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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It is not hard to see the appeal of becoming a contractor. 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.

I won’t say it was just the potential financial gains that attracted me to pursue the life of a contractor, although it certainly did play a part. There were 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, plus that understated superhero charm of course. But as I and many contractors before and after me have found, things are not always as simple as they seem. So what are the realities of life as a contractor?

Money talks

Specialist jobs call for people with specialist 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 between 50 and 100 per cent higher on average than the equivalent rate for an in-house permanent member of staff.

Of course, 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. I learned the hard way, spending my first few paycheques as if they were part of a guaranteed monthly salary, without giving due consideration to what would happen if I missed out on a couple of key contracts six months down the line. Luckily, I adapted to managing my cash flow needs and averted any major disasters.

I kept what I would need to cover bills for three months just in case I struggled for work, luckily enough I’ve never had to dip into it, but I know people who have. 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.

Always assess the market

You may be the world’s most talented Pascal programmer, but is there really still the demand for your skills out there 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 a permanent member of staff or a younger and cheaper competitor.

I have found 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 while keeping up to date with the fluctuations in particular industries can 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 ones. I am far from the only web programmer who was forced to accept that there would be a world beyond flash once iOS landed or who 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.

Learn to be an all-rounder

Now I’m not suggesting you need to know how to do everything in order to secure work, far from it in fact, I’ve already hinted 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. And 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.

Fancying myself as being ‘ok’ with numbers, I tackled my own tax returns for the first couple of years. These days it’s not impossible to do it yourself, especially with some impressively online software available. But after too many late nights poring over the figures and fretting over whether I’d done everything right, I happily made the move to using an accountant and it has given me a great deal more peace of mind, as well as helped save me money on my tax bills.

But 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. And it’s a hassle, I’m not going to lie. Is it worth it? For me, yes, otherwise I wouldn’t still be doing 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. And I’ve not even mentioned the fact that it was two years before I was able to have a holiday that lasted longer than three days…

Learn to sell 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. When I’m going out in search of new clients or contracts, I console myself by 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. And 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. Granted, it’s often not quite as intimidating and they often follow a different format to a ‘traditional’ job interview, but coming across well when you first meet your potential short-term employer is just as 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 (which in my experience is often just one person) won’t be rolling out the tired old questions about where you see your career developing, why you want to leave your current job, or asking what you do in your spare time, they’re interested in specifics. They need something doing 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 and enjoy travelling and reading classical literature in your spare time, they will, of course, care if you helped a medium sized business migrate over from their dated COBOL IT system to something more up to date.

And don’t fret about showing your age or including what might seem like ‘outdated’ knowledge or demonstrations of skills on there. A firm might want a freelance programmer with experience of mid-90s systems because their in-house young buck 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 are your friends too. Sort of. They 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, even if it gives you a slightly icky feeling.

Be a flexible friend

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. Follow the money, in other words. 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, arriving in the office on a slide, playing table football at lunchtimes and wearing a hoodie and shorts all day, then 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. Not to say there aren’t cool contracts out there, you just have to 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. For me, one of the appealing things about becoming a contractor was the misguided belief that the freedom of working for myself would give me more time to spend at home with my young family. In truth, it meant days on end away from them spent working in other cities and even plenty of overseas jaunts. Life on the road or jet-setting across continents can have its plus points, but it can also be a drag. I spent many months back and forth from Munich, which for one of my much younger and much more single co-contractors was the time of his life, especially when the client was taking us out to sample the unique beer and hospitality of Oktoberfest. Such threats are rare, however, and 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.

Learn to accept unpopularity

Have you ever been in an office when the auditors are brought in? It always looked like soul-destroying work to me, 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. Now I think I can empathise as it’s a situation that has not been too unfamiliar over the years.

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. I’ve made some good friends in many places I’ve worked and been invited to more than the odd Christmas party, but it can still be a lonely life as a contractor, even when working in an office full of hundreds of people. Nowhere was this more apparent than when I was contracted out to an eastern European government agency, blocked from too much social interaction by the language barrier during the day and prevented from too much meaningful communication with my family at night as this was pre-Skype days. However, the fact that I earned enough to pay myself a reasonable salary for six months without working when I got home more than made up for it.

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