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Ben Sinclair
Ben Sinclair

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Those of you who've worked as a contractor and as a full-time employee, which did you prefer?

I've been thinking about going down the contractor route, but I have reservations (which I won't get into here because I don't want to bias anyone else's comments).

Discussion (31)

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booleanhunter profile image
Ashwin Hariharan • Edited on

I think there isn't a simple answer and the right choice can differ from personal circumstances, goals, country you live in, and also the company you work for. If I may offer my personal experience working in the tech ecosystem in India:

Employees are generally taxed more than contractors. In theory, they are supposed to enjoy certain benefits that contractors can't avail, such as:

  • Health insurance provided by the company
  • Work equipment
  • Stock options (especially in startups)
  • Employee provident fund
  • General job security is supposed to be better

and so forth.

However in reality, several companies (especially startups), you may or may not get several of the aforementioned benefits, and it is left entirely to the company to decide the compensation structure and benefits. After working with several startups as an employee (some of them were based out of San Francisco and were well funded, with an engineering team in India), I hardly ever had any real, tangible benefit working as an employee.

Now I work as a contractor, and honestly it has not much difference from my earlier experience as an employee anyway - and on the upside, at-least I get to save more on taxes. So for now, a contractor role is what I prefer (though my preference might change again in future).

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erdo profile image
Eric Donovan

I did have a perm job at IBM years ago, but have been contracting since then. The thing I like the most is: being hired and respected for my skills, nothing else. The client tells me what they want, I tell them how it should be done. And we both know it only lasts while it's mutual.

I don't get involved with the politics, I can focus on what I love (developing) and I don't need to take part in any disingenuous HR processes related to convincing me that I need to try a little harder to get that pay rise next year. The way to get a pay rise as a contractor is to find a better contract and hand in your notice or decline to sign the next contract (then you'll find out how much they actually think you're worth)

I'm sure it depends on the market as others have said, but for Android development in London and from what I've seen in Amsterdam and Paris, take home pay seems to be 1.5x - 2x as much for contractors. That makes sense because the client is paying for the privilege of being able to easily downsize you whenever they want, and you need to factor in that you have less job security in theory, and may only have work 50-75% of the time.

Having said that, I've been contracting for over 10 years and I've been out of contract for about 2% of that time. Usually if a contract finishes on Friday, I start the next one on Monday (2 weeks notice is enough).

My idea of job security is to be good at something there is a market for. I suppose if the Android market were to collapse I'd be applying to be a permie pretty sharpish ;)

I have to admit, interviewing every 6-9 months is a drag, but a) you get used to it and b) contractor interviews are nothing like the nonsense they get perm applicants to do

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moopet profile image
Ben Sinclair Author

Not being involved in politics sounds like a really good deal.

Personally, I've not worked in too many places where it's been a problem, but when it has... it has!

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Aaron Reese

Absolutely nailed it. You are being paid a premium for your knowledge and opinion so people tend to listen to you. plus you don't generally get involved in the power politics.
The UK tax authorities are really coming down hard on contractors with an assessment scheme called IR35 which is a series of contractual tests to see if what you are doing is disguised employment
1) use of own equipment
2) right to substitute worker (i.e. are the paying for you or your output)
3) who carries the risk for over-runs
4) autonomy of hours
And a couple more.
If are caught inside IR35 then you get very few of the tax benefits of running your 'business' through a limited company: lower payroll taxes writing off capital expenditures etc, but you still have all the overheads like insurance and filing fees. In addition most IR35 contracts are managed through an umbrella company who take your charged hours and calculate your payroll deductions and pass on the remainder and charge you £25 a month for the privilege, plus every company has to do electronic tax filing so you have to have one of the online accounts systems like QuickBooks, Xero or freshbooks which is another £20pm. Along with my PI/PL insurance this means I am paying out around £1400 in business expenses which are not claimable against the IR35 contracts and have to be covered by other income sources. UK contract rates are still significantly higher than payroll but it is not as advantageous as it used to be.
You are also unlikely to get any training so you have to factor in both time and cost to keep skills updated

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ellativity profile image
Ella (she/her/elle)

Not a dev, but I lived in Scotland and worked as a contractor in community education many moons ago. The UK tax system as it was when I lived there was pretty forgiving for sole traders, and the tax reporting system isn't too complex.

I think National Insurance for sole traders is higher than for employees (as it is here in France where I'm currently contracting), as you're missing the employer contribution and have to make up for it yourself, but in general you save your employer money (NI as mentioned, plus liability insurance and business taxes, etc) so can often make that back with your base pay. You sometimes get trade offs when it comes to things like stipends and expenses, but those things are tax deductible on your end when you're self-reporting, so they're still a marginal benefit.

