How to choose the best option for your career and lifestyle
If you are looking for a new job or considering a career change, you might be wondering whether to pursue contracting or permanent (FTE) employment. Both options have their advantages and disadvantages, depending on your goals, skills, preferences, and circumstances. In this blog, we will explore the pros and cons of contracting vs. permanent employment, and help you decide which one suits you better.
What is IT contracting?
Contracting is a form of employment where you work for a client or an agency on a specific project or assignment, for a fixed period of time or until the project is completed. You are not an employee of the client or the agency, but an independent contractor who provides a service in exchange for a fee. You are responsible for your own taxes, insurance, pension, and other benefits. You usually have more flexibility and autonomy over your work schedule, location, and rates, but you also have less job security and stability, and you may have to deal with gaps between contracts.
What is permanent employment?
Permanent employment (also known as FTE or Full-Time Employment) is a form of employment where you work for an employer on an ongoing basis, as part of their staff. You are an employee of the employer, and you receive a salary and benefits, such as paid leave, health insurance, pension, and bonuses. You usually have more job security and stability, and you can benefit from career development and progression opportunities within the organization. However, you also have less flexibility and autonomy over your work schedule, location, and rates, and you may have to deal with more bureaucracy and politics in the workplace.
Let’s delve a little deeper into the points above…
The Benefits of IT Contracting
You can earn more money as a contractor
You may have heard that you can earn more money than a permanent employee working as an IT Contractor and this is true.
How much more can vary greatly but in general someone on a salary of €60,000 can expect to earn €350 - €400 per day as an IT Contractor. To calculate the value of this in a yearly (salary) context you should multiply the day rate by 232 which is the amount of working days in a year less 20 days Annual Leave and 10 Bank Holidays (which you will not be paid for). Using this calculation you will someone on €350 per day will earn over €80,000 a year.
Tax breaks
IT Contractors can avail of certain tax breaks and can claim expenses on things like company car and office equipment that would not be possible for Permanent employees.
Getting a payrise
Most IT contracts are 6 or 12 months in duration at which point they may be extended. At this stage you can attempt to negotiate an increased day rate. While this is not always possible it at least presents an opportunity to ask for a raise. Such opportunities are not as common as a Permanent employee without a change in role or responsibility.
Work on interesting projects while upskilling
As an IT Contractor you can choose to work with the projects and clients that interest you. I know Contractors who took roles just to get access to a technology they hadn’t used. Armed with this new skill they had greater opportunities and earning potential for their next contract.
You can enjoy more variety and challenge in your work, and you can avoid getting bored or stuck in a rut.
Work / life flexibility
Many IT Contractors feel that they have more control over work schedule, location, and environment meaning you can balance your work and personal life better.
Politics
As an IT Contractor you can avoid the hassle and stress of office politics, micromanagement, and performance reviews to some extent.
The Drawbacks of IT Contracting
Lack of stability
The most common concern newbies to contracting have is around a “lack of stability” or security in relation to their job. In some cases this is a valid point. The process of removing an unsuitable or underperforming Permanent employee can be expensive and difficult for employers. However, many of these challenges are not applicable in the case of a contractor where the employer can simply choose to let the contract expire and then not renew. In most cases contractors who meet expectations will be extended.
Downtime
IT Contractors can experience a break in employment between contracts if they haven’t secured a new role before completing their current project. Experienced contractors usually have funds set aside to cover these gaps.
Additional administration
As an IT Contractor you have to manage your own taxes, insurance, pension, and other benefits, and you may have to deal with more paperwork and administration. However, there are accounting companies who specialise in this and for a small fee can assist.
IT Contractors sometimes hire a spouse to manage this additional administration.
Lack of structured career path
Many companies hire IT Contractors as they have a need for a specific skillset. They are willing to pay top dollar for this skillset and usually expect the contractor to deliver from the first day. As a result you may have less access to training, mentoring, and career development opportunities than a Permanent employee.
Things like certifications and professional memberships are not provided to contractor and you may have to invest in your own professional development.
The benefits of permanent employment
Job security
As mentioned above Permanent Employees enjoy a number of protections that ensure a degree of stability in the job. Even in times of economic challenges it is more beneficial for an employer to ride out the storm than to remove skilled workers only to rehire when the economy turns.
Company benefits & perks
In many roles Permanent Employees receive a comprehensive package as opposed to just a daily rate. This package often includes benefits such as pension and health insurance. It will also include paid Annual Leave, maternity leave and sick pay. IT Contractors do not receive such benefits and if you fall ill or take a holiday this is at your own expense.
Less administration
Your employer will manage your payroll and taxes at no additional cost.
Career development
In many Permanent roles you will benefit from training and mentoring opportunities. There will usually be a defined career path for you. This is not always the case with IT Contractors.
The Drawbacks of permanent employment
Earning potential
As a Permanent employee will likely earn less money per day or per project than a contractor, and you may have less room to negotiate your rates based on your skills and experience.
Lack of new projects
As a Permanent employee you will have less choice over the projects and clients that you work on having to work on what is assigned by your Manager.
This can become boring and many jobseekers are leaving for new challenges and opportunities to develop their skills.
Less flexibility
You may have less control over your work schedule, location, and environment, and you may have to compromise your work and personal life balance. Despite the “right to disconnect” many employees feel obliged to answer calls and emails or work on proposals outside of normal working hours.
Conclusion
Contracting and permanent employment are two different forms of employment that have their pros and cons, depending on your goals, skills, preferences, and circumstances. There is no one-size-fits-all answer to which one is better, as both options have their trade-offs and benefits. The best option for you depends on what you value most in your work and life, and what you are willing to sacrifice or gain. Ultimately, you have to weigh the pros and cons of each option, and make an informed and realistic decision that suits your needs and aspirations.