Changing from employment into contracting work

[jamesbrown]

Thanks for this.
I might not be a seasoned contractor but I am a recognized expert in my field and well known around the world in my field.

I don't want to overestimate so that's why I went with 450 because that was also based upon first offers I got. I will probably get more if I negotiate.

Based upon a salary of 100k, the net pay is around 5.4k net/monh. According to the above calculator that's the same as 40 weeks worth of 450/day.
If I compare it to a 90k job (5k/month net) that's about 35 weeks worth of 450/day.

Is this a correct comparison or am I missing something.

In that case, you may be worth considerably more than 450/day. It's difficult to know until you start putting feelers out. If you're an expert in a niche area, you'll know many of your potential clients anyway, so do some networking and see what comes up. You should be able to go direct, and you may be able to negotiate fixed prices. In your case, having contracting experience may be somewhat less important, but it generally counts for a lot in securing gigs. It also matters in terms of how you manage your business, and you're unavoidably green in that respect; there are countless stories of new contractors that extracted pretty much all of the profit from their first gig, struggled to secure a second gig, and returned to permiedom, bruised (or worse). Comparing permie and contracting income is tempting, but it's a classic n00b mistake if you take it too literally.

In terms of the comparison, you're missing quite a bit. First, you're not accounting for benefits with a permie job. Second, you're not distinguishing between YourCo and yourself, as mentioned above. How you choose to extract profit will depend on many factors, but it wouldn't be sensible to extract everything, at least until you have a significant warchest built up. Third, you may not be accounting for expenses correctly (the expenses incurred will depend on the role you take). Fourth, you're not accounting for time between contracts, partly because it's very difficult to do when you're a specialist. I'm in a similar position to you, and the downside risk is that you can spend significant time benched for a variety of reasons (especially if you're not in it purely for the money, which you shouldn't be). Anyway, do some more reading (--------->) and networking before you make the leap and good luck!

[jamesbrown]

You need to appreciate then unless your skill is generic (which it doesn't seem to be) - you won't work even 8/9 months of the year.

This is the reality. Some years will be great, other years will be dismal, other years you'll choose to enrich your existence, one of the significant benefits of being a contractor. All that adds up to a highly unpredictable and variable income stream (unless you plan for it). For example, the amount I've invoiced in my current year versus my last year is going to differ by about 50%.

[Scratch It]

I haven't seen this advice offered for a while, though the general consensus used to be permie annual salary/1000 as an equitable hourly contracting rate. *pinch of salt*

[Passero]

Thanks for the advice.
I think I will stick with the perm job

It's strange because often people ask me why I'm not going into contracting work because everybody seem to think you can earn a lot more money with it...

That said... My perm job offer is for a couple of months and I have a few contracting offers for a couple of months so I might think of doing just a couple of months worth of contracting while waiting before I can start the perm job.
This is low risk because the perm job is lined up and I will have contracting work until then.

That probably changes a lot, especially in the calculations.

[BlasterBates]

Thanks for this.
I might not be a seasoned contractor but I am a recognized expert in my field and well known around the world in my field.

I don't want to overestimate so that's why I went with 450 because that was also based upon first offers I got. I will probably get more if I negotiate.

Based upon a salary of 100k, the net pay is around 5.4k net/monh. According to the above calculator that's the same as 40 weeks worth of 450/day.
If I compare it to a 90k job (5k/month net) that's about 35 weeks worth of 450/day.

Is this a correct comparison or am I missing something.

Travelling costs. As a contractor you usually have to travel. This will really eat away any advantage. On top of that you have the inconvenience and not insiginificant time of travelling and living away.

The other factor is IR35, as a contractor you avoid it, but it's a risk. At some point it may bite. Most contractors are being left alone at the moment, but is a risk. A salary of 90K + is not to be sniffed at.

You seem to be in a niche where contracts are easy to come by but on the whole the contracting market is more tricky than it was.

[parallelmonogamist]

I'm reading this and wondering what it is that's different about me!