When I was contracting in The Netherlands, I needed to have multiple contracts per year and couldn't work more than 80% (or something) of my total billable hours for one company, but tagging in @s_aitchison who has more current experience than I do of the UK situation!

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Suzanne Aitchison • Edited on

I'd definitely echo what @ellativity has said. Also depending on how much you earn you may need to register for VAT, which depending on where in the world you're contracting can mean you need to pay VAT as well as other tax/NI contributions.

When setting up as a contractor you need to factor in the time and/or expenses for dealing with all this tax admin when you think about what rate you would charge for your services. For me, I have zero appetite to get into the weeds on financial stuff, and because I contract solely with a US-based company there's additional numbers to get one's head around in terms of currency conversion etc, so I work with an accountant specialising in sole traders/contractors. It costs me £150 per year for their services, and they keep me on the right track with all these things and prepare my Self Assessment tax return. It's a real weight off 😅

Some other expenses you need to consider -

Professional indemnity insurance: Technically, as a contractor you could end up in disagreements with clients over work delivered etc, and you might want to think about picking up insurance to protect you against this. Some insurance companies specialise in this kind of insurance for contractors, e.g. in the UK With Jack is used by a lot of tech professionals (myself included)

Income protection insurance: Working contract to contract means you might be at a higher risk of sustained period of times without cash coming in. This could either be because of gaps between contracts, or e.g. maternity/paternity, ill health, injury. Income protection insurance can help in these situations and provide a bit more peace of mind.

Personal pension: With no employer pension contributions, it's on you to make sure you're planning for retirement so you don't have to keep up with latest javascript frameworks in the year 2072 💀

Holidays: Make sure any rate you charge for services also takes into account you're gonna need some days off, as you're not going to be paid for those!

As with all expenses you might rack up as a contractor, you can factor all of these costs in to your charged rate, so they're not necessarily a downside. They're just something you need to be mindful of, and regardless if you hire an organisation or accountant to help you with it, you have to budget some of your time to dealing with it all.

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Suzanne Aitchison

regardless if you hire an organisation or accountant to help you with it, you have to budget some of your time to dealing with it all

And it's boring 😂 To answer the original question, I would much rather not need to deal with all this stuff, although contracting can give the freedoms other people mention around choosing who to work with / what to work on (and potentially a higher income, but again, need to weigh against the expenses).

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ellativity profile image
Ella (she/her/elle)

Oh yeah, there's the original question, of course!

I don't really have a strong preference one way or another, tbh. I'm generally terrible at admin and find it a total drag, but I've been contracting/freelancing on-and-off for most of my working life, so it's just a thing that happens now.

The biggest pain is the initial starting up of a business and understanding the accounting flows in different countries. I've contracted, which means registering businesses and handling my own taxes in 4 countries at this point, and it doesn't get any easier the more times I do it!

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s_aitchison profile image
Suzanne Aitchison

The biggest pain is the initial starting up of a business and understanding the accounting flows in different countries

Yeah, it's true, once you get your head around the initial setup it's really not too much headache, especially if you decide to get an accountant to fill out your Self Assessment. And since I am a (happy) contractor despite my hatred of boring admin tasks, I guess currently the benefits for me are outweighing the negatives. I'd just rather have all the benefits without the boring admin (surely I'm not asking for so much 😂)

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erdo profile image
Eric Donovan

handling my own taxes in 4 countries at this point

😅 That's bringing me out in a cold sweat just thinking about it

I moved from the UK to France 3 years ago and I'm still dealing with the last bits of having tax stuff to do in two countries and I have an accountant 🤦

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ellativity profile image
Ella (she/her/elle)

Old tax stuff never seems to end, @erdo... Good luck with that! Hope you get to wave goodbye to HMRC soon!

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Mike Talbot

Full time employee for me for sure, I've only ever contracted "between gigs" though. For me its about the "building something" not "doing a job".

The worst thing about being a contractor: suddenly realising you measure your time in money... If I take a day off that's £xxx...

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Joe Mainwaring • Edited on

Who says you have to pick? I do both concurrently today. However, if I had to pick one or the other, FTE has enabled the most growth in my career and lifestyle.

How do I contract while holding a FTE? Asynchronously. I only take jobs where my participation during business hours is kept to a minimum so I can engage outside my normal FTE responsibilities.

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moopet profile image
Ben Sinclair Author

I've been thinking about freelancing with something like upwork (I haven't researched so I don't know whether that's a good one) while I hold down a full-time position.

