Contractors enjoy greater autonomy over their work, more freedom in choosing projects, and significantly higher earnings.
However, to make sure you’re fully reaping the benefits of contract work, you need to cover some basics before you start.
Plan your job seeking process
Aside from the ability to do actually do the job, this is the most important skill a contractor can have.
That means you should be formulating a job seeking strategy. You’ll probably end up tweaking your process a lot, especially in the early days, but it’s crucial to have some sort of plan before you begin. Head here to learn some of the most effective methods for job searches.
Work out your rates and requirements
Setting your market rate is vital to optimising your earnings and, in some cases, even landing any contracts at all. Before you set your rate, you need to have an idea of your needs and goals.
How much do you need (and want) to earn? How much should you be charging? Will you only work in certain roles or industries, and will you only work in certain locations? If you expect to realise any of your contracting goals, you need to first understand exactly what they are.
Company and payment structures: umbrella companies vs limited companies
While you might not have to decide for good until you have a contract, it’s still helpful to work out how you’ll be getting paid. This can give you an idea of the kind of taxes you’ll be paying, which you can then factor into your rates.
When you’re just starting out, you may not be as well-versed in all the accounting, insurance, and admin that goes into using your own limited company, especially for international contracts. A solutions provider can free you to focus on contracts and finding work.
PI & PL insurance
Especially if you’re working through your own company, you’ll need insurance for professional indemnity and public liability. Many insurance packets can be costly, but neglecting them will bar you from a lot of contracts, or even land you in some dire financial/legal disasters.
A large number of agencies and umbrella companies cover your insurance costs by taking a small cut from your earnings. As such, you should factor insurance into any considerations about personal companies versus umbrella companies or recruitment agencies.
Register for taxes
If you’re using your own limited company, you’re responsible for both your personal taxes and the company’s taxes. You’ll need to register your company, as well as register for VAT, payroll taxes, and more.
The kind of registration you need to do will depend on your home country, as well as the country in which you’re contracting. Keeping up with all the different kinds of registration that comes with your own company is difficult (but very important). New contractors might be better off avoiding these duties by working through an umbrella company.
Have a plan for your taxes
You’ll need to consider whether you want to attempt your taxes on your own, hire an accountant, or use an umbrella company.
Be aware that this issue can be further complicated if you’re contracting overseas. You may owe something in your home country, and you might end up having to navigate a foreign tax system, to boot. You should know how you’re going to approach your taxes before they become a problem.
Find health insurance
Aside from PI/PL, your own health insurance will also be a necessary consideration. If you’ve been a full-time employee before this, you’re probably used to discounted health coverage.
As a contractor, you’ll need to seek out your own health insurance and, if you’re working internationally, understand the extent of coverage overseas.
Figure out pension
Without an employer making pension contributions, will you make them yourself? Can you use this to minimise your taxable income whilst still getting enough cash to meet your requirements?
Plan out your cash flow
If you’re using your own company, you’ll need to carefully plan how to use your earnings. Will you have enough to set aside for taxes? Pension?
Will you have enough for down time between contracts?
Work out how much you need between contracts
After figuring out your market rate, you should have a good handle on how much money you need. Use this to establish how much money you’ll need to set aside for down time.
Ideally, you’ll have only a few, brief gaps between contracts. However, things don’t always work out like that, so be sure to keep a reserve that can last about six months between contracts.