Changing from Salary to Contract work

This is it

I've always been a salaried employee but recently I've been contacted by numerous recruitment firms with possible contract roles with day rates. I'm looking for information on how being a contractor affects me financially and with regards to benefits, etc.

I assume I'd need to sort my own tax, I'm paid only the days I work and not for holidays or sick days, lose pension contributions and health insurance, anything else? Are tax brakets the same? What kind of expenses can be claimed?

I would obviously need to look into this further but any info here is appreciated.

OMM 0000

This topic comes up a lot here. I would be worth using the search to read various angles on the pros and cons.

D3V!L

Unless theres a great benefit to you financially dont do it.

Keyzer

My advice would be to go see a tax consultant and discuss with them - they will tell you everything you need to know.

I know people doing this in the IT sector and they claim to be making a fortune but I'm not sure they have considered what they lose. Pension contributions are tax free, I'm not sure about health care.

Like I said, go see a tax consultant or speak to someone you know who is doing this.

IAMAMORON

Employers save on Prsi to 10.75% of your wage bill. This adds up nicely if you are receiving a professional wage. No obligation for a pension or other benes either. They usually soften this up by offering at slighty above the wage rate to reel you in.

More importantly though your employee rights are gone. You really are now their bitch, be prepared to be treated like one... They only have to pay you within the terms if your contract. This also means they can dump you as and when they please.

Be prepared to never be in the mix of the company you work for. That means no snazzy share options etc.

Go see an Accoutant.

Cyclepath

Here are a few things to consider:

Does your current employer provide you with life assurance? E.g. the wife and kids get 4x my annual salary if some cnut ploughs through me on my bike. So, factor in the cost of good life assurance.

Does your current employer provide long term illness cover? I'm good for 2/3 of salary for as long as I'm certified with a long term illness. This is quite expensive to buy for yourself.

Does your current employer provide a pension? Mine isn't exactly gold plated but they throw in 4% for free. So you'd need to be thinking about getting a PRSA and factor in the missing chunk an employer would normally give you.

Does you current employer provide optical, dental, health insurance? A decent health insurance plan will cost you €70-€90 per month.

Are you prepared for the accounting overhead? You'll need to keep Income and VAT accounts for the revenue. If that's not your forte, factor in the cost of bookkeeping/accountancy €500-€1000 p/a

Also, once you're out of PRSI cover, if you find yourself unemployed, you aren't automatically entitled to the same jobseeker benefits as a PAYE worker. There is usually means testing etc before you get any amount of benefit paid to you - E.g. if you have a working partner then their earnings are taken into account.

If you're young and single, and health/pension fears aren't looming and the rate is enough to balance out the losses, then it can be a lucrative gig. I contracted in IT for many years before settling into a career path with all the benefits.

On the up side, you can usually work business expenses to your favour - I was able to buy myself the best laptops and audio/video equipment on business leases that worked out tax/VAT free.

hots

I'm considering the same at the moment, conservatively my takehome would be about 40% better, maybe 50% (using online calculator and assuming zero claimed expenses). Strongly considering doing it for a couple of years if I can hack it, have had a couple of offers month I'd say for the past 6 months, with 2 recently that sound like good work in good industries.

I had previously thought I'd never do it but it's tempting.

This is it

Thanks for all the replies, I'll definitely look to speak to a professional.

To answer some questions above, I do get pension contributions and subsided health insurance on a very good plan to which I pay very little. There are the other benefits like job security, which will go a long way when I go looking for a mortgage I'm sure.

Similar to above, I used an online calculator and according to that my take home would increase by about 80%, obviously depending on the actual day rate of the contract. Huge leap if I could get it, but is it worth the headaches involved... I'll need to think on it a lot more.

hots

This is it wrote: »

Thanks for all the replies, I'll definitely look to speak to a professional.

To answer some questions above, I do get pension contributions and subsided health insurance on a very good plan to which I pay very little. There are the other benefits like job security, which will go a long way when I go looking for a mortgage I'm sure.

Similar to above, I used an online calculator and according to that my take home would increase by about 80%, obviously depending on the actual day rate of the contract. Huge leap if I could get it, but is it worth the headaches involved... I'll need to think on it a lot more.

At 80% it's a no brainer nearly, that's mad stuff. On the mortgage front, generally I was told 2 years of contracting work will be enough for them to base an application on (in comparison to 6 months of salary).

