Permanent Salary vs Self Employed

Samsonite1

This is a bit of a wide question/discussion potentially.

I would appreciate peoples' thoughts on whether they have figures in mind for when permanent salaries are better than self employed or contracting rates. Or, perhaps the question should be - is there a multiplier to apply to an annual salary before a non-permanent rate makes sense?

The reason for the question is that I work in an industry where individuals often leave pretty good permanent jobs and go it alone. They are never short of work and they no doubt make plenty.

I think about it often, but always come back to the permanent job with benefits and think that a lot of stress is removed. There must be a tipping point where it makes more sense to move on though?

Thanks,
S

Wizzbang

It depends whether you want to take the risk of not having a guaranteed salary. I jumped ship to self-employment in 2011, but although you can charge a higher hourly rate you have to take out so many expenses.

Yes you can claim some of them back. But you'll never have sick pay or holiday pay. You'd need to be certain you could cover that or take out insurance to cover yourself. Even when you think you know everything, there's always something new to learn- like I knew the types of insurance I needed, but didn't realise I'd also need to be registered with the ICO because I now handled data protection issues.

You'll need to potentially devise all your own policies for complaints etc. Setting up your own business sounds good, but you'll probably make a loss for the first year whilst you get things established. Can you cover that? Also, do you know you'll have guaranteed work to start? What if all your former colleagues have taken the customers? If you're the only income in your family or even if you're single, I wouldn't advise it. I ended up having to ask family to pay my bills in the first year.

Happy to answer any specific questions you may have.

w00519772

Do you have a mortgage? I would like to become self employed one day, but I want to pay off my mortgage first. Then I can take more of a risk.

motorguy

Samsonite1 wrote: »

This is a bit of a wide question/discussion potentially.

I would appreciate peoples' thoughts on whether they have figures in mind for when permanent salaries are better than self employed or contracting rates. Or, perhaps the question should be - is there a multiplier to apply to an annual salary before a non-permanent rate makes sense?

The reason for the question is that I work in an industry where individuals often leave pretty good permanent jobs and go it alone. They are never short of work and they no doubt make plenty.

I think about it often, but always come back to the permanent job with benefits and think that a lot of stress is removed. There must be a tipping point where it makes more sense to move on though?

Thanks,
S

I made the move from permie to contracting in Dec 14. I was in a very decent job role and on good money (though about 1hr 10 each way commute)

I've been aiming for 45 weeks fee earning per year and year one i achieved that no problem.

On paper, those 45 weeks per year bring me in double my gross salary of my previous permie role. I'll pay significantly less tax too, but then i've some travel expenses - flights and accommodation when on customer site - that i have to factor in.

The current contract i'm in, i've been working from home since last August, and am in the process of agreeing a second extension.

What i like about it all is that i'm in a company, performing a specific task or role for a set time and then leave. No office politics, no getting lumbered down with extra work or extra responsibility.

I looked at contract rates before i started and worked out the minimum rate i could accept and still be as well off, then the rate i thought was acheivable, and then my stretch target rate.

My first contract was at my stretch target rate, the next above that, and the current one above that again, so well pleased.

motorguy

w00519772 wrote: »

Do you have a mortgage? I would like to become self employed one day, but I want to pay off my mortgage first. Then I can take more of a risk.

If you are good at what you do, and do your homework beforehand, it shouldnt be a risk.

Though bear in mind, not everyone has the skills needed to be a contractor and make it fly, so make sure you know you do.

motorguy

Wizzbang wrote: »

It depends whether you want to take the risk of not having a guaranteed salary. I jumped ship to self-employment in 2011, but although you can charge a higher hourly rate you have to take out so many expenses.

Yes you can claim some of them back. But you'll never have sick pay or holiday pay. You'd need to be certain you could cover that or take out insurance to cover yourself. Even when you think you know everything, there's always something new to learn- like I knew the types of insurance I needed, but didn't realise I'd also need to be registered with the ICO because I now handled data protection issues.

You'll need to potentially devise all your own policies for complaints etc. Setting up your own business sounds good, but you'll probably make a loss for the first year whilst you get things established. Can you cover that? Also, do you know you'll have guaranteed work to start? What if all your former colleagues have taken the customers? If you're the only income in your family or even if you're single, I wouldn't advise it. I ended up having to ask family to pay my bills in the first year.

Happy to answer any specific questions you may have.

