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Stay working as a PAYE worker or switch to contractor?

  • 06-04-2023 10:36am
    #1
    Registered Users Posts: 21


    Would really appreciate any advice on this. I've been a PAYE worker with the same company for over 10 years (working from home all this time). I have the option to work with them (doing the same role) as a contractor. In my company there's a mix of PAYE workers and contractors doing the same job. I decided when I started with the company 10 years ago to become a PAYE worker, but am wondering now would I be better off working with them as a contractor. My current salary is 52K per annum (doing a 40 hour week), this includes: 21 days holidays, pension scheme, income protection and health insurance (health insurance is the lowest premium). They've offered me 43 euros an hour (doing a 40 hour week) as a contractor. And obviously I'd lose all the benefits if I decide to switch to a contractor role. I'm just not sure would I be better off financially if I stick to working as a PAYE worker or should I make the switch to a contractor role? I will make an appointment to see an accountant after the Easter holidays as I haven't a clue when it comes to tax stuff, etc. But I was just wondering if anyone had some advice off the top of their heads, I'd love to hear it.



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Comments

  • Registered Users Posts: 11,992 ✭✭✭✭L'prof


    There’s no way your benefits package comes anywhere close to the extra €37k they’re offering. That’s nearly double your wages. You’d have to sort your own healthcare and pension but would still be up a lot



  • Registered Users Posts: 2,839 ✭✭✭gipi


    As a self-employed contractor, you'll be responsible for your PRSI which will change from class A to class S. Check what benefits you'll be entitled to under the new class (unemployment, illness, pension).

    https://www.citizensinformation.ie/en/social_welfare/irish_social_welfare_system/social_insurance_prsi/social_insurance_classes.html



  • Registered Users Posts: 2,956 ✭✭✭Patrick2010


    I make it an extra 30k, assume its over 48 weeks?



  • Registered Users Posts: 21 bobertbedford


    Yes it would be over 48 weeks, I guess I need to factor in taking roughly 20 days holidays too.



  • Registered Users Posts: 21 bobertbedford


    I will look into this, thank you - very helpful



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  • Registered Users Posts: 18,378 ✭✭✭✭kippy


    Only you can answer this but what are the long term prospects for the company? Is the work you do with them transferable to other companies?

    What are they like to work for generally?


    Only asking this as you won't have any redundancy rights as a contractor. Your security of tenure is pretty much non existent.

    So while you would be financially much better of on the gross income side of things you do need to factor in the type of pension scheme you are leaving, medical insurance, salary protection cover, contracting costs, annual leave, sick leave etc as well as, in your case, ten years service.


    There is a worst case scenario where the company offer this to employees, some employees resign and take them up on the office and a month or two later the company terminate the contracts saving them much redundancy and headaches. Would be poor form but only you would have an idea whether that might happen or in the case of if happening, how easily you got get a permanent or contracting role elsewhere.



  • Registered Users Posts: 21 bobertbedford



    The company (IT based) are doing very well and if things went belly up, I would be able to get another job pretty easily. To be honest one of the reasons I looked into switching to contracting is because their benefits aren't that great compared to other companies. I get the same holidays I did when I started 10 years ago (21 days) and they only recently brought in health insurance. So I don't think I'd be losing a whole pile of benefits.

    But you've raised some very interesting points and I definitely need to give it some thought - thanks a million as these are things I need to hear about!



  • Registered Users Posts: 3,099 ✭✭✭paul71


    It is €27,120 extra not €37,000 or €30,000.


    52 weeks per annum less 4 weeks statutory annual leave less 11 public holidays per annum.

    52-4-2=46

    46*40=1840 hours per annum

    1840 x €43 hours = €79,120

    €79,120 - €52,000 = €27,120


    You will need to file an annual tax return, and pay your taxes on time. You can do that yourself or engage an accountant to do it for you. If you fail to file your annual tax return on time you are subject a surcharge of 10% of Tax payable, that is Tax payable not Tax actually paid. Meaning you may have already paid your tax but if you fail to file on time you will still be hit with a 10% surcharge.

    You will have no entitlement to statutory redundancy and no recourse in the event of dismissal.



  • Registered Users Posts: 21 bobertbedford


    Thank you for this! Very helpful to see the maths, I didn't know where to start to be honest. I will still need to see an accountant but at least I'm not as clueless as I was before!



  • Registered Users Posts: 21 bobertbedford


    Thanks everyone for your replies, appreciate it



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  • Moderators, Business & Finance Moderators Posts: 9,974 Mod ✭✭✭✭Jim2007


    To make it financially worth while over the long term you'd need to be making around 140% of your current salary.



