Contracting......

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Hello All,

Looking for some info on contracting! There is plenty info out there i have searched and read but still finding it hard to work out exactly what my best option is!

I was contacted about a 6 month contract job, as it turns out it is with my old bosses new place (he left about 9 months ago). We will be arranging a call for next week to discuss.

The agency who contacted me have asked for a rough figure for day rate, for now i explained i'd like to chat more about the role, and also as i am new to contracting i need to work out how i do it so i know what day rate to expect. When i spoke to the agency the first time, she said i can go Ltd co. or go through them. I don't intend going Ltd, as at this stage I don't feel like taking on the paperwork side, and as i'd e inside IR35 it's just not worth it!

So that leaves going through the agency or umbrella. What confuses me, is when i negotiate a rate, she said i can do this direct with the client, or let them negotiate on my behalf. When i am negotiating, should i be taking into account employers NIC/holiday pay....or as some sites seems to suggest, this will be factored in by the client/agency when negotiating my rate? i.e if i say i want £300 a day, will they then take that to be £300 + 13.8% (employers NIC) + 12.07% (holiday pay)?

All thoughts welcomed!

 

Yes, I use Giant, and they're very good. Always pay on time and never have a problem with expenses...

Your daily rate (that you care about anyway) should be the GROSS that you are expecting. All expenses that you have accrued during that week/month (depending how often you will be being paid) will then be factored-in and the TAX and NI will then be deducted leaving you with your NETT take home pay.

HTH.

 

Thanks mate. I'm not sure where i would sit in this position, they have grown in the last year to having all network support outsourced a year or so ago, and when my boss left they have began building a team. So i'm not sure how many they have in the team at the minute. Seems like a good role with lots of projects coming up.

So when i am negotiating, will they know that the figure i am quoting is gross pay to me (not including the employer NIC etc)? Or would i need to state that? Will look into Giant....if they have any 'recommend a friend' offers and i choose to go with them i will mention your name if you want.

 

Hmmm, maybe my statement wasn't put the best way it could have been.

You should quote the GROSS daily rate that you expect. This is the amount before any TAX or NI has been deducted (both Employers and Employees contributions).

So, if you were thinking of stating £300 then this would be multiplied by your working days during your normal pay-period (week or month normally).
Any expenses are removed (as these are not subject to deductions).
Your Umbrella 'fee' is deducted.
The rest is then what will be used to deduct all NI and TAX contributions.
You are then left with your take-home pay (to which your expenses will then be reimbursed).

Example:
Gross : £300 x 20 days = £6000
Expenses during month £200
Fee : £30
Deductible pay : £6000 - £230 = £5670
Employers/Employees TAX and NI Contrib : £2270 (I'm very much approximating here...)
NETT : £5670 - £2270 = £3400
Add expenses back : £200
Take-home pay : £3600

Just an approximation to show you how it will be calculated. A pension payment per month can also be deducted if you wish...

Thanks for the offer, if you do go with GIANT I would very much appreciate the mention.

HTH

 

Thanks, that clears up a lot! So it seems holiday pay is completely done separately then? Where does the AWR fit into this? My understanding was this regulation meant all temp workers were due holidays etc...obviously this needs to be taken out the day rate though.....

Will do mate

 

Yes, you are entitled to holiday pay @ a minimum rate (as this maximises the amount that you are paid with the lower tax deductions - kinda like being paid a bonus as opposed to normal PAYE pay). This is implemented slightly differently depending on the Umbrella company so, to keep things as simple as poss., I missed it off. But I think you get the idea...

 

In the 12 years I was contracting I was never paid holiday pay, things to consider if you do get paid holiday pay is that will come from you and not the company hiring you, by this I mean that your umbrella company will actually take a deduction from your normal take home pay and use that as the money used for holiday pay. The idea of a contractor is that he's there to reduce company overhead as far as salary\holiday pay\pension etc, if you want any of those you either have to stick with a perm role or use a company that will factor that in to your monthly payments instead.

