Flippity-Flop: Weighing up a Return to Contracting

[malvolio]

So this ^^^^ is what I said



I'm using actuals, i.e. what ends up in my personal bank account.... so to be clear:

My Permie net pay = what actually went into my personal bank account
My Contract net pay = what actually goes into my personal bank account

My Contract net pay = 2 * Permie net pay and in both roles my pension received\receives the same amount.

What you don't know is what my permie salary was and what my contract rate is but the above is true regards money going in to my bank account and pension.

What I was trying to show is that to compare between permie and contracting is not possible in general because it is a personal thing, the above is what I used to determine whether to leave my permie role for this contract.

The OP asked what formula people used, this is mine yours might be different, hence it's not really possible to answer as it's so personal, which is what I was actually trying to show :-)

Which is what I said in the second post in this whole thread...

[eek]

Which is what I said in the second post in this whole thread...

And this was the OPs question

What is the formula people use for weighing up a permanent versus contractor salary?

So twice take home pay is a very accurate answer....

[gables]

Which is what I said in the second post in this whole thread...

I didn't say you didn't, I was just to trying to illustrate the point with what I did\do when weighing up between a permie and contract role using what is important to me and you never know it might be helpful.

[ladymuck]

There isn't a one size that fits all formula. Way too many variables.

As a permie, you know what your income and outgoings are. You also know what other non-tangible items are covered by your employer that you may / may not wish to retain (at your own cost).

When looking at an outside contract you need to work out what drawings you need to take to cover your outgoings and what you need to cover the tax liabilities on those drawings (CT, VAT, PAYE, etc etc). You'd also need to add on how much you want to stash in your war chest and how much you want to put into a pension and ensure the day rates for your skill set cover all of this.

When looking at an inside contract, you need to work out the net take home for the rates being offered for your skill set and consider whether you'd need to take all the money to cover your outgoings or can you afford to pay large chunks into your pension to reduce your tax liability.

Step 1 for me would be to put everything I currently know into a spreadsheet.

[northernladuk]

As I always say on these threads, there is much more to the decision than just weighing up a contract rate vs employment. There is no way to accurately define that figure and it's going to change contract by contract and other factors like bench time over a period. It's pointless spending too much time to get to the nearest 100 or even 1000's of quid. Get it ball park to guide your decision.

But there is much more. Is the perm job interesting, growth, easy, suit you. Is the next gig you are looking at any of those things and bear in mind that gig will evaporate and some point and you've got to go through it again. Can you stand bench time, can you travel to all contracts as clients have back to office policies. If you can't are you constrained to contracts in an area seriously impacting you ability to get end to end gigs yadda yadda. Anyone of these could make the actual rate vs wage pretty irrelevant.

I very much doubt the rate vs wage argument is enough to make decisions around leaving perm gigs and going back to contracting. Even when considering inside vs outside. There are many more factors that are better placed to inform your decision than focusing purely on the dollars.

[SussexSeagull]

Just because your first contract is worth x amount it doesn't mean to say subsequent ones will be worth the same (although obviously they can go up) so any financial comparison is vague at best long term.

You do have to prepare yourself for the fact that contracting can be a lonely experience. Most clients are perfectly fine and accommodating but you need to be prepared to not have the backup of colleagues, line management and HR should problems arise as some environments default to blaming the contractor if something goes wrong. Conversely being lauded with praise after finishing a project on a Friday is usually followed by being on the bench on Monday.

As for desirable skills, I am not sure you can really tell if you have them until you try but a cursory glance on here shows it varies between contractors with 'niche' skills having to beat off clients and others who have worked solidly, sometime for decades, suddenly unable to find work at the moment.

Finally throw in the IR35 changes which have diminished the financial argument for going out on your own,

When it works well I love having a year or longer contract followed by a month or two off to recharge (historically not through a grand plan, that's how long contracts took to find a finalise in my experience) but it isn't working out that way for me and. seemingly, others at the moment.

[ladymuck]

Just because your first contract is worth x amount it doesn't mean to say subsequent ones will be worth the same (although obviously they can go up) so any financial comparison is vague at best long term.

^^ this.

I've had swings up to £175 a day from one contract to another. My very first contract in 2005 paid that per day!!

[hugebrain]

Just double the hourly rate to get the equivalent salary.

Unless you are in Switzerland where you can triple it cos of all the free holidays.

[WTFH]

Just double the hourly rate to get the equivalent salary.

Unless you are in Switzerland where you can triple it cos of all the free holidays.

Based on what?
How is your company set up?
How much do you put into a pension?

Are you LPM1?

[fiisch]

Thank you for inputs - I appreciate the differences (I enjoyed the good, bad and ugly in my relatively short (5 yrs) spell as a contractor) - in, out and FTC.

This post was more about settling an argument with my wife - I recall from the beforetimes of IR35 there was a loose formula (day rate multiplied by X) which gave a rough approximation of what was an equivalent take home, taking into account void periods, holiday etc., albeit a very rough guide.

My original intention had been to use this formula to beat my wife over the head and show that really my current pay means I'd be silly to revert to contracting.

However, as is often the case, I've started to come around to her way of thinking. Back of a fag packet maths:

- £90k salary, rough take home £4.8k + £1.1k pension = £5.9k net.
- An inside purportedly long-term contract - £750/day - £8.1k, assuming 8 weeks off, - £800 month commuting expenses = £7.3k net.

Playing Devil's Advocate, am I not significantly better off financially with the inside gig, and have added flexibility around how much I wish to take home/pay into pension, and how much holiday I wish to take.