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295 posts

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# 177067 20-Jul-2015 22:37
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Hi,

I've always worked as an employee , but recently tempted with a mid-term contract opportunity. I don't know a thing about contracting  so I wonder what are the main differences between being a contractor and an employee, and what are the key points to look at for evaluating the offer. Also personal opinions on what rate would you expect to switch from a full-time employment to a contract.

All feedback and experiences welcome.

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  # 1348071 20-Jul-2015 22:53
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In general terms, versus being a "full-time employee" you get:

 

  • no paid leave
  • usually fixed-term (with possibility but no guarantee of renewal)
  • no "employee benefits"
Pay should be at least a bit higher than an equivalent full-time position to offset these

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  # 1348082 20-Jul-2015 23:12
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Contractor : more money (i'd expect 2-3 times the employee daily salary), no sick days (contractors never get sick) or annual leave, no training, need to complete gst returns and IR3 returns, indemnity insurance , AGENTS!!!  Good if you don't need to go via an agent. 

Check restraint of trade clauses, get the contract reviewed by a  lawyer if it looks overly detailed .


 
 
 
 


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  # 1348145 21-Jul-2015 07:34
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I've been both, extensive contracting experience. In IT contractors get paid around double, but with no sick leave, holiday pay, or job security. You have to invoice each month, you get paid 3-8 weeks after your invoice. You have to pay ACC direct - it's best to contact them as soon as you become a contractor and ask about CoverPlus Extra. You may need an accountant to do your GST and taxes, or alternately you can use Xero.com and have it do things for you - but that won't give you advice on any home office deductions and such.

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  # 1348154 21-Jul-2015 08:11
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As others have pointed out, contracting is generally an increased hourly rate, but you will generally only be able to charge for hours worked - i.e. no leave of any sort is paid. As long as the rate is negotiated accordingly, and you're at least half way decent at managing your money, this can actually work out well, particularly if you're the sort who doesn't take their full leave allocation (sick/annual/etc) in a given year. You can also typically claim some of the expenses involved in doing the work as tax deductible - depending on the numbers you're talking, I would suggest seeking some guidance from a qualified tax professional on this front.

You likely have less security, as most contracts give the 'employer' an easier out-clause (e.g. 30-days notice for any reason) than they would have with a full-time employee.

You will be more likely to be expected to provide some or all of your own tools (e.g. a laptop if you need it etc), depending on the contract.

There are also differing types of contracts, some may be project-specific and with a given workload to handle, others may be essentially just a full-time employee role, but where the company perhaps is unsure yet if it will be a long-term requirement.

In terms of actual rates, the hourly should work out as at least 1.2 times the 'full time employee' equivalent hourly rate. There are 2080 'weekday' hours in a standard year (52 weeks x 40 hours), so a $70k salary would be 70k/2080 = $33.65/hour. You would then calculate your contracting rate on the same total, but over between 1522 and 1752 hours, instead of 2080, depending on whether you are factoring in just public holidays / annual leave / sick leave (1752 hours workable), or other benefits as well such as training, kiwisaver etc (1522 hours). So you would have a contract rate for a $70k-equivalent position of between $39.95/hour (1752hrs) and $45.99/hour (1522hrs). A middle-ground between the two is probably fairly representative. Also bear in mind you would be charging GST on top of this, if the role is likely to be in excess of $60k/year gross.

You are directly liable to handle your own ACC/tax etc as a contractor, it is not done by the employer PAYE-style.

Edit: I should add, that there are the odd few contracts which may offer a weekly or monthly rate, rather than hourly or daily. Some of these will be structured in a way you can take some leave, provided the workload is completed in the required time frame. I have done some in the past whereby as long as the defined weekly/monthly project milestones are met or exceeded, they didn't care what hours or days were put in. This is, in my experience, a reasonably rare option though.



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  # 1348157 21-Jul-2015 08:16
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Notice period on a contract can be zero - get out now. They're more often a week or two.

There are also fixed term contracts, where some places try to pay perm employee rates with no allowance for the fixed term nature. In those you would get some benefits.

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  # 1348171 21-Jul-2015 08:52
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As per the previous replies, it also takes a mind shift for some people to fully embrace what contracting means.
All the financial stuff has been covered really well already. ACC for me as an IT contractor was around 2% of income, but ACC can tell you exactly if you call them.
When you are forecasting out what rate, do factor in some time off. You are going to need it. If you have a true hourly rate, the natural desire to do more than an 8 hour day will increase, as you are getting paid for each additional hour. And being IT, that opportunity usually springs up, especially if you are involved in a project! 
If you are a star, with a Can Do attitude and a willingness to listen/learn/develop, you will go well in contracting. Always find ways to extend your network, as future opportunities will spring up from that. Keep your CV updated continually and your Linked In profile should be updated to show what you have delivered recently. 
The downside;
- some still view IT contractors as mercenaries (an unfortunate outdated view) and this can be because they see their hourly contracting rate in relation to their salary. 
- there is admin work that you need to do, paperwork, accounting, invoicing etc which you are not paid to do

the upside;
- As I said, a willingness to work and learn will increase your income and give you some brilliant milestones to put against your name
- you may be able to income share (seek an Accountant's advice)
- certain business operating costs can be offset against your taxable income. For me, I claimed all motor expenses (fuel, rego, repairs) plus home office expenses
- if you do it well, you will be desirable and find yourself moving onto other contracts. Don't do it well and you could find yourself as a "one contract wonder"...

