We understand that setting out in the world of contracting can be daunting. That’s why we’ve created this useful guide for first-time contractors. We hope it’s comprehensive, but please do contact us if you’d like to know more.
In the UK today there is an underlying shortfall in the number of experienced IT staff on the market. Rapidly advancing technology and digital and mobile communications are enhancing IT career opportunities. Contract IT professionals can offer their expertise at short notice, on a specific task, within a fixed period of time. As a contractor, you are a “small independent business” governed only by the specific provisions of any contract you enter into (a contract for services). If you work as a contractor on a client site there are two contracts involved: one between you and the agency; and one between the agency and the client. There is no direct contractual relationship therefore between the contractor and the client (unless entered into a direct contract as explained further).
The job of the agency (in this case Reflex) is to supply contractors to meet clients’ needs. We match skills with requirements, arrange interviews and negotiate the terms of contract and rates. Once the contract has started, the agency is responsible for:
Regular contact with the contractors to check on progress and any issues causing concern.
Paying the contractor on a regular basis.
Handling possible renewals, additional resources and new contracts.
As a contractor it is in your interest to leave agencies, like Reflex, to deal with finding work and the associated aspects of administration. Thus leaving you more time to spend working on contracts, without the worry of administration or late payment. This is one of the reasons why our stability and profitability is of crucial importance to you. At the end of your contract with Reflex you are independent of the services that Reflex provide on your behalf.
The contracting market improved during the second half of 2019, with the improving UK economy and less turmoil in the Eurozone. There are signs that this improvement, even with Brexit, will continue through early 2020. This means that experienced IT Professionals, with the right approach, should be able to enter this profession with confidence.
The main growth areas driving solid demand for IT professional contractors are in development, specialist technical support and e-commerce.
The question of contractor rates is often a vexed one, due to the amount of influencing factors. They include the nature and type of assignment as well as the skills and experience sought. The resulting rates tend to vary from £12 – £17 an hour for junior roles; for example junior PC support roles, through to £30 – £50 an hour for experienced support staff and developers, and £55 – £150 an hour for project managers and interim management staff.
The Government over the past few years has been reviewing the Limited Companies, Taxation (IR35) and Recruitment Agencies regulations. More information, including changes to IR35 is available from the Inland Revenue (HMRC) website. As these regulations affect most contractors and the contract market in general, we recommend that you seek the advice of a qualified accountant who can advise you on how to organise your affairs professionally.
The Government has also introduced a number of regulations, of which we highlight four that we feel have the most effect on candidates, contractors and employers:
The S8 Asylum and Immigration Act creates new obligations for employers. They must now check proof of identification for all their new employees. This means that candidates and contractors need to have photo ID to hand, together with any visas where appropriate, which the employer will check and copy for their records. The Home Office has issued guidance as to the documents which must be checked.
The Agency Workers Directive (AWR) is new EU legislation which came into force in the UK on the 1st October 2011. The AWR was brought in to protect vulnerable workers from exploitation, and to ensure they receive the same basic employment conditions as their permanent counterparts. Some of the regulations, such as access to company facilities (e.g. staff canteen, access to view and apply for permanent vacancies within the company) apply from day one. After 12 weeks of service, agency workers will have the right to the same pay, working hours, holidays, and any other benefit on offer by the end client. In concept, the AWR is straight forward. In detail, it could have larger implications for recruitment businesses and their contractors. This legislation is mainly aimed at low paid workers, and it is felt that for the majority of IT Contractors who operate via a Limited Company or an Umbrella Company, it will not apply. Reflex has worked hard to prepare for this legislation and can give you advice on this. From our website, you can also download further information from the REC, which gives more detailed advice on the AWR.
IR35, also known as intermediaries legislation, was introduced in 2000 and was designed to reduce tax avoidance by contractors. HMRC believe many to be “disguised employees” – people who work in a similar way to full-time employees but bill for their services via their limited companies to make their business as tax efficient as possible.
With further changes set to come into effect in April 2020, we are undertaking preparation work for the legislative changes – which have been described by some as head-scratchingly complicated! Draft IR35 legislation was published by HMRC on the 11th July 2019 – see here.
