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Stay working as a PAYE worker or switch to contractor?

bobertbedford

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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[Deleted User]

https://www.boards.ie/discussion/comment/120450797#Comment_120450797

Have there been many cases where Revenue have pursued companies (typically IT) over having contractors as de facto employees? All Revenue have to do to get an idea of any company having a sizeable number of de facto employee contractors, is to filter through LinkedIn. I have t heard about Revenue doing a big trawl, but I very much stand to be corrected. They are effectively ignoring RTÉ contractors who are essentially long term employees of the broadcaster.

On another note I was informed by a contractor in an umbrella company managed by Fenero that all tax and professional indemnity insurance is managed as part of the deal. But of course if there is other additional income of any kind (dividends, gains eg ) not handled by Fenero or whatever company is used, Form 11 would need to be submitted to Revenue or a tax accountant hired to do that.

Pawwed Rig

Is the €43 per hour including or excluding VAT? Not sure if mentioned already but you will need to register for VAT and do ruturns every 2 months

Jim2007

https://www.boards.ie/discussion/comment/120447141#Comment_120447141

Being a contractor means you have to become more professional about yourself, nobody else will give a toss so long as you show up and do what you're payed to do.

You can approach the decision from a financial point of view in two ways:

Figure out what the costs would be of getting the same terms and benefits as an independent.
Figure out what the costs of having the kind of terms and benefits you'd like to have and convert it to a required hourly or daily rate.

One of the things you'll need to calculate is the billable hours per year. Using the typical accounting year you have 13 periods of 4 weeks or 52 weeks. Allow say: 6 weeks for holidays as you'd like longer holidays, another 2 for public and bank holidays and as you are in IT add another week for training and education. So you have about 43 weeks at 40 hours for a total of 1,720. So your expected revenue would be around 74K.

As an individual, you represent higher risk for insurance companies and pension funds than the kind of group schemes operated by your employer. So even if you don't think your current benefits are not much, you most likely will discover that it is pretty expensive to get the same coverage as you currently have.

From an employers point of view one of the big advantages of having contract staff is that you can swap them out when you need a different skill set at no expense to the company. So your career development is left up to you and as technology changes that can be a bit hit and miss because training and giving exposure to new technology to a contractor is not on anyone's list but yours. You might be lucky and get the exposure you need or you might not, so you need to have your own plan and finance it. So expect to kick in a few Ks on professional development if you want to stay at it long term.

Another thing to consider is the additional administration involved - you are going to have to be a business person. If you have a payroll company, you need to check up on what they are doing and make sure it is correct. If you do it yourself, then you have to chase down invoices, deal with invoicing, vat returns, accountants and so on. Depending on what route you take there will time and money consumed here as well.

Out of a career spanning over three decades I only worked as an employee for about two years, the rest of the time was contracting, consulting, retainers, equity shares and directorships. My gut feeling is that your numbers are borderline. I don't feel you're going to bring in a significant amount of extra cash to make it really worth the hassle. And if as you say all you are looking for is better benefits, then a new job might be a better answer.

[Deleted User]

https://www.boards.ie/discussion/comment/120451991#Comment_120451991

Sage advice. You certainly do need to have well-honed business acumen and a financial head on you to succeed as a contractor and if you don’t it could end up a personal financial sh1tshow, I’ve seen it happen. You have to want to and like managing your tax affairs & investments, you have to be a good life planner, it has to be part of your career beyond the area of your core expertise. To say “my umbrella manager does all that fit me, I don’t need to check up or bother” is to live with one’s head in the sand.

By nature most people do not enjoy reading the fine print of the world of taxation, doing lots of sums on spreadsheets, and lots of admin work on top of their daily job, but this is exactly what a contractor needs to have a head for. Some people are terrific at this and can hack out a lucrative work life as a contractor. I think if you don’t actually sort of enjoy this kind of stuff, don’t go near contracting. If you just want to do your daily job, become a “permanent” employee.

[Deleted User]

In these times of pressure in the IT world I recall some short couple of years ago somebody in a specialised area of that sphere emphatically stating that they would never be out of work. That alpha male type of mindset of being indispensable made me shudder at the time. In areas of IT change can be so rapid that the very job you do today will be done tomorrow by an algorithm & set of instructions, somebody else has created, whilst you were stood still busily applying past skills which may be of limited interest to your next employer.