IAMAMORON

80% difference does not sound right at all?

What do you do ?

hots

IAMAMORON wrote: »

80% difference does not sound right at all?

What do you do ?

In fairness it might not be miles off, if you're already underpaid. In my field I can think of people slightly more junior to me that could pull similar contracting offers, it would be close to that

This is it

Doing the exact math, it's 74% based on a recent recruitment mail I got but again, it depends on the day rate which I'm sure can hugely vary.

I used the calculator on this site, https://www.iconaccounting.ie/tax-calculator
I've no idea how accurate that is, again, I'll talk to a professional, this is really just to grasp the pros and cons

IAMAMORON

This is it wrote: »

Doing the exact math, it's 74% based on a recent recruitment mail I got but again, it depends on the day rate which I'm sure can hugely vary.

I used the calculator on this site, https://www.iconaccounting.ie/tax-calculator
I've no idea how accurate that is, again, I'll talk to a professional, this is really just to grasp the pros and cons

Are you including income tax ?

If yes,then a 74% increase in take home is a no brainer. Enough said.

The reason i asked what you do is because whatever service your offering will attract VAT. Unless your a doctor.

hots

Actually I've just chucked mine into the calculator again, 61% difference in the takehomes... loads more to consider though, namely being how many days will you actually be employed in a year? I'm being offered 6 month gigs mostly, if it takes you a month gap to find the next one you have to cover the gap. Add in some extra insurance, missed perks, advisory fees, startup costs, laptop (?) etc.... there's a few sums that need to be done.

Mrs OBumble

hots wrote: »

In fairness it might not be miles off, if you're already underpaid. In my field I can think of people slightly more junior to me that could pull similar contracting offers, it would be close to that

Before tax, rule of thumb is that the difference should be 100% to be worthwhile for you, by the time your consider holidays, training etc.

ongarboy

OP are you factoring in all the paid annual leave holidays (up to 30 days in some multi national companies) and the 10 or so paid bank holidays that full time staff (FTEs) enjoy that you won't get paid for as a daily rate contractor? That's assuming you'll also wish to take days off? I'd divide the take home pay per annum by days actually worked pa as an FTE vs your projected take home pay as a contractor per annum. The latter cannot include days you will not be working. I'd be interested in to see if it's still 80% higher?

Phileas Frog

hots wrote: »

At 80% it's a no brainer nearly, that's mad stuff. On the mortgage front, generally I was told 2 years of contracting work will be enough for them to base an application on (in comparison to 6 months of salary).

I got a single application mortgage after 1 year contracting. It was based on the average of the past 3 years P60s mind.

This is it

ongarboy wrote: »

OP are you factoring in all the paid annual leave holidays (up to 30 days in some multi national companies) and the 10 or so paid bank holidays that full time staff (FTEs) enjoy that you won't get paid for as a daily rate contractor? That's assuming you'll also wish to take days off? I'd divide the take home pay per annum by days actually worked pa as an FTE vs your projected take home pay as a contractor per annum. The latter cannot include days you will not be working. I'd be interested in to see if it's still 80% higher?

Definitely something to consider. I calculated it based on 20 working days per month.

52 x 2 for weekends is 104, from 365 I've 261 left for work and holidays leaving 21 days for holidays when I take the 240 working days. I currently get 25 + bank holidays so there is a shortfall. @19 working days per month, going by that calculator I posted above, I'd still be in and around 70% better off, excluding expenses like pension contributions, health insurance, etc.

All these financial calculations are based on a few recruitment agencies and what they've come to me with, whether I'd get the rate or not is another question which I need to look into more too.

All calculations are after tax also, again, going by that tax calculator, of which I've no real idea of how accurate it is.

ongarboy

Taxsaver annual commuting ticket is another consideration if you previously availef of one which you won't get if you commute via public transport as a contractor

colm_c

You should also look at the rates for other permanent jobs, it's a fact that a lot of people are under paid until they move companies.

Compare that and the contracting rate.

Realistically you should calculate your rate as 185 days per year, to consider holidays, bank holidays, sick days, gaps between contracts etc. You may end up working more days, but it needs to be worth it for 185 days.

Phileas Frog

colm_c wrote: »

You should also look at the rates for other permanent jobs, it's a fact that a lot of people are under paid until they move companies.

Compare that and the contracting rate.

Realistically you should calculate your rate as 185 days per year, to consider holidays, bank holidays, sick days, gaps between contracts etc. You may end up working more days, but it needs to be worth it for 185 days.

