First Time Contractor: New to Contracting

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Many new or first-time contractors would like to know the advantages and disadvantages of contracting over full-time jobs. They may want to know the impact of becoming a contractor on their financial and career goals. As part of our series, 'Path of Education for New Contractors', this article will highlight some advantages and disadvantages of becoming a contractor.

Umbrella companies can be of great help to contractors who do not want the hassles associated with running a Limited Company. As part of our series 'Path of Education for New Contractors,' we have covered the basics of umbrella companies in an earlier article. In this article, we look at what are the legal obligations of an umbrella company towards contractors.

Advantages of becoming a contractor:

Number of contractors in the UK is increasing steadily and it is not without a reason. Being a contractor has many advantages. Let's look at some of them.

  • Higher income than a permanent job: Contractors are often paid up to two or three times the salary of a full-time employee for a similar role. A national survey has found that top contractors are earning nearly three times the national earnings average of £26,500. In a 2014 survey of contractors, 86% said they were earning more as a contractor than being a full-time employee.
  • Income growth without promotion: Working as a contractor means you can grow your income in the same position without worrying about a promotion or a change in position. For example, if a skilled software programmer decides to become a contractor, she will start earning more without any additional responsibilities. Whereas in a full-time role, she will have to wait till she becomes a system analyst or a project manager to have an uplift in salary.
  • Income not dependent on companys performance: Many companies pay bonuses to employees based on the companys overall performance. So even if you are a top performer and you have met all of your targets, you may get a lower bonus because the overall company has not done well during the financial year. As a contractor, your income is directly related to your own efforts and performance.
  • Lower tax liability than a permanent job: Contractors have lower tax liabilities and have many ways to save taxes. For example, in a full-time job the pay you actually receive is your income minus deductions of national insurance and income taxes. Whereas a contractor can secure many ways of saving taxes legally. For example, if you set up a limited company, you can use your business expenses to reduce your taxable income.
  • Flexibility to choose work: Contractors can choose the type of work they want to do, which may not be possible as a full-time employee. Suppose you are a web designer and work for a creative agency. As a full-timer, you will not have a say on what kind of projects you want to accept, and you will have to take whatever projects are provided by your employer. Being a contractor, you can say no to specific projects, if you do not find them challenging or rewarding, or you think the client is unreasonable. This flexibility can result in greater job satisfaction.
  • Freedom to work with multiple clients: While it is legal to work for several clients, a full-time job may not leave you with the time to pursue additional clients. However, as a contractor, you can work with multiple clients simultaneously, as long as you can fulfil all of your commitments. Note, there are contracts where the client will require you to work on a full-time basis. However, dependent on the role, contractors may work based at their individual premises or their homes and can easily manage to work with multiple clients.
  • Learning and development: When you are in a full-time job, your training and learning are dependent on your employer. Even if you are willing to invest money, you may not get the time to pursue a particular course. However, as a contractor you can take breaks for long intervals to attend courses and classes. Obviously, you will not earn during the training breaks, but by investing in training you should recover the losses over time.
  • Better work/life balance: According to a survey of contractors, 57% said that they had better work/life balance after becoming a contractor. They also said that they could take more holidays and work according to their own flexibility. However, it should be noted that being a contractor does not necessarily mean that you can work as you please or take very long holidays during contract. For example, if you are working at the clients premises, you may have to work according to the company schedule of 8 to 5, as do full-time employees. In addition, unless previously agreed, clients are unlikely to allow a long leave period. The acceptable time period for leave is generally two weeks. It is essential to have your contract particulars agreed before work begins, if you are to have a successful working relationship with your client. Taking breaks between contracts is a good option for contractors who wish to take long breaks for recreation or training purposes.
  • Better recognition and respect: One of the motivations for becoming a contractor is to get recognised as an expert within a particular industry. For example, an IT data engineer working for an IT company will be one of the many similar engineers in the company. Whereas as a contractor, he may be more valued and respected by the client for his technical skills.

Disadvantages of becoming a contractor

While there are many advantages, there could also be some disadvantages and challenges in becoming a contractor. Let us look at some.

  • Finding regular contracts: If you are a full-time employee, you do not have to worry about getting work. Your employer gets the work and you get paid for doing it. Whereas being a contractor, you need to find regular contracts. You also have to keep track of when a particular contract is coming to an end, in order to bid for a new contract without a long waiting period. You may have to spend money on marketing your services or use the services of a recruitment agency.
  • Cost of learning and development: In a full-time role, you may have the companys HR or training department to help you keep your skills updated. However, as a contractor it is your responsibility to identify training needs and find time for learning. This is particularly true for technical fields such as IT, construction, oil and gas, research, and pharmaceuticals. Not only do you have to invest in training, but you will also lose out on income during the training period.
  • Job security: As an employee you have many legal rights for protecting your job, especially if you have spent more than 24 months in an organisation. As per UK laws, the company should have enough reasons to fire an employee, and they have to pay a penalty for unfair dismissals. The exact opposite is true with regards to contractors, as a company can terminate a contractor at any time.
  • Lack of holidays and benefits: As an employee you are entitled to many benefits. These benefits include holidays, maternity/paternity leaves, sick pay, paid career breaks, health and safety protection, workplace pension, group insurance, and allowances. You do not have any of these benefits as a contractor, and all holidays will be unpaid.
  • Management time: In a full-time job, your responsibility is restricted only to your role. If you are an instructional designer, your job will be limited to developing courses, producing educational content, etc. However, if you are a self-employed instructional designer, you will also have to spend time in management of your business. You will be responsible for all activities such as marketing your services, maintaining customer relationships, and business and financial administration. You need to be prepared to spend a significant time towards managing invoices, collections, balance sheet and assets, and managing accounting issues to minimize taxes.
  • Self-motivation: Being a contractor you need to be highly self-motivated particularly for finding new projects. Unlike being a full-time employee, where you may have a manager or a boss pushing you towards meeting some targets or goals, being a contractor requires you to motivate yourself to work. Also, in a full-time role, you have colleagues and peers who can be of help in discussing work-related issues, and you will not feel alone. On the other hand, you are on your own as a contractor. You may have a network of other contractors, but by and large you are responsible for keeping yourself motivated and disciplined.


As you can see, the advantages of becoming a contractor outnumber the disadvantages. Most of the disadvantages are in the early stages, when you are transitioning from a full-time role and when everything is new. However, once you secure some contracts and start building business relationships, contracting can become a lot more exciting and rewarding than full-time jobs.

Our site can be of help in overcoming one of the disadvantages, i.e. time management. We have many tools and resources, which can help you in managing your accounts and invoices. In addition, if you want to use the services of a professional accounting firm, Tempo can take care of all your accounting and management needs at competitive rates.

Contractor Calculators

You may also find the following contractor calculators useful for your salary and tax calculations.

If you are looking for accounting support with your new limited company or if you need support setting up your accounts as a contractor, iCalculator recommends Tempo, a solid, dependable company that the team at iCalculator have known and worked with since 2009.

Self Assessment Guides for Contractors and Freelancers