.

Stheno

Jelle1880 wrote: »

That is mentioned in the contract yes. Every end of the month or something like it.

The first part was why I wasn't too sure about it, I don't really believe that what she says about not paying taxes for the first year is true, more likely you pay all your taxes after that first year ?

I might sound a bit harsh here, but you need to get in touch with the likes of contracting plus and icon and get some proper advice.

You will pay just as much tax as a regular PAYE employee, as you won't have many expenses you can claim.

Also if you invoice at the end of the month, they make take up to a month to pay those, so that means you'll work two months before you see a paycheck.

Jelle1880

Stheno wrote: »

Tbh the whole thing sounds a bit strange.

Does the contract actually say you will be paid 33k per year?

Most contractors who work as contractors work off a daily rate, get no holiday or sick pay etc.

I'd be wanting a bit more clarity if I were you, if they are giving you a yearly rate, you need to clarify if that is inclusive or exclusive of holidays/bank holidays etc.

How do they say they will pay you? Do they mention a paydate or do you have to invoice?

And that brings up VAT as well.

The paying is actually the clearest.

€128/day, weekend and overtime paid at 150%, invoice (so hours and days worked) has to be turned in at the last Sunday of every month with payment on or before the Friday after.

They said that if we come in on Tuesday it will all be explained so i'm waiting until then (I have other options lined up so that's not the issue), I was just curious since it seemed all very unclear and I have zero experience in this.

edit: Thanks for that, I'll see if I can get in touch with either of those parties.

Stheno

Jelle1880 wrote: »

The paying is actually the clearest.

€128/day, weekend and overtime paid at 150%, invoice (so hours and days worked) has to be turned in at the last Sunday of every month with payment on or before the Friday after.

They said that if we come in on Tuesday it will all be explained so i'm waiting until then (I have other options lined up so that's not the issue), I was just curious since it seemed all very unclear and I have zero experience in this.

Seriously, them explaining it will be them giving you their slant on it, get some advice as I suggested above.

As they are offering a day rate, do you understand that that means you will not be paid for holidays, bank holidays or any sick days that you take?

On the basis of you taking four weeks off, that leaves 232 days per year, so that's actually €29,626 per year.

Out of that you'll most likely have to pay a payroll company to do your invoices etc which is about 100 a month for one of the cheaper companies, so that brings it down closer to €28,426 before any overtime. You'll also get no benefits at all, and depending on how your company that you use to invoice is structured, could end up paying more tax in year two if you are a director and lose your PAYE tax credit

wtlltw

You'll most probably need to get yourself insurance too. Knew a guy who was on contract and thought he was covered under the 'company' until it went pear shaped!!

Stheno

wtlltw wrote: »

You'll most probably need to get yourself insurance too. Knew a guy who was on contract and thought he was covered under the 'company' until it went pear shaped!!

Usually covered by the likes of icon/contracting plus as part of their setup, and included in the fees you pay them.

Jelle1880

Stheno wrote: »

Seriously, them explaining it will be them giving you their slant on it, get some advice as I suggested above.

As they are offering a day rate, do you understand that that means you will not be paid for holidays, bank holidays or any sick days that you take?

On the basis of you taking four weeks off, that leaves 232 days per year, so that's actually €29,626 per year.

Out of that you'll most likely have to pay a payroll company to do your invoices etc which is about 100 a month for one of the cheaper companies, so that brings it down closer to €28,426 before any overtime. You'll also get no benefits at all, and depending on how your company that you use to invoice is structured, could end up paying more tax in year two if you are a director and lose your PAYE tax credit

Way to put me off from joining them

Just kidding, you're probably right. I'll get in touch with Icon, explain the situation and see what they say. But it doesn't sound too good then.

RentDayBlues

Jelle1880 wrote: »

The paying is actually the clearest.

€128/day, weekend and overtime paid at 150%, invoice (so hours and days worked) has to be turned in at the last Sunday of every month with payment on or before the Friday after.

They said that if we come in on Tuesday it will all be explained so i'm waiting until then (I have other options lined up so that's not the issue), I was just curious since it seemed all very unclear and I have zero experience in this.

edit: Thanks for that, I'll see if I can get in touch with either of those parties.

Salary is actually closer to €30k as you work it out as 240 days per year for contracting. As a contactor you will make more money but you won't be paid for holidays, sick leave etc, you only get paid if you work.

You can work as self employed or as a limited company, both have advantages and disadvantages.

There are companies who will help you set up the limited company and help with invoices, tax returns, efficient ways to maximise your post tax profit

Stheno

Jelle1880 wrote: »

Way to put me off from joining them

Just kidding, you're probably right. I'll get in touch with Icon, explain the situation and see what they say. But it doesn't sound too good then.

What does your contract say about holidays and bank holidays?

Jelle1880

Stheno wrote: »

What does your contract say about holidays and bank holidays?

Nothing at all.

Stheno

Jelle1880 wrote: »

Nothing at all.

Then I'd be taking it that you are not going to get paid holidays or bank holidays, so that 29,600 figure I quoted is much much closer to your gross if you don't work bank holidays and take four weeks holidays.

If it's a daily rate, then it's not really the 33k figure they're giving out, either, as they can turn around in a few weeks/months and say "oh, we only need you 2 days a week from here on in", etc. and there's not a whole lot you can do. Make sure it's an agreed annual figure/salary or an agreed minimum payment (where you're guaranteed to be paid for X amount of days regardless of whether you work them or not).

