How to work out if you're better off as a contractor or a perm
Tuesday, 20 April 2004
A $70,000 salary equates to approximately $36.50 per hour (based on an average working year of 1,920 hours). Should someone take a $50.00 per hour contract and quit their job?
The simple answer isn’t quite as simple as one might expect. A simple ‘yes’ leads to all sorts of problems, issues and personal soul searching. ‘Yes’ means that you have made a decision to make a fundamental change in how you look at your employment and what you expect to achieve out of your work over the next few years. Whilst the search for more money can often be highly lucrative for many professional people, one must be readily aware of the consequences of such a decision.
Talk to hundreds of professional contractors around the world and they’ll tell you that contracting is fantastic. They will use words like “freedom”, “fulfilling”, “lucrative”, “flexible” and “rewarding”. They’ll tell you that ‘being your own boss’ is as exciting as it is rewarding. They’ll tell you that being in charge of your own destiny is ultimately one of the most refreshing and fulfilling career decision they have ever made. And it certainly can be all of those for many people.
Like everything however, there are serious risks to consider. Such as not being in a lucrative employment field or industry. You don’t necessarily get to ‘pick and choose’ your next assignment and next client. You may not have a choice on rate – the only choice may be whether you wish to take the job or not. You’re also only as good as your last assignment in many people’s eyes – particularly recruitment companies and HR managers. Let’s look at some of the obvious comparisons;
Deductions
Obviously deductions are part and parcel of essentially being self employed. Like any organization, employee deductions are now part of your costs. Try to include them into your rate as much as practical.
Unpaid overtime vs being a Permanent employee
A bit of a myth in the current economic climate I’m afraid to say. Very, very few employers these days pay overtime to their permanent employees, preferring everyone to adopt a ‘whatever it takes to do the job’ approach in their roles. Obvious exceptions include lower-paid industries, operations staff and on-call allowances for support personnel. Often, contractors qualify for the same or similar allowances when doing any on-call work for a client.
Unpaid holidays, sick leave and time without work
Obviously, this is a risk that you choose to undertake when you make a decision to embark on a contracting career. You need to be happy that, under normal circumstances, your rate covers any expected leave plus ensure that you do not generally require a lot of time off work due to illness or inability to work. Talk to your insurance advisor regarding insurance cover for long absences from work as a contractor, although don’t be too surprised when you get quoted a rather large premium.
Paid Training
With the general slide in the global economy of late, very few organizations are spending any additional money on training of their own staff. As a general rule, when money is tight, organizations tend to cut back on spending in a number of areas – training, existing staff, recruitment costs and new employment programs (including graduate intakes).
So, which one is better off?
The decision really is up to you. No one person can convince you either way. It is a decision you need to make based on a number of important criteria.
What do you want out of your job in the next few years? Stability (which is certainly not guaranteed in these times of economic uncertainty), more disposable income from a higher rate, flexibility to work whenever and wherever you wish and the excitement of being in charge of your own destiny. Sounds exciting, doesn’t it? But you may well be the type of person who is good at what they do and likes the stability and consistency of a permanent salary and good growth prospects.
Firstly, you need to make a clear decision on what type of employment environment you prefer to work in and be sure that you strike the right balance between being a ‘free agent’ and the risks associated with it. Although, with all of life’s uncertainties, nothing is guaranteed these days anyway, so keep all of your options open.
Lorne Lee is Director of Business Services for ITG a Contractor Management organization, specializing in facilitation and management of single contractor’s payroll and invoicing, whilst utilizing the ATO employment guidelines to help reduce tax payments and provide increased flexibility from salary packaging. You can contact him on 1300 654 484 or via the ITG website.
Lorne Lee (llee@myitg.com)
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Contract=2xPermieI like to double my permie Hr rate to get my contract rate based on paid holidays (8days sick,4 week AL,12 stat holidays, 1 week training) car parking + Mob ph + expenses + Super + 37.5 hr week which I stick to Contracting have costs of Super/Payroll tax/80:20/Workcover/indemnity insurance BAS/Bus rego/ABN and increased cost of managing tax. Many of the things you can claim as a contractor you can claim as a permie anyway as `work related` if your game enough ;) Jason, 05/16/2004 11:03:47 PM
Annual Hours as a contractorMay I suggest a slightly lower estimate of annual hours than 1920? The average hours worked for our entire customer base has been a fairly consistant 1860 - 1865. In our estimates we use 1840 hours pa to provide some conservatism. Its fairly easy to compare the financial aspects of perm vs contract...and perm isn't all that permanent these days, as Lorne suggests. Simon Mitchell Achieve, Corp. Simon Mitchell, 11/19/2004 05:10:26 PM
Completely balanced and objective opinionYes contractors, the choice is yours, but join us... Nice reverse psychology there Lorne, keep Contractors Exchange, Entity Solutions et al on their toes. Cheers, Vaughan C. Vaughan C., 12/22/2004 07:22:32 AM
uninformed B.S.Truth is there is very little difference between contract and perm these days - esp in Australia where you can't work the system like in the UK Contractors are mostly on 1 month notice Permies don't have job security The pay is about 10-20% difference in my experience. So what. brownie, 11/15/2007 07:58:14 AM
Contractors are mostly on 1 month noticeUmm...no Under the Independant Contractor Legislation, if the contract says you can be sacked with 2 minutes notice, then you can be sacked with 2 minutes notice. Period. ., 11/15/2007 09:52:33 AM
I earn twice as much as a contractor and have similar job securityThree years ago I was earning $110K package as a permanent PM at a high pressure dot com where I was bullied and mobbed. Now I earn $950 a day as a senior IT PM for a Telco on a 12 month contract with a really good manager. They already want to renew (because I'm so good :-)) I reckon there are 225 billable days a year. So now I get a $215K p.a package. Sure there's lots of shit politics, beurocratic processes, stupid senior management, stressful deadlines etc. But it's the same everywhere. At least now I'm not under any illusion that anyone is going to look after me except me. Murray, 02/01/2008 07:04:40 PM
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