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How to become a Contractor

Thinking of becoming a contractor?  Here are some considerations before you set yourself up

What is a contractor?  A contractor provides specific services to a company for a set fee and duration period.

Why become a contractor with PE Global? 

1. Our client portfolio is an impressive mix of regional and international companies ranging from SMEs to multinational corporations in the following sectors: Pharmaceutical, Oil & Gas, Biotechnology, IT, Medical Devices, Financial Services, Construction, Civil & Utilities, Healthcare & Medicine, Mining, Chemical & Minerals, the Food Industry and Manufacturing.

2. Our recruitment consultants are on hand to provide practical advice on dress code, reporting structures, timesheets, rates of pay, payment schedules, holiday pay, bank holidays and personal days.

3. We have a fast, efficient and friendly payroll service. 

There are 2 ways to set yourself up as a contractor: 

1. Via an Umbrella Company: a specialist contracting services company, e.g. Contracting Plus. By using an umbrella company you, the contractor, do not need to set up a new limited company, you can start straight away, there are no start up or exit costs, all paperwork such as invoicing, VAT returns, etc. is handled on your behalf.

This option is ideal if you are intending to perform just one contract assignment, if you need a quick set up and/or if your contract rate is on the low side.

Umbrella companies charge a regular commission which they will discuss directly with you.  As a guide they usually charge up to 5% of your earnings, which can be partly claimed back through expenses.

Umbrella companies are an ideal if you are setting up as a contractor as you have the option to eventually set yourself up as a limited company when you feel ready for the move or you can stay with them indefinitely if the costs and responsibilities of setting up as a limited company do not appeal to you.

If you are planning on being a regular contractor and decide to set up your own limited company and manage it yourself below are some guidelines to bear in mind.

2. Setting up your own limited company: Long term contractors usually choose to set up their own Limited Company.  A Limited Company needs to have at least two Directors and shareholders and be registered with the Companies Registration Office (CRO). At least one of the directors must be resident in the European Economic Area (EEA). As a limited company you must prepare annual accounts which must be lodged with the CRO.

You can set up a company using the services of an accountant, solicitor or company registration agency, choosing your own name. You should allow for at least two weeks for registration to be processed.

A very important aspect of setting up as a contractor and a limited company is to get a good accountant who can set up the company for you, will request a VAT number on your behalf, offer help setting up a pension and Permanent Health Insurance schemes, prepare the books and any submission to the Companies Registrations Office.

How to calculate your daily or weekly rate: When calculating your rate of pay multiply your daily rate by 230 days. Don’t be caught by surprise by calculating your daily rate by 365 days. We only work 230 days when you take into consideration weekends, holidays, bank holidays and personal days, e.g: €250 per day is equal to a salary of €57,500 when you multiply €250 x 230.

As a summary the pros and cons associated with becoming a contractor are: 

Pros

  • Money: Because contracts are short-term, most employers are generally prepared to pay a higher rate than would be paid to permanent employees.
  • Tax-Efficient: Contract work can be more tax efficient than salaried employment. On average a Contractor pays Tax at the rate of approx. 22% versus the permanent rate of 42%.
  • Debt: If you set up as a limited company, the directors cannot be held personally liable for the company's debts.
  • Flexibility: Contractors are free to change jobs on a regular basis.
  • Company Politics: Contractors are usually not involved.
  • Independence: A contractor is his or her own boss
  • Self-Training: Contractors can choose their own form of training which is tax-deductible
  • Holidays: Not being fixed to set annual holidays.

Cons:

  • Holiday/sick pay: Contractors receive no holiday or sick-pay when absent from work.
  • Paperwork: If you set up as a limited company you must keep records of all transactions so they can prepare Income Tax and VAT returns.
  • Training: There is usually no in-house training provided to contractors.
  • Insecurity: Contracts are for specific periods of time and tend to range from 3 months to 1 year only. Plan to be out of contract for 1-2 months per year.
  • Social Welfare: Contractors do not receive pay-related social insurance payments such as sick pay or unemployment benefits.  However, if you are using an umbrella company PRSI contributions can be factored in.
  • Costs: If you are setting up a Limited Company you will probably need to hire an accountant. 
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