It can be a difficult choice to make, especially if you are starting to make your way in the world of work or are looking for a different working arrangement that will suit you.
Being realistic, you work to earn money so that you can provide all the basics such as shelter, warmth and food that you need to live life day to day. You may prefer the security of being an employee, of working for someone else – though employment is not necessarily as secure as it once was – or you may want to be entrepreneurial and set up as a freelance contractor. There are upsides and downsides to this approach, and in the end you will have to decide what works best for you.
What is a contractor?
It may surprise you to know that contractors, who supply materials and services to other businesses, span a huge range of disciplines. It’s common to think of the construction industry as a major source of contracting, because the big companies will always need plumbers, bricklayers, carpenters, electricians, architects, cost consultants and more for projects. They take them on when they have a project rather than keeping specialists in house and having to pay them when there is no work.
But contractors also include website designers, IT set-up and maintenance, marketing, bookkeeping and other financial requirements, design services and copywriters and editors. Only the largest businesses can keep everything in house and even then they may find it more cost effective to outsource functions.
Benefits of being a contractor
There is a degree of security being an employee, such as only paying the employee portion of Medicare and FICA whereas a freelancer pays a higher self-employment tax. But on the upside there are many business expenses that can be written off, provided they are reasonable and necessary.
If you run a successful contracting operation, then you gain the financial benefits rather than having an employee’s salary and a potential bonus if things go well. You also have control so you can decide what you want to do and how, and drive forward growth.
Managing your business
You need to focus on your core strengths as a contractor, providing high-quality services and pursuing new business. It’s why using an umbrella company for aspects such as IR35 advice can make a real difference to the amount of time you have to spend on areas such as legal compliance in relation to tax. You’ll get quality professional advice from an umbrella company and it can also help you to look after not just your own tax affairs but those people you may employ on a casual basis, dealing with tax returns, paying invoices you or your sub-contractors raise, and ensuring that the appropriate employment insurances are in place and kept up to date with changing legislation.
Working freelance is a hard path to take, but if you put your procedures in place early on you can reap very significant rewards as you develop your business.