This will extend the public sector off-payroll rules to the private sector from 6 April 2020. The rules will change such that end clients will be solely responsible for deciding if the IR35 rules apply in every contract. This will also apply to all contractors or extensions which start before 6th April 2020 and are in operation after 6th April 2020. As a result, clients will have to make that determination, which if referred to an HMRC inspector would be determined by applying an employment test. This is based on the actual working practices, rather than any contract between parties. The main IR35 deciding factors include:
- Mutuality of obligation (MOO)
- Right of substitution
- Supervision, direction and control,
- How and when the contractor is paid
- Equipment supplied and used for the contract
Click here to use the HMRC IR35 online checking tool that HMRC recommend clients use before making the IR35 determination.
Whether or not a client deems a contract or contract extension to be inside or outside IR35 will affect the options available on how a Contractor is able to work i.e. via a Limited Company, Umbrella Company or via direct payroll – further information is below. Between now and April 2020 a lot can happen, with further clarification and information expected from HMRC but also with Brexit looming the rules could change again! As a result many of our clients are in “wait-and-see mode” and so are currently extending contracts into just early 2020 in order not to be caught up in the HMRC rules. We should stress it is important to obtain independent and qualified accountancy/taxation advice before entering into any agreement.
The Conduct of Employment Agencies and Employment and Employment Business Regulations (Known as the EAA Regulations) were introduced to tidy up old legislation affecting candidates, contractors and employers, and to provide greater protection for all. However, they also produce further obligations for all parties to ensure compliance with the new regulations. Click here for further information regarding The Employment Agency Act.
The new regulations have resulted, among other things, in increased responsibilities regarding the flow of information prior to and during the recruitment process. We have incorporated the relevant changes into our Terms and Conditions and into our standard Contracts for Services. We act as an Employment Business for the arrangement of temporary contract assignments and as an Employment Agency for the arrangement of permanent job placements. Specific details of each contract assignment or permanent placement, such as rates of pay, nature of the work, notice periods etc. will be discussed with you, the candidate, prior to us forwarding your details to clients.
Currently the most practical advice can be found on the website of the Recruitment Industry standards and regulation body the Recruitment and Employment Confederation (the REC), click here for more details.
Reflex Computer Recruitment is a leading member of the REC and abides by its strict code of conduct. Links to specific guidance documents produced by the REC can be found further down this page. The main new requirements are as follows:
1. For Candidates and Contractors
Any person registering with an employment agency must provide proof of identification; ideally a copy of a form of photo ID. They must also provide copies of any specific qualifications required for a role they wish to apply for. The employment agency must have these documents before they can put someone forward for either a permanent or contract role. Click here for REC specific guidance leaflet for candidates.
2. For Limited Company Contractors
The EAA regulations were partly introduced to ensure a greater level of protection for contractors. However, they have also resulted in additional paperwork and new administrative procedures for Contractors. Also under the Inland Revenue IR35 Taxation legislation, the EAA regulations could have an impact on the tax advantages of the limited company contractor. Fortunately all contractors do have the chance to opt out of the EAA regulations, but must sign a consent form for this. Reflex Computer Recruitment have an approved consent form for those contractors who wish to take advantage of this. Click here for REC information for Limited Company Contractors regarding opting out of the regulations.
Click here to download an Opt Out consent form.
Always instruct the agencies that are representing you to consult you prior to your CV being submitted. This avoids it being sent to the same client twice. To avoid being contacted unnecessarily by an agency, and to allow them to select the most appropriate opportunity, it is important that you provide as much information as possible regarding your technical skills, experience, daily/ hourly rates sought, location, availability etc.
We, as a leading member of the IT Division of REC, recommend you always look for the REC logo. If an agency is not a member, ask them “why not?”
Your CV is your opportunity to influence the client and maximise your chances of gaining a contract. Ideally your CV should include:
- Personal information i.e. location, contact telephone numbers, email address, brief educational history, qualifications.
- A brief summary detailing your aspirations and strengths.
- Your career history ideally in reverse chronological order (refer to the REC CV guide layout).
