Moving from Permanent to Contracting — Everything You Need to Know
By: Berkley Recruitment
Tags: Employment, Career Advice, Career Development, Contracting, Career Paths

Switching from permanent employment to a contracting is a big step, but it doesn’t have to be difficult. Read our guide below to learn more about how to make the move.

What are the Main Differences Between Permanent Employment and Contracting?

A contractor is an independent professional who signs a “contract of service” with an organisation. They are temporary workers who are typically hired on a project basis. Rather than receiving a salary, contractors invoice the client organisation for the number of hours or days worked. As they are not on the company payroll, they are responsible for ensuring all necessary taxes are paid to the Revenue Commissioners. While contractors do not receive employee benefits (e.g. holidays, sick pay), they usually take home a higher rate of pay that is inclusive of these entitlements.

Employees, on the other hand, sign a “contract of employment”. They are directly employed by the organisation on an ongoing basis. As they are on the company payroll, they receive an annual salary and the company accountant takes care of paying income tax on their behalf. As employees, they are entitled to a number of benefits such as holiday pay, sick pay, or bonuses.

Why Move from Permanent Employment to Contracting?

Higher Take-Home Pay: Generally speaking, contractors are paid more for their work than their permanent equivalents. Contractors’ higher rate makes up for the fact that they are taken on for a shorter length of time and that they will not receive employee benefits.

Generally speaking, contractors are paid more for their work than their permanent equivalents. Contractors’ higher rate makes up for the fact that they are taken on for a shorter length of time and that they will not receive employee benefits. Build A Wealth of Experience: Given the shorter length of contracts, contractors can hop between roles and organisations. This offers ample opportunity to develop professionally by upskilling and building networks. Experienced contractors with extensive experience, exposure to a wide range of organisations, and a more diverse skillset can command high rates.

Given the shorter length of contracts, contractors can hop between roles and organisations. This offers ample opportunity to develop professionally by upskilling and building networks. Experienced contractors with extensive experience, exposure to a wide range of organisations, and a more diverse skillset can command high rates. Build Your Network: As you move from contract to contract, you will have the opportunity to develop relationships across a range of different organisations. Over time, you will find that you have built up an expansive network who may then be able to help you find further contract work, or open the door to more permanent roles.

As you move from contract to contract, you will have the opportunity to develop relationships across a range of different organisations. Over time, you will find that you have built up an expansive network who may then be able to help you find further contract work, or open the door to more permanent roles. More Flexibility: Contractors act as their own boss. This gives them more freedom and control over when and how they work. As a contractor, it’s possible to structure your working week, month and year around your lifestyle. Contracting roles are also more likely to offer flexitime and/or remote working.

Read our article “What Are the Benefits of Being a Contractor?”

What About Financial Stability?

Permanent employees who are considering transitioning into contracting often have doubts around financial stability. As a contractor, there will likely be times when you have gaps between projects. However, this can be mitigated if you work with a recruiter to ensure that you have a new role lined up after your current contract finishes. What’s more, developing your skillset on an ongoing basis will enable you to stay competitive.

How to Make the Switch from Permanent to Contracting?

Partner With A Recruiter: Chat to a recruiter who specialises in contracting roles. They will be able to give you an overview of the market and advise on your rates. Let the recruiter know what kind of work you are interested in so they can put you forward for any relevant roles that arise.

Chat to a recruiter who specialises in contracting roles. They will be able to give you an overview of the market and advise on your rates. Let the recruiter know what kind of work you are interested in so they can put you forward for any relevant roles that arise. Hire Tax Accountants: If you have been successful in your job search, the next step will be to engage the services of specialist tax accountants. They will advise you on the right limited company structure for your needs and take care of setting this up for you. This will enable you to get your contracting career off to a flying start!

If you have been successful in your job search, the next step will be to engage the services of specialist tax accountants. They will advise you on the right limited company structure for your needs and take care of setting this up for you. This will enable you to get your contracting career off to a flying start! Submit Monthly Timesheets: Your client invoices will be based on the number of hours or days you work. As such, you will need to submit timesheets every month to your tax accountants. They will then take care of deducting your taxes and paying you.

Your client invoices will be based on the number of hours or days you work. As such, you will need to submit timesheets every month to your tax accountants. They will then take care of deducting your taxes and paying you. Make Plans for After Your Contract Ends: As you approach the end of your contract, you will need to make plans for afterwards. In some cases, your client may offer to extend the existing contract. Otherwise, you will need to figure out if you would like to find a new job or take a break. If you decide to find something new, notify your recruiter well in advance so they can keep an eye out for relevant roles.

What Are Your Options as a Contractor?

To get started as a contractor, you will need to set up a Limited Company structure. There are multiple set-ups to choose from; the most popular options are:

1. PAYE Umbrella Company

If you are new to contracting, this option offers an easy transition. PAYE Contracting involves working with a specialist third-party to create an Umbrella Company with which you will sign a contract of employment. The primary functions of the umbrella company are to arrange payment for your work and correctly deduct taxes. As a PAYE contractor, you are treated as an employee which means that you are still entitled to benefits like holidays and sick day allowance. However, you can also move freely between contracts.

2. Personal Limited Company (PLC) Contracting

Alternatively, you could set up a Personal Limited Company. With PLCs, the contractor enjoys greater flexibility and control over their finances. For example, you can employ staff, claim expenses, start a pension plan, and purchase company assets. PLCs are typically complex and costly to set up, however, they are a very tax-efficient solution and offers a higher rate of pay than PAYE contracting. As such, these are an ideal option if you intend to contract long-term.