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Aaron Reese

I think there is a distinction between freelance and contracting which is often missed or at least misunderstood. For me Freelance is a short discreet work-package that has a fixed price and scope and could normally be finished in a couple of sprints. Contractors get signed up for a fixed period of time with the aim of completing longer development pieces.
Of course these are on a spectrum and some freelance can turn into contracts and people's definition of short will vary.
Other distinctions for me is that contract work on the UK normally comes via a recruitment agency so the risk of non payment is mitigated
Freelance requires much more time spent of marketing, pitching and networking and the general day to day activities of running a business

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Rishi Khan • Edited on

Depends on where you are located. In Canada, we have an integrated tax system, so there isn't a huge benefit to contracting (being incorporated on your own) than being an employee from a tax perspective unless you have an alternative source of income and can leave the income in your business account so it's taxed less. Gov't will eat you for taking out money with their CPP and payroll taxing.

From a flexibility standpoint, it comes down to what company you work for. Some are wising up and learning that developers need more felxible hours and a results based model instead of 9-5. They are also allowing more unlimited PTO and realising we need our time off. Contracting offers you the ability to be your own boss and is hugely dependent on good time management, setting boundaries for your work and life and also doing all the extra stuff that isn't engineering (marketing, client hunting, updating portfolio, accounting etc.). Some of that you can outsource and expense it and is a good learning experience but difficult in the beginning for sure. Also worth mentioning that health benefits plays a huge role. If your health is great and no chronic conditions, then you are in a better spot but if you have conditions that require consistent medical treatment, even eyecare or dental, this is where full time has a huge benefit (pun intended).

Contractors CAN earn more but this depends on if you have a good reputation and again dependent on your tax system. This usually takes 3-5 years average to achieve. Check out Josh Burns on youtube. He explains a lot how to get work on upwork and while its a grind, he goes through a lot of details which are relevant anywhere on being a freelancer and gives a realistic idea of what it's like in terms of time and effort. Some of his latest videos are a bit click baitey but focus on his freelancing ones. youtube.com/channel/UCQZ9jWTa3xpyU...

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Paramjit Singh

Contract job is not for someone fresh out of college. One needs to have certain amount of experience and skills to work as a contractor. Here is a tradeoff between the independence of a contractor and job security of an employee. Again you don't have to engage in office politics as a contractor but also don't have the support of a colleague when get stuck.
I would suggest you to try it. If it works for you then continue.

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Andrew Janke

I've spent time doing both. They each have their pros and cons, and which is right for you depends on your situation and preferences. Personally, I prefer being an employee (whether that's full-time or part-time).

That being said, I think a lot of people have a good idea of what being a full-time employee is like, but either don't know about or underestimate the downsides of being a contractor or self-employed consultant.

  • The dollars you bring in as a contractor sound big but are worth significantly less than those in a FT salary, due to taxes, non-billable additional work time, gig-seeking and self-promotion time, and expenses. My own rule of thumb is that a dollar of income as a contractor is worth about 60% of a dollar as an employee.
  • Taxes: you'll probably both pay a lot more taxes, and have to do a lot more tax paperwork.
  • Benefits: Health insurance, paid time off, life insurance, some tax filing and 401k etc management (and even matching!), office space and equipment, and various other things are provided by an employer. In the US, health insurance is by far the most important.
  • FT hours are pretty much guaranteed and stable; work as a contractor is definitely not. Also your FT paycheck will probably show up regularly; getting payments as a contractor can be iffier. Long term job security as an employee is generally much better.
  • You have legal and financial liability for things as a contractor that you don't as a FT employee. Do your research and get business insurance! (You did incorporate as an LLC or the like, right?)
  • When you're self-employed, it's all up to your own self-discipline and organization. No management to nudge you or help out with the organizational logistics.

I'm using "FT" as an abbreviation for "full-time employee" here, but it mostly applies just as much to part-time employees, except for some of the benefits.

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Nathan Hedglin

Oofda.

I've had terrible experiences with both. Contractor is worse as there aren't any legal protections like there are for employees; even as an employee I've gone a month without pay. You have to pay into unemployment to get it. If client refused to pay then you have to go to court.

I've often done both. I know have the skills and experience to better deal with clients. I have an amazing client now and plan to go full-time on my own with my first employee soon.

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Randall

I've done both. I guess if I had to pick, I enjoyed being a contractor more. Here's why:

  • I got hired to solve technical problems and that was pretty much all that was expected of me. I didn't have to participate in most of the corporate rituals that full-time employees did. I liked that I could just laser-focus on code. I enjoyed the "mercenary" feeling. (some people may find that this feels alienating and consider it a downside, but I liked it)
  • I could (and did) travel the world and work at weird hours that may not have been acceptable for full-time employees.
  • I was given a lot of technical freedom and didn't have much oversight.

