Contracting For Dummies, Part Two

Introduction

So, you've taken the fateful decision to become a contractor. Well done: you've now joined the massed ranks of the contracting brotherhood. Or sisterhood.

In any case you have a few more mental and practical steps to take before you can start that first lucrative contract so let's review:

1. Have you got the full support of your partner? Have you properly explained both the benefits and pitfalls of contracting? Do they understand them? Do you? Will they support you when a contract ends and you have to go, for example, 8 weeks before you finally get another? No? Then quit now and return to permie-dom or your life will become a living hell.
2. Do you understand that the mindset of a contractor is very different from that of a permie? You can no longer rely on the people around you to support you in the same way. Whilst they need you, they also resent you because of the perception that, as a contractor, you must be rolling in cash.
3. One of the hardest things to overcome is that of taking time off. An example might be that you want to book a 2 week holiday/vacation. No problem. But stop, wait: what about the 2 weeks loss of income??? Add that to the cost of the break and it's like losing a whole month... With this mindset even taking a sick day becomes a nightmare scenario. So stop it: these 'losses' are part of the contracting game so get over it and get on with it.
4. You want to learn about that new technology? When you were a permie your company was falling over itself to help you train and learn new skills to benefit the company. Now, as a contractor, it's down to you to fork out the £2000+ to learn widget-sharp-plus or whatever Bill has decided to call the next big thing. And the time off: maybe a whole week!

Okay, it's not that bad. But you do have to try and consider what the downside is and decide whether or not you'll be comfortable living with the possibility that one or more will arise.

More importantly, you have to learn to deal with them. Nearly all of the contractors I know have had to deal with 1 and 3, especially in the beginning so make sure you think carefully about them.

Practicalities

There are a number of things that you MUST do to ensure a smooth run as a contractor. These apply specifically to the UK, but I'm sure the general observations will apply to any location.

1. Get an accountant. Get an accountant. Get an accountant. Get it? Get one. Get a recommendation from a colleague or, better still, pick one of the recommended accountants that the PCG list on their site. Although accountants appear costly they can guide and protect you. You do need to make sure that the one you pick isn't a glorified tax collector. Some accountants will err heavily on the side of the revenue services and trick you into paying a little more tax than you need to because it's an easy option and less work/hassle for them. Conversely you don't want some fly by night who'll encourage you to spend, spend, spend because we'll claim it all back. How do you determine which is which? Experience, I'm afraid, is really the only way. As an aside I've never used an umbrella company because they do tend to be pretty hard nosed when it comes to allowances etc. whereas a good accountant will at least explore the possibilities. It's really what you are most comfortable with.
2. (UK specific) Unless you have taken a contract paying minimum wage or only intend to work 3 months every year you'll need to register for VAT. Get the accountant to do this for you: it's why you pay him.
3. (UK specific) Get a limited company. Why? A number of reasons, not least of which is that most agents will not deal with you if you don't. Why? Because some of them believe that if you are self employed or an LLP it would expose them to unwanted tax liabilities. Besides, it does offer you a little protection and some tax breaks: check with your accountant as to how these might apply to your particular case.
4. Let's say you get £100 + VAT per day and you get paid this filthy lucre direct to your bank account every Monday morning. Excellent. That doesn't mean you have £587.50 to spend. Far from it. The first thing you MUST do is set aside some of this money for VAT and taxes. Most business bank accounts now come with a savings account. If not then get one and each week/month/quarter transfer the VAT and money sufficient to cover your tax liabilities into that savings account. How much should that be? I have no idea: ask the accountant you engaged in step 1. Now you can eat and pay the mortgage.
5. Join the PCG. Join the PCG. Join the PCG. Get it? Like step 1 this is a MUST do. This is where to find them. Okay, the web site is a bit cheesy but they offer some excellent services and are the only organisation that is on the side of the contractor. As discussed in the previous article, they have a contract checking service. Use it. I don't know what other countries have it but if you have something like this where you live and they offer similar services it cannot hurt to avail yourself of them.
6. Never take anything personally. Unless you happen to be a complete socio-path who delights in winding up everyone around you it is not personal. You are there to do a job of work; nothing more. If they get you to create your life's masterpiece and then scrap it the day before it's due to go live... get over it. You're paid to create the software, not worry about what they do with it afterwards. I've seen multi-million pound projects get scrapped at 99% of completion because of a change of business needs or a new IT director or any number of what appeared to me to be the most trivial of reasons. Did I take it personally? Hell no. No point: swallow your contractor-pride, learn from it and move on. You're not paid to take anything personally; you're paid to cut code. What Acme Corp does with that code is their business, not yours.