When preparing your CV, check to ensure that it is error free, including spelling (liaise and definitely are the most commonly mis-spelt words) Reflex respect your judgment with regard to your CV. Therefore we leave the text and the format unchanged from that which you sent us. Remember to put the emphasis more on your recent work and do not undersell or oversell your strengths and experience.
First impressions are very important. The Client will be looking for confirmation you have:
- Sufficient skills.
- Sufficient motivation and experience.
- Personality and temperament to work with other permanent/contract staff, managers etc.
- Professional appearance (i.e. appropriately attired – normally business suits).
It is important that you use this opportunity to assess the environment you will be working in.
Ensure you know the name of the person conducting the interview. In order to maximise your potential, your agency should be able to provide you with information about the company, the job requirement, and the interview format prior to the interview. Reflex will also supply you with full interview details, directions to the client site and interview guidelines.
As a contractor, you are required to provide a service for a specified period. Contractors are usually employed because timescales are short. Clients like to see contractors working more or less to the same pattern as their permanent staff.
To complete your contract successfully we make the following recommendations:
- Follow the dress code conventions already on site.
- Do not use client equipment for anything except the work for which you have been contracted to do.
- Ensure that you have the appropriate security clearance required.
- Never bring your own work or equipment into your workplace or remove anything for working from home without written authorisation.
- Don’t get involved with office politics. Permanent employees have the vote – you don’t.
By following these guidelines you have also maximised the chances of being offered an extension to your contract.
There are two main options for carrying out your contract, namely working for the agency as an employee, or carrying out the contract through your own limited company or umbrella company. A lot depends on if the contract is deemed by a client to be either inside or outside IR35. The main two options are:
a) Via the Agency
As an employee of the agency, you work through the UK PAYE system, with the agency handling all of your Tax and NI deductions. Your rate is lower to compensate the agency for administrative costs, but your own administration is simpler. On termination of such an arrangement the agency will provide you with a P45 certificate. However, recent Government Legislation has resulted in problems for recruitment agencies and now most in the IT sector, including Reflex, do not operate this method.
b) Limited Company or Umbrella Company
We advise that you find out if the contract is either within or outside IR35 (Click here for further information on IR35). If you wish to use a Limited Company it is important you use the services of a qualified accountant who specialises in dealing with companies operating in the contracting field. An accountant will advise on directors, secretary, shareholdings, a registered office, and will complete the required forms. Working through a limited company means your Tax, VAT and National Insurance are your own responsibility. The agency does not normally make any deductions from your payments for those unless the contract is within IR35. Alternatively you could work through an Umbrella Company which has a model if the contract is either within or outside IR35. An Umbrella Company will handle the administration including Income Tax, VAT and National Insurance on your behalf. If you do use an Umbrella Company we recommend that you consider one which is a member of the Freelancer & Contractor Services Association.
Again, we must stress that it is important to obtain independent and qualified advice before entering into any agreement.
The choice of continuing in a permanent position or becoming an independent contractor is a dilemma faced by the majority of IT professionals at some point in their career. Before you decide to begin contracting, you need to evaluate the advantages and disadvantages. One of the greatest concerns is monetary. We recommend that your contracting income should be at least 25 – 50% higher than your permanent rate, to compensate for your down times. Down time covers time between contracts and days off for sickness, holiday and training. Contracting allows for variety within the workplace; however you do not automatically have any job security. While contracting, generally your skill level is not reflected in a specific job title or seniority, as there is no promotion as such. A new contractor must be able to consider themselves a technical expert (a number of years’ solid experience) in at least one discipline. Personality also plays a major part. You must be able to display complete confidence in your technical ability, and a confident and assertive nature will always triumph over a quieter person in the most competitive of market places. You should also consider:
- Do you have the skills that are in demand?
- What are the long term prospects for contracts?
- Could you adapt to new surroundings more regularly and quickly than within permanent employment?
- Would contracting affect your home/family routine, including possible financial uncertainty between contracts, or living away from home to obtain work?
It is important to note that some of the perceived disadvantages of contracting are currently minimised due to current market conditions. The current marketplace is such that the demand for experienced IT professionals exceeds supply in many areas, but not all.
