Lurgen's Journal: Contracting

Contract vs Permanent. Soldier vs Mercenary. GP vs Specialist. Tough decisions....

Not too long ago, I had to make a hasty decision of this kind - made redundant from a "permanent" position, I had to find a job, fast. Two options were available to me: permanent, salary-based employment, or contracted, hourly-rate employment.

I've always been a permanent employee. Being a control freak, I need to be sure of where I'll be working tomorrow - if I leave, it'll be on my own terms. Each job I've taken has been for a reason. Sometimes, it's to get more money. Other times, to gain a skill. Once in a while, it's just for variety. But each time I've left a job, it's been at a time of my choosing. Except for this time.

Of course, this decision (like the control I value so highly) was an illusion. The reality of the situation is that I'd have to take whatever work I could get.

As it turned out, the local job market only had a few jobs that suited a person with my particular skillset. I've been lucky, in that I made sure my skills were fairly rare, fairly flexible, and very easily demonstrated. My resume is one of the ones employers like to see - lots of very specific, very clear examples of successful projects. Contracting suits itself very well to this type of resume.

When recruiting for a permanent placement, employers don't seem to look for specific skills as much as they look for a personality. They want somebody who will fit in, who won't rock the boat. If they bring specialist skills along with them, yay - but personality is important. This kind of leave me out in the cold :(

Contracts, on the other hand, want somebody to come in, do the job, then leave. With a bit of luck, they'll do the job well too. Employers look for skills matching the one or two projects at hand - personality comes a distant second. This is one time where being a jack-of-all-trades doesn't help you. Without being able to show specialist know-how, you probably won't get the job. The tricky part is being a specialist in enough fields to be able to find a consistent stream of jobs without looking like a generalist.

Personality always counts though. Don't get me wrong - being a skilled tech won't get you the job if you are a total monster. Me, I'm a control freak. I'm opinionated. And I'm annoying, especially if you're one of those dumb-ass managers who thinks he knows more than me. This bugs a lot of managers, because there are a hell of a lot of these dumb-ass managers out there. But enough about them - they deserve a rant all of their own.

So I'm out here in contractor land, and have been for a few months. I got lucky first time out - it's a good place to work, nice people, decent manager, good facilities, good equipment, and the money is damn good.

But is this contracting thing for me? No sick leave and no holiday pay is a big downer. No training is something I'm used to, so it's no biggie. The money is about the same as permanent roles (more in a moment on money). But the hours are nice and flexible, which I really like.

Money. The theory is that contractors get a higher hourly rate than permanent staff, therefore they earn more. wrong. They have the potential to earn more, but unless my situation is a rare one, they don't.

Lets do a little calculation, shall we? Take your permanent roles hourly rate.

To start with, contractors don't get any holiday pay. In Australia, you get 4 weeks per year paid leave minimum, plus 5 public holidays. That's 5 weeks, or roughly 10% of the year as paid time-off. So give yourself a 10% payrise. Sick leave is a thing of the past, so bump that up to 12%. Superannuation is something contractors have to deal with themselves, and at a compulsory 9%, we've just passed the 20% mark. If you get training, add a couple of percent on for that too. Add 3% for your payroll management firm (unless you want to be eaten alive by the taxation department!).

Overall, increase your salary by 25% and you now know what hourly rate you must charge just to break even. Ouch, eh?

There's a hidden catch - two actually. The first is kind of obvious - work more hours, earn more money. The second is a bit harder to see at first - contracts are short-term things in many cases, so assume you will spend some time between contracts sitting interviews (even if you do plan on hunting before your current contract expires, you won't always win). Based on 3-6 month contracts, my best guess is that you'd spend at least two or 3 weeks a year out of work (probably 5 or 6 though). That's probably about 10% more. 33% is a hell of a lot, eh?

So it's not all smooth sailing. If you get paid $50k for a full-time job, and want to know what it'd take to survive contracting, expect to need at least $35, probably $40 per hour. Good luck finding it though.

Contracting...

[arb]

Depending on which agency you go through, there are definitely benefits to going that route. I am a contractor, trying to establish a small business and not going through an agency. That means I have to take care of my own GST, super, etc, which is not really that difficult. The biggest pain is getting paid. Through an agency, you submit a timesheet to the agency, they pay you and bill the client. If the client is tardy paying the bill, it is the agency's problem, not yours. As a private contractor, I have to chase the client for payment. 8-/

Ideally, to make a decent showing, you should be looking to charge about 1.5 times your permanent rate in order to really break even. Charge twice and you are starting to reap the rewards of contracting. Bear in mind too that you should be aiming to put away a sizable nest-egg to get you through the inevitable quiet periods. The last year or two has been incredibly quiet here, although there are signs that it is picking up again. (At last!) You need to have enough behind you to get through a couple of months of no work. While it may be quite possible that you will never be out of work, you really never know when or where the next contract will come from.

One thing people don't realise is that not only does the contractor not really end up with much more money at the end of the day, but the client may be saving by using contractors. At my last permanent job it worked out that we could pay a contractor twice as much as a permanent employee and come out even. The overheads were that high! also, when there is no more work, you just let the contractor go, with permanent employees, you still have to pay them.

Re:Contracting...

[Lurgen]

Fortunately, I'm lucky enough to have a very good agency to work through, and a relatively good contract management firm handling all the annoying paperwork (GST, car leases, payroll, etc).

But the key really is to put something aside for those months you just can't find work.