Personally speaking however (and as I used my own limited company) I just stuck with being paid and paying my accountants to look after everything else.

 

Thanks guys. Hopefully have a call today about this role to kick things off! I may be back with more questions

 

Well in the end this one didn't work out, but i have since accepted verbally a 12 month contract. After verbally accepting, there was a delay while some ifnal approvals were sought, and i have just heard this is all sorted now.

I have a copy of a blank contract, but they won't be able to draw up a contract until i pass them details, which will be another couple of days. The agency have said i can hand my notice in now as all is approved, however i'd feel more comfortable doing this once i see the full contract with all of my details rather than just the template.

What would you guys do in this position? Will you always wait until the official contract is in your hand before handing in notice? The reason i ask is although i would prefer to wait until the full contract is in my hand, i'm not sure it would really matter as they could back out at this point anyway, so am i really gaining any protection by waiting a few days?

Thanks
Daniel

 

I may be wrong, but I would hold out for the completed contract. I think you would probably have some sort of legally binding support as an offer of employment, so even if they did suddenly back out then I would think you could at least get something back out if them even if only the notice period etc. A blank template is nothing, but I would say that a complete contract is an offer of employment under those terms and so I would think gives you backing.

As said, I could be wrong though. I'm not sure.

 

You need a proper contract before you quit that has been signed and dated by both parties.

It is a legally binding document. It should define what will happen should either party want to walk away early.

Not giving you the job after contract is signed is early contract termination, so these clauses would then kick in, normally you would get paid your notice period, but in some circumstances the recruitment agency has a clause saying that they will take all monies if a minimum term is not met.

Generally there is an arms length agreement meaning that you have a contract with the agency and the agency has a contract with the client.

I prefer Limited Company set up. You are a business now and that is how you should be thinking. You produce invoices and bill for your services as a business. You own the business and pay yourself out of the profits.

Sick pay, holiday pay, pension etc, become largely irrelevant as they are all just extra ways of turning company profits into you personal salary. It all comes from the same pot which is the company profits and you own the company.

Umbrella then is best thought of as a sort of hybrid model where a third party company takes half the admin away but gives similar benefits. Generally you will get slightly less personal income this way but will also have lower overheads and less administrative work.

It varies a lot, but a very rough rule is your contract rate should be approximately 2x your perm rate in order to cover the lost benefits, business operating costs, market risk, etc.

As mentioned your day rate is the billable invoice amount for your services per day, it is a company service fee, so its not related to any deductions. You can register for VAT in which case you put VAT on top.

Once your company has made some profits its normal to operate a payroll, this works the same in all companies, so you pay yourself from the company profits but must deduct government taxes like PAYE and NI.

 

Thanks for the replies guys...

Although they seem to have a clause anyway which means even once signed they can do what they want:

Agency may terminate these terms of engagement with immediate effect (without any payment in lieu of notice):

(a) at any time prior to the commencement of the Project Period for any reason

So looks like even once signed, it can be terminated without reason and no compensation anyway? Anyone else seen this type of clause?

I will be setting up a Ltd co. for this job. Previously planned on goign umbrella but have met witha recommended accountant and this will be the better option than paying out to an Umbrella.

 

Yes sounds like until your first day of work they have you by the balls, agencies are often ruthless, they don't want to piss their clients off and chase for cash for non worked hours, so they would most likely rather see you out of pocket.

You are operating a service company and you generally have to take the market / business risk. So you need to factor this into your rate and hope over time the losses get amortized by the profits.

You should be confident enough in your abilities and the market in order to win work and have some backup funds that one lost customer will not wipe out your business.

 

Thanks dmarsh

 

Thanks JK. It's a nervy jump, even without having a mortgage yet or kids to support, i presume this is all that holds you back?

 

Well that is my notice handed in. They weren't too happy, but i guess if they were then that not have been a good sign of my performance here haha! In the end they understand my reasons, and have been told references will be no problem.

Will give you all a 1 month in report!

 

Good luck mate. Let us know how you get on. I'm debating similar move.