Last Updated on March 19, 2024 by Arurhose
What Is Contracting, And How Does It Differ From Perm Jobs
Contracting and perm jobs have many similarities; a key difference is your take home (Net) vs what you make (Gross).
There are two main types of contracting jobs: fixed-term contracts and periodic (standard). A periodic contract is an ongoing position renewed every three to six months, for example.
Fixed-term contracts operate as if you’re a perm-employee. Meaning you’ll benefit from holidays, your salary will match your permanent employee colleagues; you also benefit from good notice periods. In summary, you are a ‘permanent’ employee for a set amount of time.
A ‘standard’ (short-period) contract is employment where you have high amounts of money with few benefits. Such lack of benefits includes a paid holiday and a short notice period (i.e: one or two weeks). In addition, depending on perspective, there are no performance reviews, career development training, etc. You need a specific mindset. Consider yourself a Navy SEAL with a particular job: get it done, get paid, and get redeployed. In short, periodic contracts have high expectations of hitting the ground running or just flying. After all, why even touch the soil?
You might be asking yourself: “Why contract? What are the benefits?” You might also be thinking about holidays and job security. Let’s look at some of the main reasons people choose to contract.
Unique, Key Contract Employment Advantages
It’s not about how much you make but about how much you take home. I mention this again because it’s essential. Contracting is a great way to build experience; moving jobs increases your career trajectory in a short amount of time.
Contract employment is a fantastic way to achieve your financial goals quickly. The potential to earn vast amounts of money fast can reduce a twelve-year goal to a seven or an eight, with immense strides towards your pensions, stocks, side businesses or any Financial Independence target set.
Expensing work-related costs if you have a limited liability company (LLC, depending on your contract). All employment has fixed related costs, transport to work, meals, clothes, travel, tools etc. Employees must cover these costs with their net salary (take-home pay). Contracting through your LTD, can absorb unavoidable work costs as tax-deductible, increasing your take home. There are scenarios where contractors make less gross but take home more net if done right.
Unique Contractor Employment Skills And Thing Consider
Setting up an LLC if your employer supports such a structure. An LLC allows you to take advantage of your expenses, focusing on unavoidable costs to perform your work. These costs could include accommodation, flights, telephone bills and car-related costs, i.e., petrol – school run and going to work in the same car.
Mindset and Confidence: you need a good amount of Confidence. Most permanent employees do not favour or have high empathy towards contractors, so don’t take things personally. The expectation is to hit the ground running; you need to know your stuff and research the essential things about your role or product in the first two weeks, and if you need to know, take ownership to get back to people with solutions.
Unsentimental, there is no spoon (security) short but to the point. A short-term contract can end at any time, and a permanent position can, too (with a more extended notice period); true job security is not in having a job but in the financial compensation it provides. I’ll conclude with this point at the end of the post. In essence, avoid getting too attached to any job, and always keep your employment search going (even when in a role).
Communication and presentation: you have to dress right and smell right. Learn to dress up, well-groomed, and tweak yourself to fit your new environment. When it comes to presentation and communication, beware, a lot is non-verbal. Effective communication starts with great listening, observing and questioning – perceive your new environment, working methods and potential allies; a good rule is to listen more, say less, and present well.
A Notable True Story
I have a friend (Sam, not his real name), one of my best friends. Before we got married and had children, we lived together in a posh part of central London. Sam worked full-time, and I contracted, and Sam would regularly ask me about job security in contracting. I had a couple of responses – contracting is like riding a motorcycle or bike; cars and bikes get you to where you want to be, but bikes are about a state of mind. Bikers are aware of the benefits of vehicles.
Conversations would continue, but my primary response was this: I would start telling Sam to imagine he could make 10 pounds a month, with only 12 months a year; the maximum possible to make is 120 pounds (to sustain himself). At this point, he agrees, Sam has a science background, routed in mathematics. Then I say, Sam, imagine making 17 or 18 pounds a month instead; in seven months, approximately the same amount would be made – 120 pounds. I would ask him what he wanted to do for the remaining five to six months of the year, starting earning next year’s money now or whatever he desires.
I concluded by mentioning Sam’s job security was making the money he needed to sustain himself each year (120 pounds), not working each month. If that goal (120 pounds) is achieved in 7 months, he has attained security.
Sam has been contracting for years now, non-stop.