Weighing up the benefits and drawbacks of contracting

Contracting is indisputably one of the fastest growing employment arrangements in Australia and around the world. According to the Australian Bureau of Statistics (ABS) in November 2013, Independent contractors accounted for 28% of the Australian workforce.

The fact that so many people are choosing contracting over permanent employment and missing out on basic entitlements, such as paid holiday and sick leave, speaks volumes for the  benefits that a contracting career entails. This article explores the advantages and drawbacks a career as a contractor has to  offer.

Considering most people work to earn a living and not purely for enjoyment sake, an increase in earning potential is viewed  as the main benefit of contracting over permanent employment.

Typically, contractors are paid on an hourly or daily basis and are paid for every hour/day they work, unlike employees who are paid a salary. Contractors doing the same job of a fulltime employee, typically find themselves raking in more money than their permanent counterparts.

Contractors are typically paid higher wages than their employee colleagues for a number of well- deserved reasons. The most obvious reason to support such a difference in wage is the fact that contractors surrender the right to entitlements which employees take for granted, such as sick leave and annual leave, plus employer contributions toward superannuation. It is up to the contractor themselves, to make provisions for time of illness and times when they are not working, such as holidays and down time in between contracts.

Another reason which warrants the difference between remuneration is the flexible nature of the employment arrangement and the fact that many contracts can be relatively short, 3 to 6 months.

The constant exposure to new working environments and positions, see contractors gain more skills than employees who are exposed to less variety in their work. This increased level of skill, which will be discussed further a little later in this article, also attributes to justifying the hefty wage of a contractor.

Even if a permanent employee and a contractor were given the same payment for their work, it is very possible that the contractor will take home more than the employee. This is due to the fact that contractors have options in terms of how their remuneration is arranged and what business structure they operate under. For example, contractors who have  their own Company or paid via a Trust can take advantage of tax deductions, not available to employees. Contractors are also given the opportunity to salary  package their income via their recruitment agency or Contractor Management  Company; benefits usually only reserved for people working in certain industries  such as Health.

Although a major perk, money is not the only benefit gained by contractors. Another advantage of contracting is the freedom that is not available to permanent employees. Independent contractors can control where, when, and how they want to work. Employees need to go to their workplaces to be able to perform their work. Some contractors, on the other hand, have the ability to work remotely over the Internet.

Since contractors work on short-term contracts, they can afford to switch jobs periodically. The contract system opens more opportunities to expand employment prospects and experiences. Working on a new project or for another company offers continued changes and challenges that help contractors grow professionally. Aside from bringing a richer set of experience, this

frequent change of work helps build contractors’ professional network and prevents contractors from getting bored and feeling constrained by a particular job or company. Contracting could be perfect for ambitious Short-term contractsindividuals who get itchy feet after staying at the same place and doing the same job for quite a long time. Moreover, independent contractors can do further work for another client as long as it does not affect their current job.

There are many good reasons why one should consider becoming an independent contractor. However, there are also down sides to this kind of work that need careful consideration as well.

Depending on the duration of a contract, contract work can mean frequent job hunting. The frequent change of job and the constant re-establishment at another company can at times be frustrating for some. Also, a contractor is not always guaranteed immediate work opportunities. In fact, a  contractor must be prepared to be unemployed during slow periods. Getting a new contract before an old one ends is not always the case. It is important that you plan ahead. Advising recruitment agencies that your contract is nearing its completion  four weeks prior to end date, is a good strategy for a contractor to get others to do their job hunting for them.

In contracting, there are times when it might be a necessity to relocate in order to get more work opportunities. Flexibility is a requirement when changing location, since it involves adjustments and necessary changes in lifestyle. Temporary relocation can also have its advantages, such as additional allowances like Living Away From Home Allowance and the opportunity to work interstate or even abroad.

Contract workers are prized for their skills and talents, so keeping their skills constantly updated is very essential if they want to remain competitive. This can consume time and demand substantial effort outside of normal working hours. It is assumed that client companies are less likely to offer further training to contractors since they are expected to possess the skills prior to the awarding of a contract. Although this assumption may ring some truth, many clients are using training and development as a tool to both attract and retain their valuable contractors.

As touched upon earlier, the lack of holiday and sick pay is another disadvantage of contracting. Unlike permanent employees, contractors are not paid when they take time off for holidays or because of sickness. Conversely, the flexibility which comes with contracting also refers to how much a contractor works. Contractors can take as much or as little time off as suits them. This can be either during or between contracts. On the other hand employees in Australia are typically limited to 20 days of annual leave, many of which are forced to take time off during seasonal periods or disallowed time off during festive periods due to the nature of their industry. On the contrary, clients are more charitable to contractors taking more holidays since the time off is not paid.

Managing paperwork, tax, and administration can prove to be a little bothersome and time consuming for some contractors who opt to set-up their own Company or operate as a Sole Trader. Those who would prefer to have their administration taken care of for them, can elect to contract via a Contractor Management Company (CMC). CMC’s typically take care of all administration, such as invoicing clients and payroll; statutory obligations such as income tax and superannuation; plus insurance coverage like Workers Compensation, Public Liability and Professional Indemnity.

Contractor Management Companies can also assist with another issue facing many contractors; the difficulty of securing a home loan or other forms of credit without having a stable employer over an extended period of time. Multiple contracts through the one CMC, despite having various clients, can make applying for a home loan or credit easier, as all income and taxes will be paid by the one organisation, which can provide you with payslips and payment summaries.

Given all the pros and cons, deciding on becoming a contractor still remains a personal choice. Pursuing contract employment can be more financially lucrative dependant upon the individual’s circumstances and available opportunities. Contract employment is a good option to explore if you enjoy a variety of work and greater freedom, in terms of time and tasks. If viewed as a contributing aspect in one’s career path, contract work is definitely something to try!

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