While giving up permanent work can be very profitable, you should make allowances for benefits that you receive i.e. pension, life assurance, sick pay, holidays and training. The first two can be resolved by seeing a professional Financial Advisor.
Training is often not so straightforward. Clients will want your services if you can provide them with the skills they require. Often, this can mean that you need to be constantly learning new versions of software. This may not be possible at a client site and normally never at a client’s expense! There are ways around the problem. Some training companies provide online and computer-based training (CBT) while others run courses in the evenings or at weekends. However, you need to budget for this when planning your finances. Some of Reflex’s clients do offer special arrangements where they pay the cost of training in return for you not charging while you are on the course.
There are numerous agencies in the current IT marketplace. Consequently, the level of service offered is varied. When choosing the agency to represent you, it is worth remembering that smaller agencies often offer a more personalised service. Always try to use an agency that is a member of REC, as this guarantees they abide by the REC IT Division’s code of conduct, ensuring a high standard of recruitment facilities.
There is provision to opt out of the Conduct Regulations 2003 for limited companies and individuals supplied by them. If you, the contractor/individual to be supplied wish to opt out, please read the relevant forms carefully and, if appropriate, sign and return it to The Contract Department at Reflex Computer Recruitment. You are also recommended to take independent legal advice. Ascertain in advance the agencies you wish to deal with. A personalised mailshot often produces good results. Ensure lines of communication are clear; have a daytime mobile number (with answerphone switched on), and monitor your e-mail. This is important as some contracts are filled within 24 – 48 hours of being notified to Reflex.
Any professional agency offering contract opportunities needs to offer a high level of support during the contract. At Reflex this support includes:
- A comprehensive service comprising both contract and permanent recruitment divisions.
- On-site support, including social events and the provision of an on-site representative as and when required.
- Regular formal and informal reviews.
- Help with setting up a limited company.
If you are moving from the permanent market place, obtaining your first contract can be a trying time. Your current employer will probably hold you to your full notice period, and the client may not always wait the four weeks for you to be available, especially when competing with more experienced and available contractors. The best advice is to wait until you have a suitable contract before giving notice on your permanent position, unless you have budgeted for a period of possible unemployment. Many major projects run to plan, and if contracting support is required and a client is impressed by your potential contribution to the project, your notice will not be a problem.
All clients require agencies to obtain references prior to an interview so it is best to prepare for this. It may be possible to offer references other than your current employer i.e. ex-colleagues or clients.
Once you have obtained your first contract, remember not to leave your current employer too quickly; unless your employer provides the opportunity. You never know when you may need to contact them for a reference.
Contracts can run for any period of time, although on the whole they tend to run for three-six months. Some may start off as a one-month contract and then roll on, and others may be a 12-month contract, although these are rarer. Reflex will speak to you approximately four – six weeks before the end of the contract to discuss possible extensions or your next contract. When you leave a client site, it is important to ensure that the project status is fully documented and all relevant files and documents are accessible.
Whenever a contract is entered into it must be honoured. Contractors are often approached by other agencies offering more lucrative work while they are in the middle of a contract. While not illegal, it is very bad practice. In such a situation, the experienced contractor will notify their current agency stating that they will not be available for the duration of the contracted period. Contractors who habitually break contracts before the end of the contracted period can eventually find work hard to come by. Agencies affected by this behaviour are reluctant to enter into further contracts with individuals who habitually let them down. Professionalism must never be compromised, irrespective of the financial enticement on offer.
We hope that this guide has given you an indication of the opportunities available through contracting. We have aimed to provide you with some general information, but if you require more detail we will be happy to answer any further queries.
Remember that you must be prepared to accept each contract as it comes, and that the market can fluctuate. You must be prepared to take the rough with the smooth. Your rate will vary in line with assignments and, at times, you may find you have to work away from home.
Nothing in life is plain sailing and a career as a contractor is no exception. You need to prepare yourself financially and psychologically for the good times as well as the not-so-good times. As stated above, with the right approach you can enter this profession with confidence.
Finally, we would like to thank you for taking the time to read our First Timer’s Guide to Contracting. We hope you have found it useful.