That'd be my biggest concern going in to such an agreement (but that's a very pessimistic viewpoint, of course).

With regards the tax thing, your first year is tax free, yes. But you pay for your first and second years tax in the second year (ie; the first year is free, and the second year is a double-charge). So you don't really get it for 'free'. You just pay at a later date.


Also, do not set up as a limited company. You'll be hung out to dry if it goes pear-shaped, as there's a fee to close a limited company (and a limited company needs a partner, anyway). You'd be a sole trader and you'd need to register with Revenue/CRO as such.

However - the upside to this is that, if you felt inclined to do so, you could go looking to do work for other companies to try and bring in a few more Euro. As a sole trader you effectively are your own boss (although obviously this company will want your priority, etc.).

A lot to think about, but I wouldn't be throwing away good job security for it (assuming you have that already).


The point where you need to register for vat is €37,500, so as it stands, if you were getting 33k, you wouldnt need to register for VAT. You could also do your own invoices and returns. They're a pain in the ass, but not enough of a pain that I'd be in a rush to pay someone else to do them for me.

One thing you'd want to make sure it states in your agreement is that invoices will be submitted on X date of the month, and payment is to be dispensed on X date of the month. Otherwise you can be guaranteed they'll take forever to pay you.


It's an interesting situation OP, and not one to shoot down immediately. Just sit down and work out what security you can get from it (as i said above, as a contractor they can tell you to feck off at any moment, so make sure there's something in there about the duration of the contract, or a guaranteed minimum payment or something like that, otherwise you could find yourself out in the cold fairly swiftly, should the worst case scenario occur).

Also, do a little digging and see who else in your area could benefit from your services and see can you milk it a bit on the side, too. No point in being self-employed if you're only working for one company, and no point in being self employed if you're gonna pay everyone else to do everything for you, and bring your wage back down to an employee wage. If you do that you're sacrificing your employee rights and getting nothing but the hassle of dealing with accountants, etc. in return (which would make it not a very good deal).

Best of luck with it.

Jelle1880

There's a definite end date in the contract though, with mention that it can be extended if both parties agree to it. 11 month contract as it stands.

I'm not the type that would start working freelance or with things on the side, I'm definitely a 9 to 5 type of person who is happy enough to work in a normal job with good colleagues, but not much more. It seems a lot of work in my opinion just to ensure I take a decent amount home every month. Where as I have other options lined up which are just standard employee contracts, which is kind of why I posted in the first place: To see if there are downright benefits to it.

From what I gather here it doesn't seem like something I can see myself doing, especially the taxes thing makes me a bit worried. I'll think it over but I'm pretty sure I've already made up my mind. Thanks for the info

Mrs OBumble

From 25 to 33k is not nearly enough of an increase to justify this change.

OP, as a very rough rule of thumb, you need to get twice hour hourly-rate equivalent to make it worthwhile, once you factor in that you need to cover your own leave, sickness, training, public holidays etc, as well as build up a buffer of cash to cover you if there are down periods between contracts.

So if your current salary is 25k, that's roughly an hourly rate of 25000/2000 = 12.50. So your contracting rate should be twice that, ie 25 per hour = 200 per day, to end up with the same level you are on now.

This is a very rough rule, of course, but I think it is a good general guideline.

Berserker

Mrs OBumble wrote: »

From 25 to 33k is not nearly enough of an increase to justify this change.

Agree with everything that Mrs OBumble says but I want to focus on the salary. €33K for a contract role, is very, very low. IT contractors are paid on a daily rate basis, normally. Have you dealt with this company before? What area within IT are you working in, if you don't mind me asking?

Jelle1880

Well I said IT, but it's very much an office job. It's just at an IT company.

It's not customer support, but it's to do with quality assurance etc.

newacc2015

Don't forget you will be liable for PRSI as self employed ( imagine their main reason for using "contracting" instead of employment as it handy way to avoid around 11% employers PRSI). You will have less PRSI benefits than a regular employee ie if that company goes under in 2 years. You won't get redundancy

Also revenue are aware of this tax avoidance. There is talk of them clamping down on it. You are basically an employee in everything other than name. You are there 9-5 and they are your main employment.

Personally I wouldnt rule it out. But I would want a better wage than that. Since your losing holiday pay at 8% and you will probably be paying more PRSI than a typical PAYE employee.

relax carry on

From the sounds of it you are basically an employee of the company without any of the protections or perks of being an employee. Companies and employees can't just to decide to cast the employer/employee relationship aside and adopt a principal/contractor role.
You may wish to read the below.

http://www.revenue.ie/en/tax/it/leaflets/code-of-practice-on-employment-status.pdf

lovelystuff

Just thought I'd throw my experience in here, I'm a contractor and have been for the last few years. I would absolutely NOT recommend becoming a contractor if there are full time positions available instead. The only reason I'm still a contractor is that I Have been unable to get a salaried job so far, my industry is not really hiring at the minute. As others have said, there's no sick pay, holiday pay, maternity leave (outside of state maternity) or any perks at all really. Keep in mind also that depending on where you work, it may be closed for 2 full weeks over Christmas meaning you only get 2 weeks worth of wages in Jan.

If you really want to go ahead,then I would recommend contracting plus,they're excellent to deal with and quick to sort things out. If I had an out i would definitely take it, and I'm on a much higher daily rate than you, so weigh it up carefully.

Jelle1880

Thanks lovelystuff and all the rest, I made up my mind and will take one of the other positions available to me