  • Registered Users Posts: 4,037 ✭✭✭afatbollix


    Also know its harder to get mortgages or credit as self employed.


    Also they could let you know with a days notice that they don't need you anymore. Unless you get something put in your contract.

    With PAYE you do have the security of not being told you don't have a job tomorrow they have to do pay you off.

    As a self-employed contractor at the moment, I am saving on Tax as my wife is on maternity leave and were both directors in the company but its not worth it in the long run as we're finding it very hard to get a mortgage or even income protection insurance. If I had a minor injury tomorrow which meant I couldn't work I can't send in my invoice at the end of the month and the bills won't get paid whereas depending on the company they might pay you for a week or 6 months.

    You're giving up a lot of your rights for a bit more cash.



  • Registered Users Posts: 21 bobertbedford



    Thanks - that is all helpful stuff to know. I have a mortgage with about 10 years left on it so that is something I guess. I didn't realise it might be tough getting income protection as a contractor, that is something I'd need to be aware of. I guess I need to weigh up if the extra chunk of money is worth it overall.



  • Registered Users Posts: 1,345 ✭✭✭Squall


    Expanding on the maths.. from a tax perspective you're going to be paying the higher rate on all of your increase given you are already over the standard rate cutoff point for the year. You'll also be subject to the highest rate of USC on some of your earnings which will drop your actual take home increase further. Taking the other posters figures above (assuming you work 46 weeks and bring in 79,120) below is roughly how your tax would compare.

    This is assuming standard credits. You might be entitled to others (like medical insurance relief if you dont get a reduction at source etc). I havent factored in pension here. Any contribution you make would drop your tax amount (but your take home wont go above the below if my calcs are correct). I have also assumed you currently pay BIK on your health insurance policy. As a contractor you would need to get your own health insurance (price will obviously depend on your age, any dependants etc. but you should factor this in as something that reduce the impact of any increase you get! Pretty sure itll run into a couple of grand a year)

    Roughly, you'll take home 14.8K more a year than your currently do. A pretty good increase but worth considering what you are losing and the cost to replace them. A few things below...

    1) Health Insurance as above

    2) Income protection.. you'll need to pay for your own policy here. Especially relevant I think if you go looking for a mortgage as I think this is a requirement

    3) Sick days... if you're sick you'll lose a full days pay. You can claim from DSP but think there's a cap of 110 a day

    4) Pension contributions... If your company currently matches pension contributions you'll lose that. For example, if you company matches up to 5% and you currenly pay 5% into your pension (on your 52 salary) that is an annual contributon of 5,200 per year. You would have to pay all of this in your self if you wanted to keep the same level of pension contributions up

    The last one if obviously job security, as a contractor you can be let go pretty easily with limited notice. As a PAYE employee you would have to be made redundant. Its worth giving it some thought but not something to do lightly




  • Registered Users Posts: 1,433 ✭✭✭NewClareman


    My advice is that you thread carefully. I think that you are underestimating the risks and overestimating the benefits of working as a contractor. I make the difference in gross pay at less than 23k and take home pay of around 10k*. For that:

    1. You lose your sick pay, so if you have an accident or get sick, you are in real trouble.
    2. You can be let go with no notice. IT is currently under pressure, so this is a real possibility - in fact this is probably why your company is recommending the contractor route. (Think about it, why else would the want to suggest a route that costs them more.)
    3. Getting another job if you end up unemployed is not as easy as you think, it can be extremely difficult.

    *(You have to factor in the cost of health insurance, pension and income protection.

    Health Insurance is worth at least €1300 pa and double that if your spouse/partner is also covered.

    The typical employer pension contribution is around 6% - worth, say, 3k pa.

    Now the difference is less than 23k.

    Factor in tax at 40%, PRSI at 4% and USC at 4.5% and the difference in take home pay is closer to 10k.)



  • Registered Users Posts: 21 bobertbedford



    Thank you for putting those figures together! Re my pension scheme, yes I contribute 5% and my employer matches it. Our health insurance scheme is worth 1300 annually, it's the lowest premium, infact it's pretty useless. So I would have to fork out more for a better premium if I go solo. There is definitely a lot to mull over from what looking at your figures.



  • Registered Users Posts: 6,521 ✭✭✭Allinall


    If you're working solely for the one company, then revenue will deem you to be an employee. You and the company could be in a whole world of pain in that situation if you go the self employed route.



