Reality of Life as a Contractor

Is contracting really as good as it seems? We've examined the realities of self-employment and put together a guide.

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The allure of being a contractor can sometimes be blatant. We’ve all been in the situation when in employment, a gaggle of people in the office stood around scratching their heads, valiantly attempting to solve a problem before accepting that it’s time to call in an expert. And so sparks the arrival of the much-heralded contractor, parachuting in like a slightly condescending superhero, ready to cure all ills without barely breaking a sweat. A wry smile from him and pats on the back from the rest of us follow, as does a chunky cheque for his time before he departs in his gleaming Mercedes.

Is contracting worth it?

While the potential financial gains that come with contracting are alluring, there are other seemingly attractive aspects too, such as the apparent flexibility and freedom to pick your own hours, work from where you want and refusal to be bound to a single office chair. However, things are not always as simple as they seem; what are the realities of life as a contractor?

Money talks

Specialist jobs call for people with expert skills and it is the addition of that keyword ‘specialist’ that also adds a few extra zeros onto the end of an invoice. In fact, the rate of pay for a contractor is on average 50 and 100 per cent higher than the equivalent rate for an in-house permanent member of staff.

Commanding an impressive hourly rate doesn’t always necessarily equate to an impressive or even comfortable annual salary. This rate is simply an average for the times you’re actually working and doesn’t take into consideration the dry spells, the time spent looking for new contracts, chasing up unpaid invoices, the expense and time in polishing up your skills and so on. Plus, you can expect swings in the rate you can charge particular clients, so it’s important to squirrel away the extra from the higher paying contracts to help you counteract the impact of the leaner periods.

Whatever industry you’re in, you’ve got to learn an important new skill set if you want to go it alone and that is how to handle your finances. Avoid spending your first few paycheques as if they were part of a guaranteed monthly salary. Give due consideration to what would happen if you missed out on a couple of key contracts six months down the line and adapt your cash flow management to suit your needs and avert any major disasters.

It may be a good idea to set aside the amount you’d need to cover bills for three months, just in case you struggle for work. Most business advisors would recommend having at least six months of income saved up as security, more if you’re conservative or particularly uncertain about the liquidity of your particular sector.

Download Your Contractor’s Guide

Find out how to maximise your take-home pay and become a successful contractor in our free guide. Also covered in our guide is:

  • Getting started – discover which business structure is best for you and how to get started.
  • Your tax and financial obligations – all you need to know about your paying tax, filing accounts and what costs you offset.
  • Making your business a success – learn how to grow your business, how to market yourself and to forecast for the future.

Always assess the market

You may be the world’s most talented Pascal programmer, but is there still sufficient demand for your skills to bring you a steady flow of work? Gaining the skills that people are willing to pay for is only half the battle; you need to ensure that there is enough need for firms to actually pay to bring you in. On the other hand, if you’re competing with thousands of programming graduates fresh out of university who are adept at Ruby on Rails, then you may find freelance contracts harder to come by in what could threaten to be an over-saturated market.

Establishing if there is a place for you in the market can be a balancing act, whereby you need to ensure your skills are broad enough to mean there is enough work – but specialist enough to mean that clients have the need to pay the extra to bring you in rather than taking on a permanent member of staff (or a younger and cheaper competitor.)

Scouring the permanent job boards and employment sections in newspapers can be a good way to keep abreast of what the demand is for particular skills. Keeping up to date with the fluctuations in particular industries can further give you a good indication of the demand for contractors. If large firms in a certain sector have been forced to lay off entire IT departments, for example, there’s a fair chance that they will at some point need to bring in freelance contractors for short-term positions to dig them out of an IT hole.

Flexibility is also key to ensuring you are still relevant to the market. To use a term popular in the tech startup world, you need to learn to ‘pivot’. If there is no longer a demand for your primary skills, brush up your secondary skills. Many a web programmer has been forced to accept that there is be a world beyond flash once iOS landed, or quickly had to learn the ins and outs of HTML5 once the mobile revolution really kicked in. Keep up with the market trends and you can keep up with bringing in the money.

Part of contractor life is learning to be an all-rounder

We already know that specialists are the ones that bring in the big bucks. But where you will need to learn some new skills is in the field of running a business.

It can be a shock to the system to go from a world where your paycheque lands in your bank account without fail every month, with your tax and pension payments taken care of, so all you need to worry about is how to spend your hard-earned cash.

Going it alone, however, means you’ll be solely responsible for setting your rates, tracking your time, correctly invoicing and billing clients, ensuring you’ve met your tax obligations, made pension contributions, kept up with national insurance payments and set up your employment status in the correct legal manner. That’s not to mention the chasing bad debts, finding appropriate insurance, working out cashflow projections, finding new business, managing client relationships. The list, it seems, is virtually endless.