It's normally 230 days, which includes holidays & bank holidays. Most people don't get paid for being sick anyway, so you're allowing 45 days (9 weeks) for between contracts? You must be unemployable if it's taking you that long to find a new contract.

colm_c

Phileas Frog wrote: »

It's normally 230 days, which includes holidays & bank holidays. Most people don't get paid for being sick anyway, so you're allowing 45 days (9 weeks) for between contracts? You must be unemployable if it's taking you that long to find a new contract.

I'm not a contractor, I'm only going on what friends who are contractors tell me.

I'm not saying you will only do 185 days, but as the minimum number of days you'll be working. So if you only did 185, could you survive?

They also just don't jump into the next contract, they pick the contracts they are interested in and they will take time out for attending training, conferences etc. To keep up with the latest trends.

If you are contracting remember

1. Never get sick or need doctor/hospital days
2. Never play sport; see above
3. Calculate the remuneration package, in totality, that you are currently earning. This includes, sick days (paid), pension, bonus, stock options etc etc.
4. Make sure that the new offer, on contract, covers all of this.
5. Add 20-25% to cover the fact that you are now their bitch and have no rights outside the contract.
6. Do Not Get Sick!!!

IAMAMORON

IAMAMORON wrote: »

80% difference does not sound right at all?

What do you do ?

I got offered a 70% jump, after tax, recently enough TBH

ongarboy

In our company, many contractors are put on furlough periods where contractors are not required to work/come in as per the employer's discretion and will not be paid during low activity times, the weeks in advance of Christmas and around year end and other IT moratoriums. A few of my colleagues who were daily rate contractors felt the pinch particularly around Christmas time with this. This appears to be a US company condition but I suspect other companies based here would have similar? Just something to bear in mind if you get a 12 month contract...it does not always equate to 12 months of work that an FTE would work and be compensated for. You may be savvy enough to be able to do your own taxes, particularly as the Revenue online services have become more user friendly but most daily raters I know avail of accountants to do their taxes which can amount to €100 or more per month for this type of fee.

The consensus I heard is that it is still more lucrative to work daily rate as a contractor but just keep an eye on all not so immediately obvious charges/deductions. Of course, money isn't everything either....some people prefer the comfort and convenience of being a PAYE FTE and will take lower salaries for that reason.

ongarboy

ongarboy wrote: »

In our company, many contractors are put on furlough periods where contractors are not required to work/come in as per the employer's discretion and will not be paid during low activity times, the weeks in advance of Christmas and around year end and other IT moratoriums. A few of my colleagues who were daily rate contractors felt the pinch particularly around Christmas time with this. This appears to be a US company condition but I suspect other companies based here would have similar? Just something to bear in mind if you get a 12 month contract...it does not always equate to 12 months of work that an FTE would work and be compensated for. You may be savvy enough to be able to do your own taxes, particularly as the Revenue online services have become more user friendly but most daily raters I know avail of accountants to do their taxes which can amount to €100 or more per month for this type of fee.

The consensus I heard is that it is still more lucrative to work daily rate as a contractor but just keep an eye on all not so immediately obvious charges/deductions. Of course, money isn't everything either....some people prefer the comfort and convenience of being a PAYE FTE and will take lower salaries for that reason.

I left a position because of this randomly appearing as a condition last year.

sportsfan90

A former colleague of mine left his permanent job to go contracting, he said he had a significant increase in money even after paying an accountant etc. Within a month or two of starting contracting, he got sick and had to take several months off work. He was of course replaced in that time and had no job to go back to when he recovered.

But that's obviously an extreme example of the potential risks if something goes wrong and very few will be as unlucky as he was.

Phileas Frog

ongarboy wrote: »

most daily raters I know avail of accountants to do their taxes which can amount to €100 or more per month for this type of fee.

Which is tax deductible

jester77

Don't forget to consider all the training, up-skilling, attending conferences, equipment, etc will be out of your own pocket and you will not get paid for the days that you are doing this. It adds up to a lot every year.

hots

jester77 wrote: »

Don't forget to consider all the training, up-skilling, attending conferences, equipment, etc will be out of your own pocket and you will not get paid for the days that you are doing this. It adds up to a lot every year.

On the flipside, don't over estimate this... I'm in an industry where that is all advertised as part of the job but I've had approx 500/600 worth of exams paid for in the last 2 years, nothing else.

