Have you ever wondered whether to take that lucrative IT contract, but resisted because of unknowns? Here, we highlight the pros and cons of contracting versus permanent employment, so you can decide if it’s right for you.
When the Australian Bureau of Statistics (ABS) last crunched the numbersin 2016 there were just over one million people working as independent contractors, or about nine per cent of those employed nationally.
While contractors can be found across a range of industries they’ve always been commonplace in IT departments, as organisations grapple with skill shortages, project work and the need to manage peaks and troughs in demand more efficiently.
In the tech sector, the ability to move around and stay current is a boon for workers. Many are also lured by the prospect of more money and greater flexibility. Could contracting be right for you?
PROS
Go further, faster
In a high demand market such as software development, one of the most appealing aspects of contracting is the opportunity to pick and choose your projects. You can gain exposure to a range of industries and environments and may find that more doors are open to you, including at top-tier companies.
If working with the latest technologies is a big drawcard for you, contract work can allow you access to those projects. Additionally, you have the flexibility to choose roles that add to your skillset, making you more marketable and ultimately fuelling your career progression.
Financial incentives
For many contractors, the ability to earn a higher income is a major drawcard. Contracting is generally paid as a day rate and comes with a loading. Provided you work full-time hours across the year, this could result in a higher annual wage than a similar full-time position. And, depending on your conditions of employment, there’s also the possibility to earn more for working overtime.
Do be careful when calculating how much you need to earn per day as a contractor.
You’re not entitled to many of the same statutory benefits you would receive as a full-time employee, so you need to make sure this is compensated for (see below on entitlements).
Better work/life balance
Depending on the role, contractors can often negotiate more flexibility around hours and locations of work, leaving room for other interests and personal projects. Extra hours are typically paid at an agreed rate, while staying late and working weekends are often seen as part of the job for permanent staff members. You’re also not confined to the usual four weeks of holiday per year – at the end of a contract you could use your higher earnings to subsidise an extended trip or time off with the kids during school breaks.
CONS
Entitlements are out
Contractors aren’t entitled to the same paid benefits under the law as permanent employees. That includes things like annual leave, sick leave, paid public holidays, long service leave and more.
That doesn’t mean you’re chained to your desk – you’ll still be able to take leave if you need a holiday or get sick (in line with your employer’s leave policies). It just means that you won’t be paid for any days you aren’t working.
As a contractor, you need to take these provisions into account when calculating your hourly or daily rate.
Building a safety net
To keep your income relatively stable you’ll need to secure consistent work. Periods of downtime are inevitable, however, and then there’s the possibility of extended illness, so it’s important to ensure you have a buffer, such as having a few months’ worth of living expenses as an emergency fund.
Luckily, the software development industry can offer the best of both worlds, with long-term contracts of six, 12 and even 18 months. Contracts are frequently renewed at the end of the initial contract term if the project is ongoing. So you could easily end up working at a company as a contractor for a couple of years, if all goes well.
Admin obligations
Your tax and accounting obligations can differ, depending on whether you’re set up as a PAYG contractor or register your own company.
As a PAYG contractor, you’ll be paid like an employee, with tax and superannuation automatically deducted and paid on your behalf.
However, if you choose to register and operate your own Pty Ltd business, you’ll be responsible for paying your personal income tax quarterly, together with BAS if you’re registered for GST, as well as your superannuation and company tax, if the business makes a profit. Then there’s company tax returns, director responsibilities and other legal obligations that go with running a company.
You also need to consider the cost of professional indemnity insurance, public liability insurance and worker’s compensation insurance, if you run your own business.
Registering a company can have other benefits and you should seek financial advice to understand which option is right for you. Speak to an accountant to get help managing your tax and financial affairs. You can learn more about how to find an accountant at the government’s MoneySmart website.
If you have the right skills and expertise and want more control over your working life, contracting is certainly a viable and potentially lucrative way to make a living. It does mean taking on more responsibility for your own welfare, but as employers increasingly look to contractors to manage fluctuating workloads they’re also looking at ways to keep the best talent engaged and motivated, helping to make life as a contractor even more appealing.
If you’re a jobseeker looking for your next technology opportunity, contract or permanent, take a look at our current job openings or submit your CV.