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Whats all this craze around 'Contracting'?

 
#1 Whats all this craze around 'Contracting'?
09/06/2012 02:12

Aces

So many recent threads on here have been about bagging the right contracting role...is this for real?

If I break it down - the best contractor will work 10 months a year (approx 1 month goes securing a new role and a month goes for bank holidays and time off)

So then, unless you are extremely wanted with a niche skill, an average contracting role sums up to £300 or £400 a day - this equates to £80000 assuming a 20 day working month.

Take a decent Consulting firm with median pay, add in insurance, medical benefits, insurance and possible share options - even if it comes to a few £££ less, isnt that a more viable option than having to crank your neck maintaining a network (basically kiss a$$) to always have a role available to move on to?

Then you factor in 4 day weeks, career growth, time on bench, paid vacations, trainings and (all depending on how smart you are) fewer working days over the year why do people lean so much towards Contracting?

This post is by no means applicable to those on the best rates out there but indicative of the average contracting day rate, which has been going downhill for some time now

A

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#2 RE: Whats all this craze around 'Contracting'?
11/06/2012 08:32

Mr Cool to Aces (#1)

Oh dear!

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#3 RE: Whats all this craze around 'Contracting'?
11/06/2012 11:08

Mr Cool to Aces (#1)

Aces,

When you joined Accenture, did you have to do a case study as part of the interview process? If so I presume you applied a slightly more rigorous approach to the analysis!

I’m afraid your base data is way out and your value assessment skewed. You also load the contract world with assumed “costs” which magically don’t apply to the world of consultancy, while affording consultancy with benefits that are closed to contractors?

Contracting and consultancy both have their merits and certainly there are people who consider one of them out of desperation to leave the other (rather than on their true merits), but the picture you paint is simplistic in the extreme.

3/10 - Must try harder!

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#4 RE: Whats all this craze around 'Contracting'?
11/06/2012 16:47

Camster to Mr Cool (#3)

3/10? You're in a good mood!

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#5 RE: Whats all this craze around 'Contracting'?
11/06/2012 20:53

Aces to Camster (#4)

Could you then break down the numbers for me? I must admit I am not close to contracting however comparing average contracting rates to an average consulting role. I did not compare those on £700 day rates as their equivalent will be those on 6 figure packages in Consulting.

Additional benefits I do stand by because pretty much most of your career benefits come through permanent roles. Training, paid leaves (your entitlement plus those when not on an 'active' project role) an easier path to senior roles, moving across areas of expertise thus allowing you to actually gain specialism in more than one area are examples of what one gets in perm roles that I dont see how contractors are able to

I may be quite off the mark here but if otherwise, maybe I will try to get into Contracting as well someday :-)

A

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#6 RE: Whats all this craze around 'Contracting'?
12/06/2012 16:31

Mr Cool to Aces (#5)

A looooong post.......

Comparing contracting to consultancy (or any other permanent employment) is multi-faceted. It’s not just about money, but about quality of life, risk appetite, corporate promotion appetite, and lots more.

However a few basics….

You can’t compare a £400 a day contractor with an 80K perm salary. Only a brave contractor would bank on 10 months work per year. More sensible would be to assume no more than 8 months a year at 20 days a month = 160 days. An 80K perm person would need to target a day rate of £500 a day. If they then work closer to the realistic maximum of 220 days in a year then they make 110K, which is just like an 80K perm getting a 30K annual bonus in a really good year.

If you do know any £400 a day contractors, then its more likely that they should be compared to perm people on about 60k-65K, not 80K.

Even then, the comparison is not simple. London weighting is much more obvious on contract rates than on perm salaries, as is the premium for certain industries – banking generally and investment banking in particular.

You also can’t say contractors don’t get benefits. All but the silliest contractors work out their day rate based on the package they would receive as perm, not just the base salary. Whether those contractors subsequently purchase those benefits (through their limited company) is another matter, but no different to a permanent employee choosing which benefits to sign up to through a flex-benefits package.

Health insurance for example. What makes you think contractors don’t have it? £150 a month will get you a fantastic cover. At 500 a day the cost is paid for before your elevenses on the first working day of the month. Remember – it’s a corporate tax deductable item.

Benefits are taxable for both contractors and perm in exactly the same way – they show up on your P11D. In both cases the COMPANY pays for them as a pre-tax business cost and the employee pays any personal income tax due. A clever contractor will include any P11D benefits into their tax planning and thus minimise tax due.

Which of course brings me onto tax. It’s well documented elsewhere, but contracting is tax efficient. Just as an example, a perm salaried employee on 80K will take home 53K per year and if in London will spend up to 3K per year commuting. A contractor on 80 turnover will pay the commuting cost as a corporate travel expense and THEN take home between 60K-65K per year depending on whether their spouse works or not. There is nothing immoral in this. A contractor WILL generate almost exactly the total tax footprint as a perm, but a large chunk is VAT which is paid for by the contactors end-client.

What is clear is that if you have a good run of billing as a contractor, the tax flexibiiity is likely to make you a lot better off. 200 days of billing at £800 a day would require a whopping £190K salary to provide the equivalent take-home and pension.

However, it is simply not all about the money. A fellow contractor has just turned down an extension to go cycling around Euroope for three months – there will be NO hit on his career as a result. He does it every second year!

You mention having to network? Are you suggesting that there is less networking in consultancy than in contracting? Lots of contractors do not network – they just rely on agencies to find work. Imagine what kind of projects you’d be allocated to to if you did that in a consultancy! How long would your promotion take!

You mention working from home. Again what makes you think that contractors don’t do that? In many cases the right to work from an independent location is written into their contract as part of showing they are self-employed. I WFH a few days a fortnight.

You also mention progression. That’s the one area that is tough in contracting, You get asked to do what you’ve already clearly done. However the good contractors do still make sure there is some functional/knowledge growth in each engagement. But it is hard to move UP. However, lots of contractors really like that. They get to do what they like, without ever having to worry about “Up or out”.

And finally….NO annual form-filling, balanced scorecard bull$hit, performance appraisals! Woooooooooooooo!

There are lots of good things about consultancy/perm employment, but its too simplistic to assess the merit of contracting on the simple comparison of day rate x days billed.

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#7 RE: Whats all this craze around 'Contracting'?
12/06/2012 19:53

Tony Restell (Top-Consultant.com) to Mr Cool (#6)

Thanks as ever for the quality contributions Mr Cool, hats off to you for sharing your insights so freely.

Tony Restell

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