Being a contractor your skill set is at risk of becoming less relevant unless you put in the hard yards of catching up in areas where your employment is not giving you the opportunities to upskill. When your contractor needs somebody with more updated skills, put you go and the next person with those skills may replace you.

bobertbedford

https://www.boards.ie/discussion/comment/120451657#Comment_120451657

That is something I will need to check, good question

bobertbedford

https://www.boards.ie/discussion/comment/120451991#Comment_120451991

Thank you for your very helpful insight - a lot of things to consider here and I'm beginning to think that overall I am probably better off sticking to working as a PAYE worker. I didn't realise there was so much in switching to a contractor, it seems like an awful lot of hassle. I just assumed (naively) that I could pay an accountant and they would take care of what needs to be done with regards to taxation/filing accounts. And obviously I'd need to take care of all the other elements/benefits. Taxation/accounting is like a foreign language to me unfortunately. I do think you have a great point that maybe I just need to get a better paying job. I possibly could earn another 10 to 15K in other companies. I do really enjoy the work I'm doing in my current job which is why I am hesitant to leave it and I thought contracting was the perfect solution.

bobertbedford

https://www.boards.ie/discussion/comment/120453266#Comment_120453266

Yep great advice I agree. I absolutely do not have a financial head on me so I'm beginning to think that perhaps I'm not the best fit for a contractor. Plus reading the figures from various posters makes me think I am really not gaining much financially in the end, and I'd be gaining a lot of extra hassle in the process...

bobertbedford

https://www.boards.ie/discussion/comment/120453363#Comment_120453363

Very true and wise words. I was only recently chatting to a colleague and we both laughed at how AI technology will probably easily replace what we do very soon. We won't be laughing if and when it does!

Zimmerframe

In a nutshell, imho if you are doing 40 hours now and it remains 40 hours as a contractor, then €43 per hour is not enough.

[Deleted User]

https://www.boards.ie/discussion/comment/120453416#Comment_120453416

Without a doubt permanent employment is the way to go for you. From a good many people I’ve known over the years who’ve been full-time employed versus contracting, accounting/planning has been a an area of almost special devotion in those who have been able to live the life of mortgage, running a decent car, raising a family, enjoying the holidays and playing golf or whatever hobby you might pursue.

I’ve seen one or two contractors find themselves way out of their depth because that sort of planning is just not part of their skill set, they have no interest in it and have relied on pure “it’ll be grand” optimism in a cut throat world. It will never be grand when you have to juggle those balls with one hand tied behind your back.

bobertbedford

https://www.boards.ie/discussion/comment/120453467#Comment_120453467

I think you're right, it does seem like I'm better suited to to PAYE working. I guess I've known nothing else either for the past 25 years - it would be a massive change, and I think I'd be overwhelmed very quickly by all the admin and financial planning. Appreciate all the feedback as it has been a real eye-opener.

[Deleted User]

https://www.boards.ie/discussion/comment/120453378#Comment_120453378

No harm to ask for peace of mind, but I’ve never seen a company reference deductible VAT when quoting work as the relevant price. If they reference VAT it will be X excl. VAT, but this is normally just assumed.

Retail businesses do/need to quote VAT inclusive when dealing with end users.

NewClareman

https://www.boards.ie/discussion/comment/120453697#Comment_120453697

I think he is right and that becoming a contractor would be a very bad move, for you. If it didn't work out you could find it very difficult to get another permanent job. In the meantime your pension situation could be seriously impacted. It takes an iron level of discipline to set up a personal pension plan and fund it to at least the same level as your current one. The temptation is always there to put it on the long finger.

When I worked in IT I frequently hired contractors. Mostly I hired subject matter experts with a skillset I required for a particular project. Here I was looking for proven experience and depth of knowledge. They were often expensive but were worth it, for short periods of time.

I sometimes hired programmers for longer periods, when we were under resourced for ongoing work. Here I generally hired younger guys (and gals) who were quick to learn and would blend in quickly. (If it didn't work out they were easy to replace.)

Even moving job is a risk in the current climate. You would be first in the queue if your new employer wanted to downsize and you could easily end up unemployed. You would then be competing for a job with former employees of major players, who could have a far greater breath and depth of expertise.

You've now got a lot of very informed feedback that should help with your decision. Whatever you decide I wish you well in your career.

MacDanger

I disagree with most here who are saying that it's a bad idea in and of itself. On a few points:

- income protection, it's easy enough to check whether you can get this rather than worrying that you might not be able to

- if you have a good accountant & financial advisor, you'll be able to get plenty of advice re setting up your pension, etc. It's not rocket science. Cost will be ~2k but obviously that's paid by the company so it's pre-tax

- VHI again is paid for by the company pre-tax rather than from your salary

- mortgage isn't an issue since you already have one so no need to worry there. If you were applying for one though, you'd need three years worth of accounts.

IMO, it ultimately comes down to your particular role, company & industry. I work for a multinational company as a contractor but am essentially treated the same as an employee, have moved teams several times over the years, etc. Not all companies/industries treat contractors like that however.