Fr Tod Umptious

OP are you in the IT industry ?

If so then contracting is very appealing, especially if you are young and have no spouse or kids.

I did it for years and might go back to it once my kids get a little older.

I have always considered that a contracting year is at most 46 weeks.
That's when you take into account 9 bank holidays and the other days leave you take yourself.

So make your calculations based on that.

There are a good number of tax breaks available, like travel if a contract is 3 months or less, equipment, training, putting money in a pension etc.

When I was contracting I used a specialist accounting company, Contracting Plus, to do all my accounts, they set you up as a director of an umbrella company which is better than setting up as a sole trader for tax purposes.
They cost a bit but it's tax deductible and makes things a lot easier.


I'd certainly give it a look.

This is it

Fr Tod Umptious wrote: »

OP are you in the IT industry ?

If so then contracting is very appealing, especially if you are young and have no spouse or kids.

I did it for years and might go back to it once my kids get a little older.

I have always considered that a contracting year is at most 46 weeks.
That's when you take into account 9 bank holidays and the other days leave you take yourself.

So make your calculations based on that.

There are a good number of tax breaks available, like travel if a contract is 3 months or less, equipment, training, putting money in a pension etc.

When I was contracting I used a specialist accounting company, Contracting Plus, to do all my accounts, they set you up as a director of an umbrella company which is better than setting up as a sole trader for tax purposes.
They cost a bit but it's tax deductible and makes things a lot easier.


I'd certainly give it a look.

Yes, it's IT work. I'm not sure what you count as young one issue is mortgage application, I plan on buying in the next 12 months so that would likely have to be pushed back quite a bit. Lots to think about.

Fr Tod Umptious

This is it wrote: »

Yes, it's IT work. I'm not sure what you count as young one issue is mortgage application, I plan on buying in the next 12 months so that would likely have to be pushed back quite a bit. Lots to think about.

Can't help you with the mortgage thing, I got mine back in the middle of the Celtic Tiger while working as a contractor, it was no problem, but obviously times have changed.

But that being said it might not be that difficult, if it was no self-employed or sole trader would ever be able to buy a property.

Another thing to note is whether you go through an agency or contracting company or go completely on your own.

The former is more popular I believe and the only way I have ever contracted, but the latter is more lucrative money wise as there is no middle man.

mrcheez

moved into contracting around 2 years ago. Similar work to before but a lot less stressful and money is great. No office politics. Definitely give it a go.

mrcheez

jester77 wrote: »

Don't forget to consider all the training, up-skilling, attending conferences, equipment, etc will be out of your own pocket and you will not get paid for the days that you are doing this. It adds up to a lot every year.

the whole attending conferences thing is hogwash. I`ve yet to meet a contractor that does this. Equipment is always supplied by client. Training can be done part time in evenings or between contracts.

Phileas Frog

This is it wrote: »

Yes, it's IT work. I'm not sure what you count as young one issue is mortgage application, I plan on buying in the next 12 months so that would likely have to be pushed back quite a bit. Lots to think about.

I got mortgage approval after 12 months contracting, IT also.

mrcheez

Deleted User wrote: »

If you are contracting remember

1. Never get sick or need doctor/hospital days
2. Never play sport; see above
...

This thread is hilarious


If you get sick, most positions will allow you to work remotely these days.

Being permanent doesn't guarantee you a job for life if you are ill. I worked in a place where a guy needed time off for his illness, and when it eventually got to the stage where he was taking off too much time he had to be let go.

.

Fr Tod Umptious

mrcheez wrote: »

the whole attending conferences thing is hogwash. I`ve yet to meet a contractor that does this. Equipment is always supplied by client. Training can be done part time in evenings or between contracts.

Training materials, courses, exams etc are tax deductible also.

mrcheez

Fr Tod Umptious wrote: »

Training materials, courses, exams etc are tax deductible also.

Some places train all team members (regardless of being a contractor or no) together as well. I've received training gratis as part of my current role.

mrcheez

mrcheez wrote: »

This thread is hilarious


If you get sick, most positions will allow you to work remotely these days.

Being permanent doesn't guarantee you a job for life if you are ill. I worked in a place where a guy needed time off for his illness, and when it eventually got to the stage where he was taking off too much time he had to be let go.

.

If you get sick/injured and can not work, you will not get paid.


