Starting work as a contractor in any line of work can often come with a number of financial benefits and flexibility. Despite this, working as a contractor can also have its shortfalls – especially if you aren’t fully prepared.
Below are some top tips to make sure you’re fully prepared for life as a contractor, and to ensure you get the most out of your new job.
Boost Your Potential Earnings
The main point to make here is to understand exactly what you’re worth.
By understanding what you’re worth as a contractor, you will ensure you get the best rates possible. Also, by keeping on top of what people in your industry are charging, you can make sure you get a fair rate of pay for the work you undertake in relation to the industry standard.
Don’t undersell yourself – take time to review the current landscape of your industry and evaluate the supply and demand for contractors; doing this will prevent undercharging for your services.
On top of this, it’s also a great idea to put a portion of your wages aside each month in case of any emergencies – due to the nature of this type of work you never know when you’ll land the next contract, so it’s always good to have a safety net.
To make sure you maximise your earnings it may also be wise to hire an accountant, as this can often save you time and money in the long run.
Make Sure Your Pay Methods are Compliant
Payroll can sometimes be a confusing state of affairs – but it doesn’t need to be.
Whether you get paid CIS, PSC, or through an umbrella company, it’s always wise to make sure whoever is responsible for paying your wage is fully compliant and paying you exactly what you’re entitled to.
For example, in recent years there have been a number of umbrella companies that have unlawfully deducted wages from their employees – so to avoid these situations it’s always a good idea to work out exactly what money you’re entitled to take home prior to getting paid to avoid any confusion.
Know Your Rights with IR35
One of the most important things to understand when you become a contractor is the IR35 legislation.
In simple terms, IR35 was put in place to give parity so that temporary workers contribute the same tax and NI contributions as permanent employees.
Because of the ever-changing landscape of IR35, it is important to understand the ins and outs of the legislation to make sure you are fully compliant, and to avoid being hit with a huge fine.
Another thing to note is that since April 2020, legislation was brought in that requires all agencies to provide their workers with a KID (Key Information Document) to increase pay transparency. This document will help you by outlining all your benefits and entitlements and giving an estimate of net pay after all deductions have taken place.
Keep Track of Your Expenses
As a contractor, you must keep track of all your business expenses so you can claim back exactly what you’re entitled to. Take time to make sure you collect all receipts for any business-related expenses. It can pay off to have it in writing to ensure that you keep a statutory accounting record for tax purposes.
Most companies will have you fill out a standard ‘Monthly Expenses Form’ to keep track of these records, but if you run a limited company for example, you must keep a clear simple record of any expenses you wish to claim following the guidelines set out by the HMRC. If you struggle with this kind of thing there are a number of useful apps out there to help streamline the process.
Understand What Your Insurance Covers
As a contractor you are responsible for managing your own finances and making arrangements for a worst-case scenario i.e., if you fall seriously ill and could not work – this is where insurance comes in.
There are many types of insurance that you can take out as a contractor, but here are some of the most common:
Professional Indemnity Insurance – Will protect you against the cost of settling or defending a client’s claim in the case of a problem or issue that may arise with work you have carried out.
Public Liability Insurance – This is generally concerned with situations where your company deals with the public, and can cover you against being sued, for example. In the UK, businesses are required to have some form of Public Liability Insurance to the value of at least £5million.
Personal Accident Insurance – This covers against the unfortunate event that you or another member of staff gets injured at work. In the case of severe injury or death, your company would be liable to pay a huge sum of money, which could have huge financial implications if you didn’t have the proper cover.
Be Active in Forums and on Social Media (Understand the Importance of Networking)
As an independent contractor, it can sometimes feel like you are on your own sometimes, although this is not the case. The internet is a great way of finding like-minded people and other contractors who find themselves in the same situation as yourself – whether this is to seek advice, expand your network, or even further your career by seeking new job opportunities.
LinkedIn and Facebook are both great places to join relevant groups and start connecting with other contractors to expand your network and progress your career.