Contracting

This article is a basic FAQ about contract work.

1. Whats the difference between working as a contract and a standard (PAYE) employee?
2. What are the risks involved in contract work / Is contracting for me?
3. I want to get into contracting. What type of company do I need to set up?
4. What do I do about tax?

Whats the difference between working as a contract and a standard (PAYE) employee?

The Pros:

• More money then an employee doing the same job as a PAYE worker.
• Flexibility to change jobs quickly.
• Ability to move between different types of work, and constantly learn new things..

The Cons

• No Health insurance, pension, etc unless you get it yourself.
• The expectation that you can "hit the ground running", you're hired to be more productive then an unexperienced worker, and you'd better deliver.
• Occasionally there can be periods of unemployment in between contracts.
• Occasionally, resentment from full time employees. "Contractor scum. Getting paid twice as much for the same job I do..."

What are the risks involved in contract work / Is contracting for me?

Contract work is for you if:

• You are good with people. Contracting is more about being able to sell yourself then a standard job.
• You know your stuff, and can communicate it effectively.
• You work well under pressure.
• You can pick up new concepts and ways of working quickly.

Contract work is not for you if:

• You have no savings, or are bad with money. You will be paid more, but the risk is that your contract may not be renewed. You need to be able to budget.
• You are risk averse. There is an amount of gambling on getting a contract extension, or a new contract. If this will completely stress you out, or you have a huge mortgage to pay then it may be better to stick to a stable job.
• You're a "clockwatcher". Contractors are expected to earn their keep. If you hang around waiting for the day to end you probably won't last long.

I want to get into contracting. What type of company do I need to set up?

There are three main types of setups:

• Umbrella Company
• Sole trader
• Limited Company

Umbrella Company

An Umbrella company is essentially a payroll agency. They put you on their books for a monthly fee. You send them your monthly invoices and expenses; They collect the cash, do your monthly payroll, pay your tax, and transfer your wages into your accounts. The Pros:

• Hassle free
• No need to set up a company

The Cons:

• Can be relatively expensive
• Most payroll companies will not expense capital purchases, i.e.: Purchasing a computer for business use.

Sole trader

A Sole trader is a one-man band. You send out your own invoices, keep a record of your own expenses, and pay yourself. At the end of the year you declare your taxes to the revenue. The Pros:

• Relatively Hassle free
• No need to set up a company, though you should register a business name.
• If you earn less then €20,000 you are not liable for tax.

The Cons:

• Unlimited liability - Your personal assets are at risk from lawsuits or debts of the company. If you manage to burndown your employers offices, you're personally liable for the cost.
• Most recruitement companies will not deal with a Sole trader.
• Does not look professional.

Limited Company

A Limited Company is a registered company with limited liability and directors, and all that grown up stuff. The Pros:

• Limited Liability - You are not personally responsible for business debts. (Unless you act illegally)
• Ability to expense capital purchases such as computer equipment for business use.
• As a director of a company you can transfer a large percentage of your income into a pension, tax free.

The Cons:

• Necessary to form a limited company. This can be done by a company formation service (Costs around €350), or by yourself. Check [www.cro.ie]

What do I do about tax?

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