So you want to be a contractor? Well, here's how it works
Free advice from Reg headhunter Dominic Connor
Back in the heady days of 1984, working on the development of Microsoft Unix (yes, that was a real product, AKA Xenix), we needed to write an Ethernet driver, but none of us really felt up to that. We needed to hire an expensive specialist.
And so I met my first contractor, who turned up in a far better car than anyone else and illustrated why contractors are hired: either because your boss needs something done by a specialist, or because office politics stop people from hiring permies who can actually do the job.
You’re attracted to contracting because your rate will be, on average, 50 to 100 per cent more than what you’d get as a permanent salary; but the key word here is “average”. You can expect your income to vary anywhere between one and three times the going salary and it’s the ones that hurt because you'll need all the cash you can to get you through the quiet periods.
You see, the killer is the gaps between contracts. It is much easier to turn down a contract than get one when the market turns on you. Which it will. Sooner than you think, and with more teeth.
Look at your cash flows and work out how long you can do without money before something bad happens. Three months is a hard minimum, better six. How much of an issue that is for you depends on getting the right answers to the following questions.
How good is the market for your skills?
Watch jobs boards over a few months, because the market fluctuates a lot and the contract segment follows a different logic both in skills and timing. A driver in the current market is firms not wanting to commit to hiring permanent staff. Headcount freezes that look good in quarterly reports make project managers turn to contractors even if they’d prefer staff.
So in an upturn, even this patchy one, the contract market goes up first and faster. Of course being easier to dump means contractors also get shafted first. A good test to apply is working out what would happen if your core skill dramatically went out of style. Are you a one trick pony? I got caught by that once when OS/2 went titsup on me, and it wasn’t pretty. You also want to look at the contract ads to see how many different places use your primary skillset and your backup skills.
Can you deal with the hassle?
As a contractor you don’t just turn up for work, you have to run your business as well; most of which work consists of accountancy. So the majority of contractors have an accountant. Even though you can do most of your bookkeeping work yourself, if your turnover hits the financial threshold then an accountant needs to sign off on it. The standard vehicle is a limited company that you own and are employed by. You make a decision on how much of the admin you want your accountant to do and he’s generally paid by the hour.
Be clear you are not employed by the firm you’re working at. There are, of course, more things you can set against tax when you run a small business, the test being that offset items must be “wholly and exclusively” for your “trade, profession or vocation”.
Personally I’ve always used an accountant for my freelance work, on the principle that although their time costs me about the same as the rate at which I earn it, they tend to get it done rather more efficiently. Put it another way: I’m about as good at accountancy as my accountant is at C++. Since the UK tax system makes the worst code you’ve ever read look like minimalist poetry, that usually saves me money.
If contracting is a short-term expedient for you, an umbrella company or being an employee of an agency are valid options, since there’s none of the hassle and expense of starting up a company and shutting it down again. You will, however, earn substantially less money and there is no more security than if you’re running your own company.
How good are you at interviews?
Plan on needing to find a new job a lot more often than a permie. Your interviews will be more focussed on whether you can hit the ground running than your potential to learn, and your exact fit to the job specifications rather than joining the team. That suits some contractors rather well. They’re happier to be hired on the basis of their expertise than being a “good fit”, sometimes for very good reasons.
You need to project yourself as a problem solver more strongly than for permie jobs with a clearer message of “I do X and Y” than a prospective permie. The upside is that decisions are usually made a lot more quickly with fewer people involved and not much of the “where do you see yourself in five years time” type guff.
Often they are hiring a contractor because they lack specialist skills in-house; so, logically, they're taking a punt on how credible you sound. As we both know, talking is not so well correlated with hardcore skills in IT. Even more than for permies it is thus worth googling the common interview questions in your area.
Do you have a contractor CV?
A good contractor CV is different to a permie one. It's much more buzzword heavy, more “I did X”, not “I was involved with”. Perfection (like mine used to be) is two pages of projects with a third page listing everything you can do, together with how good you are at each one to placate the buzzword searching software agents use. That doesn’t just mean the cool new Big Data, Federated Security and Web 4.0 stuff, because a good percentage of contract work is migrating from old systems to new ones.
So a permie will “forget” he did DTS and Cobol in the mid 1990s to emphasise leading edge credentials, but as a contractor, you may be leading the archaeological process behind the upgrade. Even more than permie jobs, contracting is buzzword driven and you must not assume that the recruiters can work out that because you did C++ under Windows, you must therefore know Win32, or have used “API”. I have personally been asked after 20 years of SQL whether I can write stored procedures. Yes, is the answer, and I've done it more than once.
It follows that contracting is usually less ageist than permie work since you are a bucket of skills, not someone that they care about in the long term. You may think that is how they think of you now as a permie, and that’s a common reason for IT pros considering the change.
Conversely, you can - as I’ve done a couple of times - ride the wave of a new sexy tech, because you’ve rightfully grown cynical about “being taken care of next time” when talking about pay rises.
You might not want to go back to your older skills, but they are insurance for when the new ones don’t bring in work. Be aware that contractors are often brought in to plug awkward shaped holes. Ideally they would have multiple people, but the reality is that the more holes you plug, the more they want you. I’ve got into leading edge projects because I happened to know some of the old shit and so will you.
Quality of work
I’ve often heard managers pronounce that they keep the best work for the permies, which is pretty much an industry standard lie to try and reconcile permies to the idea that the bloke sitting next to them earns a lot more. The brutal reality of managing a project is that you use any resource that isn’t already 110 per cent allocated that you think can actually deliver. You can try to play favourites or you can keep your job, pick one.
Can you deal with recruitment agents?