Comments range from "don't do it for the money" to "permie salary/1000" as an hourly rate. Personally I'm in contracting primarily for money and then flexibility. The "/1000" calc would leave me with a pretty poor annual salary, compared to my take home now. In fact, back of fag packet, it seems like almost half of the take home.

Maybe I'm missing something, but I have been doing it for 16 yrs now and have been almost fully employed in that time. Damn I need a holiday!

So in short, I would offer a different experience to most of the other commenters, but best talk to a lot of similar people face to face (i.e. networking as others have said) and make your mind up after a good while of mulling).

[malvolio]

I'm reading this and wondering what it is that's different about me!

Comments range from "don't do it for the money" to "permie salary/1000" as an hourly rate. Personally I'm in contracting primarily for money and then flexibility. The "/1000" calc would leave me with a pretty poor annual salary, compared to my take home now. In fact, back of fag packet, it seems like almost half of the take home.

Maybe I'm missing something, but I have been doing it for 16 yrs now and have been almost fully employed in that time. Damn I need a holiday!

So in short, I would offer a different experience to most of the other commenters, but best talk to a lot of similar people face to face (i.e. networking as others have said) and make your mind up after a good while of mulling).

The salary/1000 thing is a very approximate rule of thumb so permies can get some idea about the relationship between their salary and the likely rate for the role as a contractor; it reflects the probability that you won't work 220 days a year. There are those who do of course, which throws the numbers off.

That said, unless you are very special (or very overpaid, or cheating!) the overall personal income differential between contract and permie for most roles these days isn't all that wide, given the other personal overheads you typically get with contracting, like working away from home and the general uncertainty. Moving from perm to contract just for the money may well not work out too well, hence the advice always to look at the wider picture

[jmo21]

I'm reading this and wondering what it is that's different about me!

Comments range from "don't do it for the money" to "permie salary/1000" as an hourly rate. Personally I'm in contracting primarily for money and then flexibility. The "/1000" calc would leave me with a pretty poor annual salary, compared to my take home now. In fact, back of fag packet, it seems like almost half of the take home.

Maybe I'm missing something, but I have been doing it for 16 yrs now and have been almost fully employed in that time. Damn I need a holiday!

So in short, I would offer a different experience to most of the other commenters, but best talk to a lot of similar people face to face (i.e. networking as others have said) and make your mind up after a good while of mulling).

I suppose the point about money is really for newbies in terms of don't just assume you will be working 48 weeks a year, contracts always running to the end, lining up back to back contracts, no holiday or sick pay etc.

In realistic terms like you, it is a lot about the money for me too. I reckon my company earns approx 2.5 - 3 times what I could get permie AND allows me to stay strictly coding which is what I like to do. To get more in permieland in my area, I'd need to move into management, which I am in no way interested in.

So unless I start hitting a dry patch of 6 months or more all the time between short contracts, then contracting is a no-brainer for me.

[TheFaQQer]

Currently they pay me around 70k but that's below market value (one of the reasons why I want to move away from them). I get offers to start elsewhere between 90 and 100k.

I know that when I get into contracting work, I will probably get around 450 a day. Recently I got an offer for a 6 month contract for 475/day.

Personally I think you'd be daft to go from 90k to £450 a day. An ex contractor I work with moved from a contract rate of about £575 a day to a £100k permie job a couple of years ago.

If I was offered a permie role on £100k a year, I'd be sorely tempted to take it, and my day rate is typically above the range you are talking about.

[TheFaQQer]

I might not be a seasoned contractor but I am a recognized expert in my field and well known around the world in my field.

Is that in something which has a constant demand? When I work in my niche (recognized expert, known around the world, conference speaker etc.), my rate goes up. But there isn't enough of that to keep my fully occupied, so I have to factor in those gigs where my expertise is a bonus rather than something which they are actively looking for.

It does help - gig before this one, I was the only name in the frame because as soon as the client told the agent their requirements, he immediately said "you need this guy". But unless it's something you can rely on for all your roles, you may need to look at what else you can do between those niche ones.