  • Registered Users Posts: 21 bobertbedford



    I think you're right, plus if it's only looking like I would be gaining an extra 10K in take home pay, it doesn't look as worthwhile. (On a side-note, my salary normally goes up by 2K a year, so i should be on 54K this time next year).

    One thing to add is that it was myself who asked the company about making the switch. It's a small enough company, under 50 people working there, but the clients are huge multinational ones. It's a mix of contractors and PAYE workers, the multinational clients see us all as vendors/contractors and I know they pay the same rate to my company for each worker. I don't know what that rate is but imagine it's over 100K annually for each worker. I would have thought my company makes more out of the PAYE workers (all roughly on 50K-ish) on its books even factoring in the benefits they take care of?

    I have an existing mortgage (joint mortgage with my PAYE-working partner) so that is one positive, and there's about 10 years left in it. However, I'm in my late 40's and I don't know if it's too much of a risk at my age looking at all these figures! At the same time, many of the contractors working at my company are older than me and don't seem any way fazed.

    Thanks again for all your feedback and insight, I'm definitely not as enthusiastic about the offer as I was a couple of days ago!



  • Registered Users Posts: 2,698 ✭✭✭downtheroad


    Aren't there hundreds if not thousands, particularly in IT, operating in this way though? Working M-F, 9-5 for the one company, and then under an umbrella company with the likes of Fenero.



  • Posts: 0 [Deleted User]


    I've been contracting for the last 4 years but am now looking to go permanent, despite losing a bit of money on paper, I feel its a lot more secure. If a recession or downturn comes, the contractors are usually the first ones to be shown the door - and with little to no notice.

    Also, from my job hunting the last few weeks, there are a lot less openings than I would have expected. The layoffs from Twitter and Google seem to have saturated the market, and jobs are being snapped up left right and centre. As well as the usual benefits, does your company provide training? If contracting, you have to pa for that yourself.



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  • Registered Users Posts: 21 bobertbedford


    That is interesting hearing another side of it. And yes I agree job security is one of the main things I've been thinking about. It is still a turbulent time in I.T that's for sure. My company doesn't really provide any training, well they don't openly go on about it. But I'd say if I approached them, they probably wouldn't say no. Though our clients are multinational, the company itself is small and the benefits are pretty basic. They only introduced a (very basic) health insurance scheme recently and that only happened as I kept asking them about bringing one in for the past couple of years.



  • Registered Users Posts: 6,521 ✭✭✭Allinall


    There are indeed, and if any of those get audited, they will be in for a very difficult time.

    I have first hand experience of this. Not myself, but have been directly involved in a revenue audit where this was a major issue, and cost both the company and contractor a lot of money and grief.



  • Registered Users Posts: 14,986 ✭✭✭✭Fr Tod Umptious


    There is a company called Contracting Plus that do the tax affairs of contractors.

    I've done IT contracting before and even though it is very attractive there are drawbacks, but it all depends on your own circumstances.

    Contracting Plus have various resources on their site that you can use to calculate your take home pay as a contractor, what you can claim as expenses etc.

    Try them and see how you get on, it will give you a good indication of what you're net pay will be.

    There are other companies out there that do the same but Contracting Plus are the ones I have used over the years.



  • Registered Users Posts: 21 bobertbedford


    I will definitely look into this company - thanks for the recommendation!



  • Posts: 0 [Deleted User]


    Also, from your net extra take home pay, deduct the cost of an accountant to manage your affairs. Could be between 1 to 2k annually for even basic services.

    You’ll also need to get insurance, another 1-2k.

    Even if through a company it’s likely Revenue would deem you an employee, although this is more of an issue for your employer. It could, potentially, put them out of business if caught.



  • Registered Users Posts: 21 bobertbedford




  • Registered Users Posts: 2,582 ✭✭✭newmember2


    I'm self-employed as well with mortgage currently AIP. I didn't encounter any extraordinary difficulty

    Please expand.



  • Posts: 0 [Deleted User]


    “Please expand.”

    Look up Revenue contract ‘for service’ versus ‘of service’ rules. It’s based on case law.

    True self employed versus employee. IF effectively 100% ‘contracting’ to one company you will be deemed an employee despite how you or the company arrange your affairs.



  • Registered Users Posts: 6,521 ✭✭✭Allinall


    Have a read of this.

    If you are deemed an employee, revenue will look to gross up the payments made by the company, and charge PAYE, USC, PRSI and employers PRSI on the grossed up amount.

    Technically there is no extra financial liability on the employee as far as I am aware, but the working relationship would be shot.



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  • Registered Users Posts: 2,698 ✭✭✭downtheroad




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