What I didn't like:

  • While my hourly pay was good, there was no equity or benefits involved, and I had to pay more taxes, so overall I made a lot less than I do at my current (full-time) position. But it's possible I was under-charging for my time and it's my fault.
  • No real "career advancement" and your job title is "contractor" which is un-cool. I thought that was a downside at the time, but now I'm not so sure. I'm a "lead engineer" now and it has been hard for me compared to the contractor life.
  • Job security? I guess? Honestly this never really bothered me that much because I had savings and figured I could always find other work quickly. I was a contractor at the start of the pandemic and didn't get laid off. Still, I knew my position wasn't secure compared to full-time employees.
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garyk2015

The big choice you typically make is weighing up the benefits of permanent employment; holiday pay, sick pay, training, career progression vs earning less than a contractor.

Depends where you are in your career, if you are early on then I think being perm means you can take advantage of career progression. I would say thats the biggest thing you forgo.

Also you need to factor in now the whole IR35 legislation. You are effectively taxed as a permanent employee but with none of the benefits. This has made a huge difference to the contract workplace, contracts do exist that are deemed outside but they are not as common as inside roles. You will have to work through an umbrella company and I know a couple of these got hacked recently and contractors didnt get paid for weeks/months even.

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Richard Guay

The freedom of picking projects as a freelancer is great. But, if you have no savings you should stick with an employee role. The basic rule of thumb is to have a year of salary saved before starting freelance work (or, start doing freelance work while having a job if your job allows that). If you don’t get job easily, you have money to keep you going.

Working for a good employer with good benefits makes life easier and promotes leaving the job with the job. Freelance work has a tendency to control your life because you don’t easily leave the job at the end of the work day.

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Tai Kedzierski

I did the contractor route once (UK).

I came out concluding that whilst I love the variety of the technical work that comes my way there, I absolutely hate the admin that comes with going solo, and the financial implications.

Admittedly, I did not make my life any easier by not purchasing for an accounting solution (that track expenses, calculates tax, manages invoicing, etc) and instead trying to do it via the accountant included through a company that had managed my Ltd business setup and providing documents to them ad-hoc ...

Lead generation is also difficult, especially if you're not of a sales mindset. I used to trawl Indeed.com to look for opportunities, and to avoid cold-calling and sales-pitching to companies.

If I were to return to contracting, I would probably make a stronger point of reaching out to former colleagues to see if they were in need of contractors at their old/new companies for my skillset, as well as use a small business accounting solution. A local one to me is freeAgent , my friend who runs a small shop uses SAGE which links up directly to their bank account and processes information automatically... there are options for eliminating the overhead and, if I really wanted to, I would likely try to find someone to do all the admin for me a couple of hours per week - it gets the paperwork sorted, and someone gets some extra cash.

The hard part financially is that because you are not on any fixed salary, and self-employed, banks do not consider you viable for any meaningful loans - so don't do it if you're intending to take out a mortgage! That's a definite dead-end.

And whilst you're working a contract, you're earning, but if you're between contracts, you'd better have saved up a little buffer. If you've got unpredictable costs, or are saving up to send a kid to higher education (or just a fancy school) , you need to take that into account.

You can also find yourself out of contract unexpectedly - there aren't the same provisions (American model notwithstanding) for employees as there are for contractors.

On the other side, being employed means you do have better job security (I have the UK in mind), right to company benefits (private medical insurance, stock options, pension top-up/matching, if any suit your fancy or needs) and you don't need to do nearly as much paperwork - in the UK, tax returns are automatic through the PAYE system. You get limited holiday days though (as a contractor, you can in theory say "oh, I am not available on this day/that day" and that's it), and your extra hours aren't always remunerable. You might be stuck with dealing with legacy items forever and getting out of a bad work environment may not be so straightforward (being a contractor means that the very principle is that either party can terminate the contract at will with short notice).

Sometimes you might need to relocate temporarily/medium-term for a job. Depending on what you like/want, this may be a pro or a con.

Would I go back to contracting? I've considered it, but not in any rush.

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Justin88-ctrl

I definitely prefer to work alone at home and choose what and with whom I want to cooperate.

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Adam Crockett • Edited on

I'm a consultant in a big company and I advise other companies how to do pretty things with our product, it's full time but feels like contracting, I feel it's a nice fit for me, best of both worlds.

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Alex Lohr

I went from freelancer to employee, mainly because I like development better than writing invoices, filing taxes for my company and hunting for new gigs.

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Doug Schwartz

Employees are treated better and have more say. Contracting lets you bail afterwards without having to burn any bridges.

I contracted as a programmer-writer for over 20 years (mostly doing C# at Microsoft) before I spent 6 years at AWS (Ruby, Go, .NET, Rust SDK docs), which I loved.

Like almost any gig/job, it's the people, especially the manager, who makes the real difference. I've gone from a great gig/job to an awful one simply by a manager change. The converse is also true.

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Danglewood

I think this comes down to your accounting skills/budget and if you already operate a LLC or LP. How good at tax planning are you?

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Ben Sinclair Author

I... have no idea!

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Alexandre Konioukhov

contract