If hes going contracting per se, then he shouldnt be making a loss if hes fee earning. Yes, if you're self employed, but contracting is basically getting a larger day rate for a set period of time (usually 3-6 months)

absolutereturn

As a matter of interest, if you work continuously for the same employer for more than two years, you could be deemed an employee even if you invoice as self-employed or using a limited company.

Samsonite1

Partly why I was asking at this point in time was that circumstances have changed over the past three or four years. I did actually do contracting for a year, but I do not count it properly because it fell into my lap (e.g. I did not have to go out and find work). I moved countries, my previous employer needed help so offered me £400 per day (quite low for contracting generally) and all expense. My salary had not been that high, so it was a good deal for me. I could arguably get double that rate now as a contractor.

Fast forward to now and things are different because my permanent salary is much higher and I have a child. I think the sensible option is to stay put because I have no big issues with my current job although it is growing fast and changes are being implemented rapidly - I can spot the signs of a company becoming less pleasant/comfortable to work for, so I expect to be looking over the fence in a year or two.

Other people I know are still leaving their well-paid permanent jobs for the contracting route - they say that it is an improvement in most ways (given that there is no shortage of work), but the down-side it that you definitely do not get more spare time as you want to keep securing your long-term contracts and generally the clients expect you to be available at the drop of a hat.

To me it seems like a complex decision - coming up with an amount of money to earn that would make it worthwhile - it would probably have to be twice as much to cover benefits and additional expenses, in addition to covering downtime.

So getting the money right is not straightforward (to me at least). On the other hand, one issue I find with being permanent is that I often have to juggle two or three "full-time" projects - by that I mean that one would keep me busy full-time and if I were a contractor, I could just handle one of these or at worst - charge extra for the extra hours on another project. As a permie, I have to suck it up and essentially employers get to charge the clients for all your extra time, while you just get extra work and extra stress. I suppose that is the non-money aspect that appeals.

motorguy

Samsonite1 wrote: »

Partly why I was asking at this point in time was that circumstances have changed over the past three or four years. I did actually do contracting for a year, but I do not count it properly because it fell into my lap (e.g. I did not have to go out and find work). I moved countries, my previous employer needed help so offered me £400 per day (quite low for contracting generally) and all expense. My salary had not been that high, so it was a good deal for me. I could arguably get double that rate now as a contractor.

Fast forward to now and things are different because my permanent salary is much higher and I have a child. I think the sensible option is to stay put because I have no big issues with my current job although it is growing fast and changes are being implemented rapidly - I can spot the signs of a company becoming less pleasant/comfortable to work for, so I expect to be looking over the fence in a year or two.

Other people I know are still leaving their well-paid permanent jobs for the contracting route - they say that it is an improvement in most ways (given that there is no shortage of work), but the down-side it that you definitely do not get more spare time as you want to keep securing your long-term contracts and generally the clients expect you to be available at the drop of a hat.

To me it seems like a complex decision - coming up with an amount of money to earn that would make it worthwhile - it would probably have to be twice as much to cover benefits and additional expenses, in addition to covering downtime.

So getting the money right is not straightforward (to me at least). On the other hand, one issue I find with being permanent is that I often have to juggle two or three "full-time" projects - by that I mean that one would keep me busy full-time and if I were a contractor, I could just handle one of these or at worst - charge extra for the extra hours on another project. As a permie, I have to suck it up and essentially employers get to charge the clients for all your extra time, while you just get extra work and extra stress. I suppose that is the non-money aspect that appeals.

I agree totally with that.

If you've a child it can be difficult, especially if you have to maybe stay away from home if your contract isnt local.

My boy is 22 now and has moved out, so its not much of an issue for me. I'd a particular set of circumstances that made it the right time for me to do it, and i'm certainly enjoying it and making great money. I was crapping myself at the time though.

If you're comfortable in your job role, enjoying family life and earning decent enough money then thats probably reason enough for most people not to.

Samsonite1

motorguy wrote: »

I agree totally with that.

If you've a child it can be difficult, especially if you have to maybe stay away from home if your contract isnt local.

My boy is 22 now and has moved out, so its not much of an issue for me. I'd a particular set of circumstances that made it the right time for me to do it, and i'm certainly enjoying it and making great money. I was crapping myself at the time though.

If you're comfortable in your job role, enjoying family life and earning decent enough money then thats probably reason enough for most people not to.

Thanks - I know it seems like a no-brainer but I am looking to the future and trying to keep my options open. I could stay here for years, but I would feel happier knowing that I could do fine if circumstances changed - rather than waiting until something happens and having to work it all out at that time.