If you’re looking for an alternative to full-time employment, contracting may be the solution for you. Contracting is easy enough to understand, though if you’re unfamiliar with the term, may initially be challenging to get to grips with.
But Parasol is here to help. We have answered all of the questions you may have about the world of contracting, from what it is, how it differs to employment and beyond.
What is a contractor?
A contractor is a person who provides their skills or services for a limited period of time. Your contract will last for a set number of months, and during this time, you will work for your client.
As a contractor, you will work for yourself rather than as an employee of the company. This means that you will have more control to decide your own hours and rate of pay for your services.
The difference between employee and contractor
As a contractor, you are not bound by a set number of hours as an employee would be. You are largely in control of your work schedule and working environment. As you are being paid for your specific skill set, you can often expect to earn more money per hour, and you will have the control to decide your own rates.
If you are a contractor, you will also need to be responsible for sourcing your own clients. A common misconception about working as a contractor is that you will struggle for work. However, as contractors are becoming more in demand by companies, the need is only increasing.
How to operate as a contractor
The two most common ways for contractors to operate are through an umbrella company or by forming your own limited company:
Contracting as an umbrella employee
Umbrella companies are the popular choice for new contractors. Working under an umbrella company, your Income Tax and National Insurance needs will be managed, leaving you free to focus on those new contracting jobs. This can help to alleviate some of the pressures which working for yourself can bring.
Umbrella companies such as Parasol will provide you with a contract of employment, meaning you will have access to all of the rights of a company employee, including sick pay, maternity and paternity cover and business expenses. This gives you the best of both worlds, still allowing you the freedom to manage your work without worrying about your finances.
Establishing and running your own limited company is a popular choice for seasoned contractors. Working through a limited company will give you a greater degree of control when it comes to your finances and is considered the most tax effective way to operate. However, this also means that more responsibility will fall on you.
As a limited company owner, you are considered self-employed and are required to carry out all of the administration. This includes establishing and acting as the director of your company, managing your business accounts and insurance and declaring tax and VAT.
Despite all of this extra work, help is available. If you decide that this is the route you would like to follow, our sister company, Clearsky Contractor Accounting is a specialist contractor accountant and can help you manage some of the responsibility.
Support from Parasol
If you’re considering becoming a contractor but are unsure where to begin, we’re here to help. Here at Parasol, we’re always on hand to answer any questions from those first steps and right through to your daily finance needs.