If you need surgery, you will not get paid.
If you break a leg and cannot attend (and no remote working) you will not get paid.

Your comment (emphasis mine) contains a very important section. Companies also do not need to pay you when sick but Social Welfare plus company top ups often mean that many many professionals will not be out of pocket for short term (up to 6 months) absences.
Try getting that on a day rate.

mrcheez

Deleted User wrote: »

Try getting that on a day rate.

That's where you can purchase Income Protection if you choose?

mrcheez

mrcheez wrote: »

That's where you can purchase Income Protection if you choose?

Very true (and I should have put it in for longer absences) but that does not help if you have the flu and are out for a week or so.
Or have to attend a doctor etc.
Any day you are off you will not get paid for and you need to be aware of this. Many new to contracting are not aware of this.

It's something that people do not take into consideration, especially in the lower paid placed contractor market from PFH/Westbourne/Berkley et al. Many of these people are on just slightly more than salaried (if at all) and cannot afford income protection. They are often in roles just to get experience so that they can apply for salaried roles in that area.

mrcheez

Deleted User wrote: »

Very true (and I should have put it in for longer absences) but that does not help if you have the flu and are out for a week or so.
Or have to attend a doctor etc.
Any day you are off you will not get paid for and you need to be aware of this. Many new to contracting are not aware of this.

That's why you get paid the big bucks so that even after taking out a week or so you will still end up with more in your pocket at the end of the year.

As I mentioned before though, in IT it's common to work from home if you are not feeling well enough to come into the office. Certainly if you are completely bed-ridden this does mean a day off, but I have a contracting colleague who frequently works from home as he has work going on in his house.

For most people it's more of an edge-case scenario where you are completely unable to work, and certainly if you have a history of being bed-ridden from the flu then perhaps contracting isn't for you.

It's a gamble certainly. It can pay off handsomely if you are healthy and able to work, but the income protection is there if you feel more cautious.

As a result of contracting I'm going to be able to pay off my mortgage 5 years earlier than if I had been continuing as permanent, so that's evidence enough of the benefits for me personally.

mrcheez

mrcheez wrote: »

That's why you get paid the big bucks so that even after taking out a week or so you will still end up with more in your pocket at the end of the year.

As I mentioned before though, in IT it's common to work from home if you are not feeling well enough to come into the office. Certainly if you are completely bed-ridden this does mean a day off, but I have a contracting colleague who frequently works from home as he has work going on in his house.

For most people it's more of an edge-case scenario where you are completely unable to work, and certainly if you have a history of being bed-ridden from the flu then perhaps contracting isn't for you.

It's a gamble certainly. It can pay off handsomely if you are healthy and able to work, but the income protection is there if you feel more cautious.

As a result of contracting I'm going to be able to pay off my mortgage 5 years earlier than if I had been continuing as permanent, so that's evidence enough of the benefits for me personally.

I've taken advantage of remote working in IT myself but have also contracted into Labs as a technician. If you physically need to be there you need to be there.
I have friends who still contract in that area and they are being paid more than salaried but not the the extent of IT staff. IMHO IT contracting works for many people but in other fields, unless you are an expert consultant, then it is a dangerous place to be (income protection or no)


This is why you should have read further down the list, adding in a significant margin to cover yourself.

mrcheez

Deleted User wrote: »

I've taken advantage of remote working in IT myself but have also contracted into Labs as a technician. If you physically need to be there you need to be there.
I have friends who still contract in that area and they are being paid more than salaried but not the the extent of IT staff. IMHO IT contracting works for many people but in other fields, unless you are an expert consultant, then it is a dangerous place to be (income protection or no)


This is why you should have read further down the list, adding in a significant margin to cover yourself.

The OP was referring to IT contracting afaik, hence that is where I'm coming from in terms of the work style.

mrcheez

mrcheez wrote: »

The OP was referring to IT contracting afaik, hence that is where I'm coming from in terms of the work style.

And that brings us back to contractors in PFH/Westbourne/Berkley/MMcK and the such.
They contract in guys at lower levels and in no way would I recommend that to someone already in a "permanent" salaried role.

It really depends on the level of the contractor. If you are a Network engineer, Senior Sys Admin, Architect, Info Sec, or Dev then yes it is well worth it as the pay far outstrips anything you can get generally.

If you are lower to mid tier and already have a salaried job then jumping 10-15k is not worth the hassle.

If you are going from 60-70k to 100k+? Well then it's very tempting.