What To Know Before Leaving A Permanent Job For A Contract

An IT professional making plans for leaving a permanent job for a contract role

As an experienced IT contract recruiter, I have supported a great number of professionals in leaving a permanent job for a contract.

For professionals who are considering contract work, learning about the intricacies and regulations around contracting can be a daunting prospect.

But don’t worry, from the benefits of contracting to tips around CVs, interviews, operating compliantly, networking, and personal development, I will go through how contract and permanent roles differ and what you should consider before leaving a permanent job for a contract role.

What is contracting and why do companies use contractors?

Contracting is where a professional provides their services for a fixed agreed period, whereas permanent employees have permanent contracts with their employers. Whilst contracts can be renewed or altered, contractors don’t have the same continuity as permanent employees.

Contractors often fill a temporary need or gap in a company. Reasons companies decide to use contractors can include:

  • Covering permanent employees on leave (such as maternity, sickness leave etc.)
  • Assisting with a high workload temporarily
  • Providing specialist skills/experience that the company’s IT team doesn’t have (such as working with legacy technologies or a business transformation)
  • Training permanent members of the team
  • Being an interim solution when the company is struggling to find a permanent employee
  • Covering BAU work whilst permanent employees take on new projects

Contract vs permanent job benefits

Leaving a permanent job for a contract role is not unusual. There are a multitude of benefits available to contractors, including:

Flexibility

Due to the nature of fixed-term contracts, flexibility can easily be built into a contractor’s lifestyle if they want it. For example, if you only want to work for 9 months and then travel for the rest of the year, contracting can perfectly accommodate that. Any extra income contractors make (which I go into further below) are often used to cover the downtime between roles.

Working within your specialism

You might have a very niche skillset and not be interested in a permanent role where you will be doing business-as-usual work. Contracting gives you the flexibility to choose the projects you contribute your specialist skills to. This is a key reason why many professionals leave a permanent job for a contract role.

Earning potential

One of the main attractions to contract work is the greater earning potential. Contractors tend to have a higher day rate than permanent employees because companies are willing to pay more to secure sporadic access to specialist skillsets and experience. However, the main drawback can be periods of downtime between contracts where contractors aren’t earning. Whereas permanent employees have the reassurance of constant employment.

In comparison, some professionals are attracted to permanent roles due to:

Stability

The big draw to working in a permanent role is its stability. With no set end date, professionals know they can count on having work and a stable salary coming in each month, until either they give in their notice, or the business exits them compliantly. Whereas, like I mentioned above, contractors constantly have to be aware of when their contracts are coming to an end, and might have periods between contracts that can be disconcerting and financially unstable.

Benefits

Permanent employees can be eligible to enjoy a wide range of company benefits. These can include financial benefits (employer pension contributions, private pensions, salary sacrifice schemes etc.) and other benefits like annual leave, medical insurance, gym members and access to mental health resources. These are not typically available to contractors.

You’ll need to consider and act on these important points before leaving a permanent job for a contract role:

Keep your CV updated

A regularly updated CV is crucial to contractors. When editing your CV to be ready for contracting, make sure you highlight the skills you developed in each job and the projects completed. Depending on the contract, how long it is, and what you’ll be doing, the client might be less inclined to be worried about soft skills, and more focused on understanding skills/experience.

As contractors will naturally gain a variety of skills and industry experience, you will need to have multiple CVs, so that you can apply to contract opportunities with the appropriate version.

Be interview process savvy

The contract hunting and interview process will be a learning curve for you. Given the nature of contracting, the process can differ significantly.

The main distinctions in a contract interview process include:

  • Interviews tend to have fewer stages and are quicker
  • Larger focus on skills and experience over soft skills, unless the role includes managerial responsibilities
  • Negotiation is much more common
  • Less focus on topics such as career progression, long-term goals etc.

Understand how to contract compliantly

If you choose to become a contractor, you’ll need to choose how you want to work as a contractor. This might be operating through an umbrella company or supplying your services as a limited company, or working as a sole trader.

Sole trader

As a sole trader, you are not operating through a company, so you will only need to register for self-assessment with HMRC and file an annual tax return for your income. However, as you do not have a company behind you, this means you will have unlimited personal liability. Therefore, if you run into financial difficulties or legal issues, your personal assets are at risk. Due to this liability, many employers and recruitment agencies will not work with sole traders.

Limited company

An alternative to this is creating a Limited company and appointing yourself as director and shareholder. Whilst some may prefer this option for tax reasons, you will have the responsibilities that come with being a company director. You must understand the Companies Act 2006 in order to perform this role, and your responsibilities will include filing annual returns, maintaining proper company records, sorting out insurance, and more. We would always recommend seeking professional advice from an accountant when choosing this option.

Umbrella company

By joining an umbrella company, you are essentially an employee of the umbrella company rather than operating as an independent. The umbrella company will deal with your tax, payroll, and invoicing for you. Often the recruitment agency you secure your contract through will recommend an umbrella. At VIQU, we have trusted umbrella companies we work with and recommend to our contractors, however, we would always suggest to do your own due diligence before engaging with a supplier.

Inside vs Outside IR35

IR35 regulations (or the off-payroll working rules) are designed to tackle contractors who work as “disguised employees” by taxing them like an employee. If you are going to leave your permanent job for a contract, it is vital you understand IR35 legislation before you do. Below, I discuss the basics:

Inside IR35

For contracts that are determined to be “Inside IR35”, it means the role is considered to be similar to that of an employee. Therefore, contractors working “Inside IR35” are classed as ’employed for tax purposes’, so are taxed at source through PAYE.

Outside IR35

An “Outside IR35”  determination means that within that role you are operating as a genuine business providing a service. For this option, you are able to pay yourself a salary, draw the remainder of income as dividends, and remain responsible for your taxes as usual.

The decision as to whether the contract will be “Outside” or “Inside” IR35 will be determined by the end client based on the parameters of the contract. For public authorities and medium / large companies in the private sector, it is their decision to label the role “Inside” or “Outside” IR35. Unless it is a small business, it will not be your decision to make. If you think that they are placing you on the wrong side, you can challenge the decision.

As our MD has written about in a recent Contractor UK article, we would always recommend seeking additional professional advice from an accountant to ensure that you are working compliantly.

Take ownership of personal development

Moving from a permanent role to contracting is personal development, due to the nature of the job. However, you will be moving from an environment where there’s likely to be standardised career plans, training budgets and mentorship opportunities, to being solely responsible for ensuring your continual development.

Network and increase your industry contacts

As well as building a great CV to sell yourself, to be a top contractor you will need to be aware of other ways to get your name out there. This might include attending networking events, keeping in touch with old managers, and growing your connections on LinkedIn.

Whilst permanent employees only need to socialise within their company, as a contractor, you will need to find new employment regularly. Having lots of connections and contacts will increase your chances of securing projects and clients. Networking isn’t everyone’s cup of tea, but just maintaining connections with past and current employers could increase your chances of being picked again for a contract.

 

To check out our current contract roles, please click here. If you’d like us to keep your CV on our system in case a suitable role arises, please send us your CV.

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