How to become an IT contractor: A step by step guide
8 MINUTE READ
So you want to become an IT contractor?
Being an IT contractor is very different than being a permanent employee. The risks are higher, but so are the rewards. You gain greater freedom and independence at the cost of less financial stability. But this suits some tech professionals perfectly.
Speaking on our podcast, Christo Olivier, an independent Data and Analytics specialist, outlined his primary motivation for becoming a contractor.
“I’m quite inquisitive with regards to new technologies and new ways of doing things. I’m much more afraid of getting stuck in a role where the work becomes monotonous and routine than I am of not having a contract for a month or two,” he said.
If you share Christo’s fear, then contracting might be the right choice for you. In this post we’ll review some of the fundamental steps you’ll need to consider if you want to take the leap. But first let’s examine why IT contracting is becoming increasingly popular.
Why do companies use IT contractors?
There are a number of reasons why companies like to use IT contractors. (In fact, the UK is a global leader when it comes to prevalence of contractor hiring)
- They are usually more flexible over hours etc. than permanent staff
- They are easier to hire and fire – no long term commitments
- They can provide skills in-house IT teams may not have
- Although day rates may look expensive at first glance, IT contractors can actually save companies money – there is no need to pay national insurance, holiday pay, sick pay, redundancy, training costs etc.
What’s in it for the contractors?
While it isn’t for everyone, the majority of those who move away from permanent work into IT contracting never look back. Some of the most common reasons for this are:
- Being your own boss – This can be extremely satisfying and rewarding
- More money – Contractors generally make more money than the permanent employees working alongside them.
- Freedom – IT contractors can choose when and where to work, when to take holidays etc.
- Variety – By moving from contract to contract and company to company, contractors usually very varied experience and an impressive CV
- Less tax – Contractors who seek professional financial advice often greatly reduce the amount of tax they pay
Below we have outlined some things to consider to help find your feet when starting out as a contractor.
Do some market research
First thing first. If you want to get into IT contracting there are two things you need to find out:
- Whether there is a market for your skill set
- What contract rate you’ll be able to command
Fortunately there are a wealth of online resources to help you find the answers to these questions. The simplest way to check the demand for your skill set is to use an IT contract rate checking tool. There are many of them out there, but one of the most popular was built by SJD Accountancy. It pulls and analyses data from thousands of contract IT jobs posted on major recruitment sites.
In addition, there are many online publications which focus solely to IT contracting. Checking in with these sites regularly will help you stay up to date with industry trends and also give you a better feel for your earning potential. Two of the most popular are ITcontracting and Contract Eye.
Finding contract work
Some contractors work work directly for their end clients, but the majority work via recruitment agencies (like us). If you are new to contracting, finding work through an agency makes life much easier. Agencies offer many different services to contractors: from sourcing contractor job openings and connecting you with clients, to settling contract terms and negotiating rates.
Furthermore agencies pay contractors even if the client fails to do so which provides a safety net. This is another big reason behind a high number of freelancers choosing to use recruitment agencies. Until you have built up enough experience and confidence to approach clients directly, it’s best to find contract work through an agency.
Applying for a contract role
To land your first contract, you’ll need to polish up your CV and make sure it’s up-to-date. Contract recruiters are primarily interested in your current skill and experience (so avoid the temptation to include every little detail of your career to date). You should list your current skills and experience prominently at the top of your CV, and keep the whole document to a maximum of four pages if you can.
Keep the additional information you may have included in your permanent CV to a minimum. Also, try to tailor your CV (within reason) to each role you apply for. Be concise, and remember that you’re being hired for your skills, to fill a specific project requirement.
It goes without saying that you should take time to make the CV presentable; spell check everything, get someone else to proofread it, and use a simple and clear layout with uniform fonts. Attempting to get creative with the layout of your CV is usually counterproductive. It typically ends up making the document more difficult for readers to digest. If you want to show off your design skills, then include links to examples of your work instead.
These days, LinkedIn is also a vital tool in the IT contractor’s armoury. Set up a profile if you haven’t done so already, and make sure your CV and online profile match. More and more companies are using pre-screening firms to find out more about applicants, so clean up your online footprint if there could be any unflattering information out there about you if you perform a search on your name.
Be ready to start at short notice
Most organisations want IT contractors to be able to start a contract role at short notice – often within a week or two. For this reason, you will be in the strongest position if you have already left your permanent role, or come to an arrangement with your current employer.
Limited company or umbrella company?
Almost all IT contractors work via either a limited or umbrella company; it’s very unusual for a contractor to work as a ‘sole trader’, as that would mean agencies or clients would be liable for certain employment rights if you do not work via a company structure.
Most contractors work via their own companies, as it is tax efficient (mainly because National Insurance Contributions are not payable on the dividends you draw down from your company). You will have to take on a certain amount of administrative duties, but a specialist accountant can easily carry out most of these on your behalf.
Working through an umbrella company removes some of the admin hassle. This makes it a popular choice for first time contractors. You simply become an employee of the umbrella, then they will take care of all your admin, and pay your net salary each week. But there is a cost – you’ll receive none of the tax benefits associated with limited companies.
Beware of the IR35
IR35 is one of the most annoying challenges facing contractors. The IR35 rules, which became law in 2000, were put in place to clamp down on the practice of so-called ‘disguised employment’, where a permie would leave his job one day, only to return to work as a limited company contractor shortly afterwards. Unlike a true contractor, they’d continue on working in the same way as before, under the complete control and direction of their client.
Umbrella company contractors need not be concerned about IR35, as they are ’employees’ of their umbrella schemes. But if you run a limited company and your contracts are caught by IR35, the financial consequences are significant. All the tax benefits associated with working via a limited company will be eroded.
Understandably, you should read up on IR35 as a priority, and take steps to ensure that you remain IR35-free. There are plenty of experts out there to guide you through this process, and it is not expensive.
You could never list all the micro-steps you need to take when you want to make your first move into IT contracting. However, the six steps outlined above are the fundamentals. Depending on your circumstances, other things you may need include: taking out adequate insurance (most clients require you to have professional indemnity cover as a minimum), open a business bank account if you’re a limited company contractor, setting up your own website, and so on.
Get some first-hand insight
If you’d like to get some first-hand insight into what life is like for an IT contractor, check out our podcast with, Christo Olivier. Christo has more than a decade of consulting experience and has spent the last four years of his career as a contractor. On the show he talks about making the leap to working for yourself and various other aspects of the contractor lifestyle.
Need help finding your first contract role? We can help. Get in touch with one of our specialist recruitment consultants today.