Best of luck, do your research and I am sure you will make a great decision!

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  # 1348173 21-Jul-2015 09:00
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IT contractors tend to be super focused on projects, you don't get any of the other stuff - recruitment, research, staff functions, stuff that's important and interesting but maybe not funded. Employees get their pick of the work, contractors do the rest.

 
 
 
 




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  # 1349900 22-Jul-2015 16:34
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Thanks for the extremely useful answers!

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Master Geek
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  # 1399164 2-Oct-2015 23:08
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Inphinity: In terms of actual rates, the hourly should work out as at least 1.2 times the 'full time employee' equivalent hourly rate.


As solely an independent contractor for the past 16 years I have to say that is far too little to charge for the benefits to the business. 2 to 2.5 times is much more realistic if it's a true contracting role where you can theoretically be out the door with no notice at all. I've always worked on that basis. Indeed I, and many colleagues, view a fixed term as semi-detrimental since you tend to lose rapport with other clients by getting too comfortable at one location for too long. Besides, variety is the spice of life.

The reality of notice periods though is quite different, unless perhaps you're incompetent or make a huge, costly mistake. Personally, I endeavour to see out my workload out rather than hand it over and clients usually aim for 1 months notice with that more often than not rolling over too.

After setting my own hours for all this time (start "late" finish "late" if working in the client's offices) I simply couldn't go back to the wage-slave life - at least not in Auckland - the traffic would just be too much.

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  # 1399169 2-Oct-2015 23:22
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timmmay: IT contractors tend to be super focused on projects, you don't get any of the other stuff - recruitment, research, staff functions, stuff that's important and interesting but maybe not funded. Employees get their pick of the work, contractors do the rest.


Not in my experience. I've (almost) always been invited to staff functions (not that I often actually go). Contractors will turn down any toxic work which gets left to employees who have no choice.

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  # 1399194 3-Oct-2015 07:22
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TonyR1973:
timmmay: IT contractors tend to be super focused on projects, you don't get any of the other stuff - recruitment, research, staff functions, stuff that's important and interesting but maybe not funded. Employees get their pick of the work, contractors do the rest.


Not in my experience. I've (almost) always been invited to staff functions (not that I often actually go). Contractors will turn down any toxic work which gets left to employees who have no choice.


It's very variable. I was usually invited to client functions, but one IT firm I contracted to didn't invite even their long term contractors (I'm talking 5 years +) to Christmas functions. I consoled myself with an overseas trip, since I could afford it, being a contractor.

Contractors can of course turn work down, but the most interesting work often goes to an employee if they ask for it. A weak employee might be assigned crap work, but where I've been it'll often be given to a contractor - someone will do it because of the rates paid.

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  # 1428929 16-Nov-2015 14:27
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Piggybacking on the OP, can anyone recommend an insurance provider for IT contractors / consultants for the indemnity / liability insurance? Not intending to claim (who is?) so low premiums are preferred!

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  # 1428934 16-Nov-2015 14:40
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shall0w: Piggybacking on the OP, can anyone recommend an insurance provider for IT contractors / consultants for the indemnity / liability insurance? Not intending to claim (who is?) so low premiums are preferred!


State Insurance offers this cover, as does QBE.

If you're going to work in public sector, ask what the going coverage rates are - I think it's $5m/$1m/$500k for public, prof and indemnity - which is critical if you're in IT and can cause actual damage.




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Master Geek
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  # 1428944 16-Nov-2015 14:45
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Thanks, I'm in for $1mil of each type for a new gig with a private firm.

I'm more "strategy & security / risk consultancy" my days of having administrative logins are long gone so slightly different risk profile - I can't crash a system but I can give bad advice that leads to a security breach.. I'll check them out.

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  # 1428960 16-Nov-2015 14:49
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For a good overview of all current IT contracting salaries and hourly rates look here - http://www.recruitit.co.nz/remuneration/it-salaries-new-zealand/

F
or another idea on insurance the same guys also provide one I've found to be very competitive here - http://www.recruitit.co.nz/our-services/it-contractor-insurance/

L
ike others have said, contracting can be good or bad.  For me I enjoy it as I don't like the whole 'career aspect' that goes with being a permanent employee i.e. staff reviews, minimal salary increases on some bell curve, feeling the need to apply for promotions etc.  I enjoy working on projects that hopefully have a beginning, middle and an ending, in that way I get personal satisfaction from my contribution and am happy to move on to the next project at some appropriate point.

Contracting for me has also meant that I've worked in a lot of different industries e.g. Insurance, Telco's, Banking, Entertainment, and this has kept me interested and learning all the time.

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