If the squeeze comes, typically it's the contractors that go first but that's not always the case (contractors may not be part of "headcount" which is often what needs to be cut) but if the squeeze really comes, staff will be cut also - the 10 years service you have in this situation is worth a lot but only you can assess the likelihood of that situation arising (changing companies for more money also means losing this)

I think it's an opportunity that's worth exploring more than just asking advice on boards. Either way, good luck with it.

NewClareman

https://www.boards.ie/discussion/comment/120454373#Comment_120454373

We know the Industry is IT and that the op is in their late 40's. Unless he a skillset that is in strong demand the op could find it very difficult to get another permanent job if the contractor route doesn't work out. (Whether we like it or not, and I don't, companies prefer to hire younger staff.)

The squeeze has already started and is likely to spread further across the IT industry. Most contractors will be directly in the firing line, when that happens. If I were the op I'd be checking the permanent job market, before moving to a contractor role. Recruitment agencies looking for experienced staff, with his/her skillset and experience would be a good place to start. If it is clear that there are multiple opportunities, at a substantial premium to his current salary, contracting might be worth considering.

Just asking for advice on boards is a very good place for the op to start. Unless the op has access to an experienced career advisor, most other sources have an ax to grind. Umbrella companies for contractors will obviously push the contractor route since that is their livelihood. Similarly accountants and financial advisors. Managers in his current company may have pressures of their own that he has no visibility of.

Mrs OBumble

My very rough rule of thumb:

Your hourly rate as a wage worker is your annual salary divided by 2000.

If you're contracting, to cover all the additional expenses you have, then your hourly rate (ex VAT) needs to be twice your hourly rate as a permie. Otherwise it's just not worth the risk.

And I totally agree with the last poster, at the OPs age and in the current climate, anyone would be mad to give up a permanent job.

triggermortis

I worked as a contractor for many years and it worked well for me. I set up a limited company and paid myself a wage from that, and paid myself expenses for travel, tools, training etc from the company account. A decent accountant can advise how to maximise the expense side, which is tax free, and also ensure you pay as little corporation tax as possible.

You have to take into account that when you take holiday or are sick, there's no income, but the extra hourly rate will mean more money coming in the rest of the time

Jim2007

https://www.boards.ie/discussion/comment/120453697#Comment_120453697

It addition to the financial stuff we have already discussed there is the need to drum up business as well. Even if you are working through agents, it's important you work on the relationship with them, because when your current gig finishes it will be important that they put you top of their list of candidates for the open slots on their books otherwise you could have a couple of months with no income.

Back to the finances, it's important to understand that the way agencies work is that their objective is to put as much money as possible into your hands, that means things like pensions and insurances are done at the required legal limit to keep the deductions low and as a long term freelance that usually is not what you want. Some of the better ones, at least in mainland Europe, have a couple of offerings depending on what you want.

Good luck with your decision.

bobertbedford

https://www.boards.ie/discussion/comment/120454047#Comment_120454047

Thanks for your feedback. Good to hear from someone who is in the hiring field too. If I did switch to a contractor role, it would be with the same company I'm with now as a PAYE worker. Absolutely, the feedback I've received has been fantastic. Great to hear the different insights.

bobertbedford

https://www.boards.ie/discussion/comment/120454373#Comment_120454373

Thanks, it's very interesting to hear all sides of the coin. My situation is similar to yours in that contractors are treated pretty much the same as the PAYE workers doing the same job. And some of our contractors are more valued than some of the permanent workers, they're just better at the job and have a higher skillset. Also, if the multinational client we work for pulls out, we will all be let go.. contractors and PAYE workers.

bobertbedford

https://www.boards.ie/discussion/comment/120454606#Comment_120454606

Some really good points, thank you. It's been really super helpful all the advice I've received on here!

bobertbedford

https://www.boards.ie/discussion/comment/120454877#Comment_120454877

The one thing to note I guess is that I would staying with the same company, they have a mix of PAYE workers and contractors. Some contractors are working there 17 or 18 years (and not working with any other agencies). They are very highly valued by the company, more so than some of the permanent workers to be honest. Thanks again for your advice :)

NewClareman

https://www.boards.ie/discussion/comment/120456167#Comment_120456167

I was the hiring manager, rather than working for a recruitment agency. Over the years I was in the position of letting staff go, multiple times. It was rare that contractors, no matter their expertise, were not first in the firing line. Even when they weren't, they quickly moved to the front.

I understand that you would be working for the same company with them having the same client. Think of the situation where the multinational is downsizing, or changing focus. Unless your skillset is unique, or very high up the value chain, you would be in the firing line.

Again, I wish you well with your decision and hope you make the best one for you. One thing I've learned over the years is how susceptible we all are to confirmation bias. The short article I've linked to might hel you with your decision making.

Good luck!