You will deal with them more and if that’s a deal breaker, best you know that now. Agents aren’t really agents. This is a misnomer that accounts for much of the ill feeling towards them, as they are not someone who acts on your behalf; they are middlemen, matching up buyers and sellers and taking a cut. Of course, both sides feel they are paying the agents' margin, thus making them unpopular. Their conduct varies a lot.
As a contractor I saw my CV not only sent to my current client by “accident” but so mangled that at first I didn’t recognise it. At Deutsche Bank, an ops contractor I worked with denied rumours that he’d worked at JP Morgan previously out of shame, given JP Morgan had the worst IT of any major bank. So we asked what he’d done in those two years. “Time” was the unspoken answer. The agency had simply invented a job to cover up his time in prison for theft.
The trick to dealing with recruitment agents is not to think of them as human beings, but as systems that you have to make act the way you want. If you’ve fought computers long enough to know that sometimes you can’t put a UK postcode into a textbox that flatly refers to accept anything other than numbers, then this should make sense. Your task is to program the agent to get money. Saying that agents “should” do X or Y is as much use as saying that beer should be free. To get the output you want, you have to do what works.
Agents are sales people, motivated by money, so by making yourself easier for them to sell, you both get what you want. IT contract sales is a light touch, volume-based game, so to optimise your chances you need to have the buzzwords already on your CV. If the agent asks how much Swing, Radius or testing you’ve done, deliver a (truthful) variation on your CV that covers it in a bit more depth and get it off quickly.
Are you flexible?
You go where the work is to do things people will pay you to do. I emphasise this because of the number of commentards who whined about getting emails for jobs that are more than walking distance away.
My longest ever contract was 120 miles from home. Being single, gigs in Denmark, Italy, Sydney et al were - naturally! - great fun. Sure, take the offer that’s close to home and upgrades your skills, but contracting is a decades-long path. Sometimes the way forward is downhill.
Even given the low percentage of women with proper jobs in IT, the number of women contractors surprises me, even though for many of them it ought to be a good option. If you put the effort in, it can be more flexible than permie work and you can handle issues like childcare vouchers and other issues more directly. Logically, it ought to be more common among women with kids. But it’s not, strangely. If you do know why it isn't so common then feel free to comment at the end of this article.
A cultural change that comes with contracting is you’re there to just do a job. Advancing ideas about what is good for the firm is often unwelcome. This may lead you to the idea that being a contractor frees you from internal politics, but the reality is that you just have a different type.
At one site, the permies were told the lack of bonuses and pay rises this year was because (and I quote here) “the contractors are sucking the lifeblood out of the business”, said by the bloke who the week before had spent hours persuading me to come help a critical project that was going badly wrong. A few of the permies decided to buy me a beer to ask how they could move from being sucked to being a sucker.
A difference between managing permies and contractors is that you find things for your set of permies to do and hire contractors for the difference between what they can get done and what you’ve promised to deliver. When budgets get cut, the contractors might be more dispensable than the permies, with HR pushing the idea of losing the contractors first. This doesn’t always work so well because, after all, the contractors were brought in for specific tasks that needed doing.
Some contractors never use agents. As there’s no middleman involved, you can make more money that way, assuming you have decent negotiation skills. However, some clients are slow at paying and you can get into arguments over what exactly constitutes doing the job properly.
I hope you’re not shocked to read of a correlation between their cashflow problems and a requirements change. It is entirely possible to build up a set of clients who know and trust you, especially if you follow the advice above, but it’s naïve to believe that you'll always be in demand. The odds are that you’ll have to deal with agencies at some points.
A headache for IT managers is “fractional people”, where you need more skills than can be fitted within the headcount and there's not enough work to keep that many bods occupied. So if the project is coming to a successful end, it is worth coming to an arrangement for you to return occasionally and help out where needed. They keep their costs down and you smooth out the cashflow bumps in an uncertain future. I’ve done it myself where I’ve contracted to take N days of work from the freelancers in return for a commitment for them to come when called. They got the money, I showed my bosses that I kept costs in check and had coverage for occasional crises. One system I ran eight years ago is still supported that way.
That’s a key difference between contractors and permies. When you fire a permie he is not your friend. A request for help three months later might be met by mocking laughter. For a contractor it’s an earning opportunity, as long as he’s been smart enough to leave on good terms and has remembered to send the very occasional email asking how things are.
Some companies are notorious for cutting rates part way through a contract if the profitability of one of their projects needs upgrading. They will say something like, “you accept the cut or we will terminate your contract”, sometimes without bothering to let your immediate manager know.
You need to start looking elsewhere as soon as you hear of the first cut, because it may not be the last. The reason they think cutting rates is efficient is that most contractors aren’t stupid enough to walk without a new contract. Instead they bide their time and walk at a time that suits them. Since the effect of your leaving (i.e. problems!) shows up much later down the line, the cause and effect of said problems is too far separated for them to notice.
Given the last government’s “close relationship” with bodyshops like Capita, it probably doesn’t shock you that they tried to shaft the freelancers that competed with them.
The Professional Contractors Group came into being and has fought the good fight ever since, offering help to contractors that HMRC is trying to screw over.
The main issue contractors face is whether you are a “surrogate permie”, i.e. just dodging tax by claiming to be freelance - like senior faces at the BBC, or even the tax people themselves. You need to ensure your contract doesn’t even look like one for permanent employment. So, no mention of holidays or any permie-style rights or obligations. Being in one place for too long can make you vulnerable to an expensive attack.
That’s why you need advice from an accountant. It’s probably worth joining the PCG as well; either will help you get the dividend-salary divide kosher. ®
Dominic Connor is a City headhunter who worked as a contractor. He has hired - as well as fired – contractors for 15 years.