SJD Accountancy

Contractor demand outstrips permanent in IT sector

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The latest CW Jobs and Jobs adwatch report showed that job posts for IT contractors grew by 11% during the first three months of 2011.

In comparison, over the same period of time, those in permanent positions have seen opportunities rise by just 5%, clearly indicating that IT contractors who have chosen not to take up permanent roles have been rewarded for their commitment to contracting.

The report noted that the figures ‘should mean better job prospects for those IT professionals who suffered during the financial crisis’, adding that ‘contract rates started to improve in the first quarter of 2010 and have continued to rise since with median rates in the latest quarter up by 2.1% compared with twelve months ago’. These positive statistics come soon after Richard Nott, Website Director of CWJobs.co.uk, pointed out that recruitment for IT jobs has ‘continued to stabilise’ in the general sense.

With demand for IT contractors running at more than twice the rate of permanent staff, the case for switching to contracting seems clear. But if it’s a whole new world to you – the prospect could be daunting. At SJD Accountancy we work with contractors day in and day out – but it’s sometimes important to realise that the world of contracting is not so familiar to many. So, what exactly is Contracting?

Webster’s dictionary definition of a contractor is ‘someone who contracts to perform work’. This is not the most comprehensive of definitions but it is very accurate! Contractors generally work for just one client and the project could last days, weeks, months or even years. Then when that project ends they look for another – unlike freelancers who may have many different clients at the same time.

Contractors usually operate on an hourly/daily rate or a fixed fee basis and work through their own limited company. To get an idea of your potential take-home pay, click on the following link for an idea of take-home pay through a limited company. Some also work on variable/fixed fees plus an end of project bonus or ‘success fee’, although this is more common for marketing/sales contractors than in the IT sector.

Here are the answers to some questions which we are asked regularly:

Why do businesses choose to outsource to contractors?

There are many reasons why companies like to use contractors. For example:

  • More flexible
  • Cost less overall, as there are less long-term commitments
  • Provide skills that the in-house team may not have
  • Can complete one-off or small regular tasks that do not require a full-time employee
  • Sometimes it’s just easier to get a fully skilled contractor in than to recruit a permanent employee

What are the main reasons that people choose to go into contracting?
Every contractor has their own reasons for choosing this option. Some of the most common are:

  • Being your own boss – which can be extremely enjoyable and satisfying.
  • Making more money – contractors are paid a higher rate than full-time employees who carry out a similar role.
  • Having freedom over working hours – being your own boss means you can, to varying degrees, choose when and where to work, when to take holidays and so on.
  • Experience a wide variety of work – by moving from project to project or working on multiple projects at the same time, contracting opens up opportunities where you can develop a varied experience and build an impressive CV.
  • Reduced tax liability – any accountant will tell that working through your own limited company is the most tax efficient way to operate. Which is only fair, bearing in mind the extra things contractors have to take care of when operating their own company. Visit this page for more on how to form a limited company.

Do I have to have an office to work as a contractor?

This is really up to you in terms of how you want to run your business. Some contractors will always aim to work on a customer site – and this usually works best if you are handling one project at a time. However, if you are working for multiple clients, then realistically you will need your own office. In fact, even if you just have one client, you’re still running a limited company and will really need somewhere of your own to designate as a ‘workspace’. This does not have to be anything fancy and in fact, many contractors operate from a spare bedroom or even the dining table!

The key thing is that you have the right equipment and the ability to communicate with your clients via telephone and email. It is also useful to have enough space to store paperwork and so on properly, as operating a limited company has certain legal requirements in terms of what information you need to retain and have access to.

How much should I charge?

Generally, contractors operate on an hourly or daily rate, based on their skills, knowledge, scarcity of supply/demand of the role, experience and what the market pays. Typically rates vary from £200 per day right through to £2,000 per day and above but as a specialist in your own sector, you will probably have a good idea of what the market rate is. For an idea of what different rates of pay for IT contractors are, click the link.

What qualities make a successful contractor?

  • Know what you want – a successful contractor generally knows what they want to achieve from being in business. Whether it is to achieve a certain lifestyle or hit a certain financial target within a specified timescale, you need to set objectives to help you measure success.
  • Be comfortable with leadership – someone who feels comfortable in a leadership role will usually make a good contractor, as not only will they be their own boss, they may also have to ‘guide and direct’ their clients as and where appropriate.
  • Be decisive – as your own boss, it will be down to you to make the decisions to ensure your business is a success. Nobody else will ensure important forms are filled in or that clients are chased for overdue payments.
  • Stay self-motivated – with no-one to make you get up in the morning, or stay late to finish a project, it’s very easy to let time scales ‘drift’. In effect, your clients become your bosses and you need to treat them as such.

What next?

Check job boards and recruiters sites and visit – ‘How to contract through your own limited company for more information.

We hope the above information has been useful, if you would like any further information please don’t hesitate to call 01442 275789 or email newbusiness@sjdaccountancy.com.

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