Contracting
This article is a basic FAQ about contract work.
Whats the difference between working as a contract and a standard (PAYE) employee?
The Pros
- More money than an employee doing the same job as a PAYE worker.
- Flexibility to change jobs quickly.
- The self-employed fall into tax bracket 'S'. This means you pay 5% PRSI as opposed to about 13%.
- Ability to expense your..er...expenses.
- 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 than 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
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. Example: MACS Umbrella Services
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 http://www.cro.ie
- Limited companies have to stay in operation for at least 5 years. Even if you finish working for the company it still exists in its own right and you need to provide end of year accounts to the Revenue
What do I do about tax?
Options:
- Work out your own tax.
- Get an accountant to do an end-of-year accounts and tell you how much tax you owe.
- Get an accountant to do your monthly returns and end of year accounts.
Whichever option or combination of options you choose, send your tax to the revenue. You can use the revenue online site or send it through the post.
Useful links
- http://www.basis.ie - Business Access to State Information and Services
- http://www.ros.ie - Revenue Online Service