It’s not impossible to handle your tax returns yourself, especially with the impressive online software available. However, using an accountant will give you a great deal more peace of mind, as well as help you save money on your tax bills.

Remember that an accountant won’t do everything for you. It’s still your responsibility to keep track of everything and often do things like issuing invoices and chasing up bad debts.

Even if you’re self-employed, you’re essentially running a business. It’s a hassle, but it’s worth it. The rewards of becoming a contractor can outweigh the hassle that goes with it, but you have to accept the reality that this is not simply a case of turning up to work every day and waiting for the money to roll in. You have to learn about everything that goes with it and even if you’re not personally doing all the administrative tasks yourself, you need to understand them and it is your legal responsibility to ensure they are being carried out correctly. There’s a lot to take in and you have to be ready for it.

Being a contractor means ‘selling yourself’

Salesmen have a slightly grubby reputation, but it’s not all about going door to door selling shammies and cleaning products. The reality is if you want to go out alone and secure work for yourself, you need to become a salesman too. You may find comfort in describing it as ‘business development’ rather than ‘sales’, but there is no getting away from the fact that if you want to convince enough people to give you money for a service that you provide, then you are selling yourself. No matter how strong your skills are, if you can’t effectively sell yourself, convince people why they should give you the contract or make a good first impression, then you’re going to struggle to make a living as a contractor.

The dreaded job interview will become a key part of your routine. Coming across well when you first meet your potential short-term employer is important. The good thing is, you get to concentrate on what you can offer in the short term and how you can make an immediate impact or solve a problem that a particular firm has. This is where selling yourself really comes into play, the interview panel won’t be rolling out the tired old questions about where you see your career developing – they’re interested in specifics. They need something done and if you’re the person to do it then you need to convince them quickly and efficiently. You’ll be expected to display your specialist knowledge in your sector, so make sure you’re up to speed.







Another key part of your ‘sales pitch’ is your CV. You need to update it regularly to demonstrate your ability to lead a variety of projects and show your success with your contract work. It will look different to the CV you used when applying for permanent positions, but the beauty of it is, much like the interviews, you can strip out the unnecessary fluff and stick to your demonstrable skills. A potential client won’t care if you play football on Sundays; they will care if you helped a medium sized business migrate over from their dated COBOL IT system to something more up to date.

Don’t fret about including what might seem like ‘outdated’ knowledge or demonstrations of skills. A firm might want a freelance programmer with experience of mid-90s systems because their in-house employee has never seen a mainframe still running Fortran before. Knowledge and experience can be your most potent weapon in securing new work, so don’t be afraid to use them.

Recruitment agents may have a reputation even grubbier than the door-to-door salesman these days, but the reality is you are probably going to have to use agencies to secure work. The trick is to work out how to best make them work for you, play the game by tweaking your CV to match a particular client that they are trying to force you upon, and simply acknowledge the fact that they are trying to make money out of you. But use them right, find a couple of agencies that you like working with and hopefully, they’ll make you some money too. After all, having someone selling you on your behalf is no bad thing.

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Working as a contractor requires flexibility

We’ve talked about the importance of flexibility when it comes to your skills, but you also need to be flexible in terms of where and when you’re willing to work. If you need to work the weekend to pay the bills, or fly to another country for a contract worth three times what you’d get on home soil, then these are the sorts of things you have to be willing to do. If you’ve got visions of spending your days touring different hot startup offices in East London, you may be slightly disappointed. You are more likely to be driving to grey industrial estates to help upgrade IT for a factory that has been running the same system for decades. You should accept the reality that if you want to make living, then you probably can’t afford to be too picky, at least not to start with.

That also means you may have to be willing to travel. One of the appealing things about becoming a contractor is the misguided belief that the freedom of working for yourself would give you more time to spend at home with your family. In truth, it often means days on end away from them spent working in other cities and even overseas jaunts. Life on the road can have its plus points, but it can also be a drag. If you’re very much set in your ways at home then you need to at least establish whether there is enough demand on your doorstep for your skills before pursuing the contractor life.

The life of a contractor includes unpopularity

Have you ever been in an office when the auditors are brought in? Watching them work, heads down with nobody saying so much as a polite word to them, and being treated with disdain when they had to make requests for information from various people.

The mantra that many contractors would have is something akin to ‘get in, get your head down and do your job, then get out.’ You may be free from the dreaded office politics of your last workplace, but you can also be frustratingly disenfranchised from making more progressive suggestions for a better way of doing things and treated scornfully by the permanent staff who see you as an overpaid fly-by-night draining their resources. And you can kiss goodbye to the office parties too, for the most part.

Of course, that’s not always the case, and you may find that earning enough to give yourself a few months’ break from working when you get home is worth it in the end.

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