Impracticalities

Oh dear, we're back at the agent. As it happens I had lunch with my agent last week. Very convivial. I told him that I thought agents were scum-sucking parasites but that it wasn't personal: I thought this about all of them in equal measure. He just laughed as well he might: as long as I'm at Acme Corp he makes money. To his credit he didn't rise to the bait and turned out to be every bit as human as I am. The point here is that however much we rail against agents they are a necessary evil for the vast majority of contractors. You have to learn to deal with them. Bear in mind that as it is to us it is to them: a business. They are there to make money, not to be nice to you though they will be if it gets them the deal.

They are first and foremost sales people under pressure: remember a sales person is only as good as their last sale so they're much like hamsters on a wheel (though not nearly as much fun): constantly trying to close that next deal.

What does this mean for you? As outlined in my previous article, exercise extreme caution when dealing with them. Check, check, check the contract and sign nothing until you are happy with it. As mentioned above you can get it checked through the PCG. Never give them any information unless it is clearly directly relevant to the matter at hand. They will nearly always attempt to elicit 'references' from you. They don't want references; they want names they can pester to try and get more business. The only time references are truly necessary is at the time you have agreed to take the contract. There is no reason they need them before that.

Education

I was recently asked about education and qualifications in relation to working in IT. I would never preclude employing someone because of a lack of degree or qualifications: I'm still of the opinion that experience can be just as valuable. However, 10 years of IT might equate to 10 years where each was the same as the last and the candidate actually has limited experience against the candidate with 5 years experience each of which was a little different and showed an experiential path indicating a steady progress. Equally the possession of a degree, of itself, does not guarantee the ability of the candidate to do the job. Part of the deductive process to decide the best candidate is the interview process discussed in an earlier article. There is also the hambone of 'professional' qualifications. Whilst these can be bought over the web they are meaningless and I would tend to discount them. This, of course, does a disservice to those hard working professionals who have taken it upon themselves to properly complete the study and take the exams. But how do I know that you didn't just buy the qualifications? In other words I (and I know of many others) simply do not trust that these have any meaning.

In a wider context degrees have also become somewhat devalued in the UK because everyone and their dog now goes to university as opposed to when I were a lad and it was only 1 in 10. Consequently it is now becoming common practice in many HR departments to weed younger people/first timers out who do not have a Masters or who achieved their degree at a 'lesser' university. I don't condone this since, again, the mere possession of a degree does not denote that the person is able to do the job but I suppose competition for roles, generally, is far more intense and there needs to be some way to reduce the stack to a more manageable level.

In IT terms, however, this can be hurtful since many great programmers have come from hobbyists who, for whatever reason, don't have a degree but are hard working and extremely competent.

So, the lack of a degree may hurt you but it very much depends on the attitude of the individual looking for staff. Put another way, it can't hurt to have a degree but professional qualifications may not open the doors you hope for because they can be bought which renders them meaningless.

The Renewal

The first time most contractors know they're doing a really good job is when it comes to the end of the contract. If it really was a single piece of work or you're bored then you'll get to the Friday afternoon, wish everyone a good weekend and depart. If, on the other hand, it is an ongoing project or there is more work you may be offered a renewal. A decent manager should start talking to you either directly or through the agent at least 4 weeks before the end date. This, coincidentally, is the same date you should begin your search for a new and improved contract. The reality is that most managers will probably leave it to the last possible minute because they just know you want to stay and would never be thinking of looking for another contract. Some years ago I was in a semi-decent contract but was ignored by the project manager. I looked for and found another contract to start the Monday after this contract ended. At 5pm on the last day he came and spoke to me about renewing the contract. I was stunned: he'd even ignored my agent asking whether or not I was going to be offered a renewal. To this day I don't know why he was so offended when I told him I wouldn't be in on Monday. Strange. The moral here is that no matter how pro-active you are in your quest for a renewal and even when they want you to stay you must take care of business and not rely on anything until the ink has dried on the new contract.

It is also the time to think about asking for a rate increase. In fact you should always ask for a rate increase. You may not get it but you certainly won't get what you don't ask for. You can also ask the agent to give you some more of their cut. After all a renewal is free money for them: all their costs were in getting the contract sorted out on day one. You can also ask for a longer contract if that would suit you.

Finally, if you get a 6 monther and feel that the agent screwed you back on the rate to fit you into Acme Corps budget you could, at 3 months and provided the contract is going well, ask the agent for an increase from their cut.

The point with all of this is don't be embarrassed by money (it's surprising how many people are) and always be ready to ask for more.

Conclusion

I hope these additional comments help you on your quest to become a contractor: there are, of course, many other issues that I could have addressed but I'll save those for another instalment. Remember, it isn't the life for everyone but it's worth a try and you can always go back to the dark side if it doesn't work out.