Are you considering leaving your permanent role to become a contractor? Contracting can offer flexibility, higher earning potential, and the opportunity to work on diverse projects. However, it’s crucial to ensure that this move aligns with your personal and professional goals. Here’s a guide to help you navigate this transition:
1. Assess if Contracting is Right for You
Before diving into contracting, it’s essential to weigh the pros and cons. This career path offers greater independence but also comes with challenges like managing your own schedule and handling administrative tasks. Ask yourself:
- Can you effectively manage your calendar?
- Are you comfortable with the responsibilities, such as obtaining professional indemnity insurance?
- Do you understand the best way to handle your income?
- Are you proactive in finding new projects?
Seeking professional advice can provide clarity. James Milligan, Global Head of Technology Solutions, has compiled a list of critical questions to consider.
2. Prepare to Transition from Full-Time Employment
One approach to transitioning into contracting is to start while still in a full-time job. This strategy allows you to build a portfolio without losing the stability of a permanent position. However, ensure that your current employment contract permits this.
When you’re ready to leave your full-time job, be prepared for the fast-paced world of contracting. Opportunities can arise quickly, so it’s essential to be agile and ready to seize them.
3. Understand Your Tax Obligations
As a contractor, understanding your tax obligations is vital. For instance, in the UK, the IR35 tax rules prevent companies from exploiting permanent employees by classifying them as contractors. Regular investigations by HMRC ensure compliance.
Similarly, Germany has processes in place to assess worker status and prevent misclassification. In the US, both workers and companies can use Form SS-8 to clarify employment status with the IRS. Misclassification can lead to significant tax liabilities, so it’s crucial to get this right.
Ensure that your contract status aligns with local laws and regulations in your country.
4. Decide on Your Business Structure
In the UK, contractors typically choose between becoming an employee of an umbrella company or starting a limited company. While umbrella companies simplify administration, a limited company can offer tax advantages and greater control over expenses.
In the US, common options include operating as a sole proprietorship or forming a limited company. Although a sole proprietorship is the simplest option, it leaves you personally liable. Weigh the pros and cons to determine the best fit for your situation.
5. Hire an Accountant and Set Up Your Banking
An accountant may seem like an added expense, but they can save you time and prevent costly mistakes with your taxes. This is particularly important if you’ve chosen to set up a limited company, where an accountant can also help ensure you have the correct type of bank account.
6. Build Your Contractor Portfolio and Online Presence
Success as a contractor often hinges on your ability to network and market yourself. A Hays poll found that 52% of professionals believe building and maintaining relationships is the most critical trait for a contractor.
To enhance your online presence:
- Optimise Your LinkedIn Profile: Use a high-quality, professional photo, craft an engaging headline, and write a summary that highlights your unique strengths.
- Show Your Personality: Be authentic in your tone, share personal interests, and communicate your vision and values.
- Engage Online: Regularly post relevant content, interact with others in your field, join industry groups, and connect with potential clients.
- Consider a Personal Website: Purchase your name as a domain, and use it to showcase your work, share your bio, and link to your other online profiles.
By following these steps, you’ll be well on your way to building a successful contracting career. Take the time to prepare thoroughly, and you’ll be better equipped to enjoy the many benefits that come with this flexible and dynamic way of working.