News & Insights

News and Insights

Contract or Permanent Employment

Contract or Permanent Employment - Wellingtone PPM Recruitment

There is a mature contract market for project management professionals. This makes sense. Projects are by their very nature temporary endeavours so being able to bring in temporary short-term skilled staff to manage projects can fit very well, particularly if that project is outside of the normal day to day activities of the organisation. For example; a manufacturing company wants to implement a new finance system. It has no use for a finance system project manager once the system is installed, so hiring a contractor with significant relevant experience is the best solution.

There are a lot of differences between contract and permanent employment and many people involved in project management may at some stage in their career consider ‘going contracting’. Do you have to be a very senior, experienced person to go contracting? No, you could be a project coordinator with three years of work experience and be a successful contractor. Here are some things to consider before making the jump.

True financial comparison

As a contractor, you accept a greater degree of risk. This is the key deciding factor for most people. Are you willing to take the risk that your contract could come to an end with only one week of notice and no redundancy? Contractors accept this risk for greater financial reward. You should earn more as a contractor than an employee (while working).

However, as an employee, you might receive health insurance, a car allowance, bonuses and maybe even a pension, or be part of a share scheme. You will also receive +20 days paid holiday and eight paid Bank Holidays.

As a contractor, you will not receive any of these additional benefits. Calculate the true value of your current benefits and incorporate this into a direct financial comparison. Assume you will be billable no more than 18 days a month as a contractor. You will (or should) take holiday leave, will be ill at some point, and will not work on Bank Holidays.

It is often suggested that a contractor should have a minimum of three months of income in reserve just in case. What happens if you lose your contract? It could take this long (possibly longer) to secure a new contract role. How will you pay your mortgage or rent in the meantime? The switch to contracting is therefore often triggered by redundancy (so you might have a financial cushion) or by a contracting opportunity that presents itself.

Paperwork

Ideally you would set up a limited company. This is straightforward but you should find an accountant. Some contractors work through an umbrella company; these act as an employer for contractors and effectively take the hassle out of the paperwork, but for a fee.
If you earn more than £81,000 (correct as of 26-Oct-14) then you must be registered for VAT which means charging VAT on your invoices but also claiming back VAT on business expenses. It makes sense to be VAT registered, even below the threshold.

You will also need to have liability insurance and professional indemnity insurance. Look for insurance policies aimed at independent contractors and these should not be too expensive.

Independence or sense of belonging

Employees should feel a sense of belonging. You are part of something and will hopefully see a career path as part of your employment. Your organisation will hopefully invest in further training and will look to develop your skills. Of course, you might not enjoy all these benefits but you will not be on your own.

As a contractor the only person looking out for you is you. You must decide to invest in further professional qualifications. You must take responsibility for developing your career and experience. Set yourself targets, particularly for professional development. You need to make sure your brand stays relevant and competitive.

As a contractor, you are likely to gain experience of different environments and projects quicker. This is an advantage. People who have moved around a great deal and have a CV littered with regular moves would be treated with some caution by any hiring manager. Try to remain in an organisation for a minimum of six months.

Moving back to permanent employment

If you are successful as a contractor and see a financial benefit it is unlikely you will want to move back into a permanent role unless your circumstances or priorities change. A candidate for a permanent position who has been contracting for many years is eyed with some suspicion. Why do they now want a permanent role? Will they leave if offered a lucrative contract role? How will they become a loyal employee?

It is useful to, therefore, put your case forward as part of your covering letter or conversations with a recruiter to explain the reasons why you are looking to move back.