The past number of years has seen an exponential rise in the numbers of people abandoning traditional employment and going down the road of becoming a self-employed contractor.
For many it is a very attractive option which allows them more control over their career and offers opportunities that may not present themselves in the traditional employer/employee scenario.
Becoming a self-employed contractor is not without its pitfalls and below we consider the top 5 things that should be considered before making such a decision:
1. Job Security/Job Flexibility
As an employee your rights are protected by a raft of employment law swhich ensures that your employer is obliged to comply with. As a self-employed contractor you forfeit these rights and protections. It is also important to note that when work dries up contractors will be first to lose out on work as opposed to employees who are guaranteed certain protections by law. You are not entitled to any redundancy payments as a contractor.
While being self-employed, however, you are your own boss. You get to control the hours that you work, where you work and you get to be solely in control of how your career progresses. The better you perform your tasks the more likely you are to profit from managing your workload efficiently.
2. Contractor Rate/Salary
Contractors tend to get increased rates for performing the same job that employees would do. This is due to the fact that the employer does not have to account for holiday pay, sick leave, employers PRSI.
If you are on a salary as an employee you will normally be assigned a payment date each month and you are pretty much guaranteed that the money will be in your bank account on that date. As a self-employed contractor you are treated the same as any other supplier and getting paid on time can prove to be an issue which can lead to cash flow problems for the contractor.
The world of contracting opens up a huge number of possibilities as regards getting to see the world. Countries with skill shortages in certain professions can offer very generous rewards on short/medium term contracts which can be attractive depending on your personal circumstances.
On the flip side, if work is scarce in your particular field close to home you may be forced to travel further away from home than you would like especially if you have a young family, etc.
4. Social Welfare
As an employee your employer will deduct and pay over your PRSI contributions on your behalf. These contributions, usually under Class A, entitle you to a whole raft of benefits under the social welfare system should you require them.
As a self-employed contractor you will pay your own PRSI under Class S. While still entitled to certain benefits, this type of contribution does not provide the same level of benefits should you need them e.g. jobseekers benefit, disability benefit, etc.
As an employee, your tax is withheld at source by your employer and is paid across to Revenue on your behalf. Your obligations as regards filing tax returns and other administrative burdens are minimal and you don’t have the worry of additional costs for preparing annual accounts, etc.
As a self-employed contractor you are obliged to register for Income Tax at the very least and potentially VAT, payroll taxes, Relevant Contracts Tax, etc. All of these tax returns have to be prepared on a periodic basis with fines and penalties being applied should you miss a deadline or file an incorrect return. If you decide to trade through a Limited Company you will also have an annual return to make to the Companies Registration Office and will have to comply with extensive company legislation.
The Revenue Commissioners have become very active in investigating the area of contractors, as historically due to lack of knowledge and poor advice many contractors were found to not have their tax affairs in order.
The area of tax and accounting should not provide a burden for you, however, once you have an accountant on your side who knows the industry and can guide you past the many hurdles that you may face as a contractor.
By Alison McGinley
Contact www.Taxassist.ie for further information..