Contracting for Dummies

Introduction

Okay, so you want to be a contractor? You've heard about the enormous sums of money that can be earned, the days at the golf course, the Caribbean getaways, etc, etc.

Well forget it because that's not how it is. At least not for the vast majority of hard working and professional contractors. So, before dipping your toe in the murky waters of contract-dom, you need to step back and take careful stock.

There are, essentially, 2 times when you'll consider becoming a contractor. The first is straight from education. The second is after you've spent some time on the dark side as a permie.

First Move

First and foremost, if you're a student thinking about becoming a contractor I have one word of advice. DON'T! There is no substitute for 2-3 years working hard straight from school/college/university as an undervalued gofer. You may not learn as much about coding or whatever it is you really wanted to do but it will introduce you to the world of work and show you how to cope with many of the day-to-day workplace situations that you have to learn to cope with as well as start your working network. So, take at least 2 years as a permie before stepping into the quagmire and joining the ranks of the illustrious Jedi.

The Choice

Secondly you've been working for a company as a permie for a few years and have decided to step out on your own. At this point you have a number of choices. For me contracting was the way to go but you may consider selling your soul to a consultancy, becoming a consultancy in your own right or simply hawking your skills through the business network you have built up over those important 2-3 years as a permie to go direct.

For myself I chose to contract because of the perceived freedom and huge wads of cash that I'd be able to earn in return for sitting in front of a screen and playing for a living every day that I wasn't swinging my clubs around.

The Reality

In reality that hasn't turned out to be the case but that's as much about further choices that I made as it is about the downturn in IT since 911. During the ten years between '91 and '01 IT was booming in the City of London/New York. It was impossible not to make money no matter how poor a coder you were. And believe me, I met plenty of those.

In any case in those days it was all hourly paid with rates on an ever upward spiral. Now, for the most part and depending upon where you are located, that is no longer the case. The majority of businesses now want to pay a 'day rate'. The rationale is that it is easier for them to control their budgets. The truth is they figure they'll get more for less. Many contracts will allude to a professional day. What this means is that you get paid a fixed rate no matter how long you work. I always, always refuse those contracts or insist that they are changed to reflect an agreed number of hours in a working day over and above which overtime is paid. This, in part, is also due to Agents (who are supposed to be representing you) falling over themselves to placate and please the business with which they are trying to place you.

The Agents and your Contract

For many of us, work comes through the auspices of an IT Agent. For most of the 20 odd years I've been doing this I've had no trouble over the period of the contract but always at the beginning mostly due to the fact that the vast majority of agents are inexperienced and know nothing about how to deal with people. A reason for this is the incredibly high turnover of staff in most agencies and that they are usually owned by people who've left another agent with nothing more than 6 months experience and a spreadsheet with contractors' names in.

They feel it is their job to squash you as they bully and harass you into taking a contract on terms they want to dictate and which are always designed to make them the maximum amount of money whilst leaving you with as little as they can get away with.

Don't fall for this unprofessional way of working. There are a number of items you should insist upon and refuse to sign without them.

1. A clear statement detailing, in writing, what the agent's charges are and how much they will make from you. Many banks in the city now cap agents to around a 12% fee (as a margin). But there will be some who will tell you that whilst still making more.
2. Insist on seeing a draft contract up front and don't be afraid of pressing for changes. I belong to the PCG who have a contract checking service: if you join, use it.
3. Make sure that it is clear exactly how many hours your day is and do not believe a word the agent says. If necessary, once you've been offered the contract, it is perfectly acceptable to contact the future employer to clarify points like this. I was told on my last contract that the hours were quite long but I checked directly and had the real hours written into the contract. The agent was trying to cover themselves at my expense.
4. Make absolutely sure you know how and when (at what intervals) you will be paid and what the process is for submitting and approving timesheets and invoices. In my latest contract I insisted that the payment schedule made up part of the contract so that there would be no ambiguity and so I would know exactly when I should expect to see the money in my account.
5. I don't know about other countries but in the UK contracts must be fair and demonstrate reciprocity. In other words, what's good for the goose is good for the gander. A contract that is patently unfair or limits your ability to seek other employment or to be let go for an arbitrary reason may be illegal and a court can strike it down. Also bear in mind that if an agent (or you) breaks any part of the contract they become in breach of that contract and a court may deem that it has ceased to be in effect at that point. Make sure you read and understand and agree with every point on the contract before you sign it or negotiate the changes you want to see first.
6. Unless you contract direct you will have a contract with the agent who then sub-contracts you to the client business. In practice this doesn't mean anything until and unless the client attempts to get you to sign another (internal) contract. You need to check that this contract will not put you in breach of the contract with the agent or leave you open to any other legal claims.
7. (UK specific) Make sure you have a limited company and that you have a damn good accountant. They may charge but it is usually worth every penny and can save you a lot of sleepless nights. Let them handle all contact with the tax authorities and they should let you use their address as the registered address of the business. In that way you can direct any representative of the tax collecting ranks to your accountant and away form your home or place of business. In practice most contractors get left alone because our business model is very simple and does not avail us of the opportunity to do anything the tax authorities wouldn't like and our income is regular and easily verifiable.

Some Rules

I've only ever had 3 rules that I've lived by as a contractor and it has meant that I've always been renewed at least once on every contract (more on that later).

1. NEVER, EVER, lie on your timesheet. You'll get caught. And you'll get fired and it will serve you right.
2. Always do what you say you are going to do. If you don't gain the trust of the people who are paying you a lot of money they will not renew you. They may also refuse to give a reference. (In the UK you cannot give a bad reference but you can decline to give a reference which looks very bad: in any case, quite often your manager will simply pass on the request to the HR department who will only confirm that you worked there for n months).
3. NEVER, EVER, take time off or leave early without asking first. It is disrespectful and also shows you to be unreliable. No, you're not a child who requires anyone's permission to do whatever you want but if you don't at least take a moment to mention your intention you should be prepared to take the consequences if you offend someone for not having mentioned it beforehand. At the least, it is simply common courtesy to do so.

I know that these are obvious but you'd be surprised at how many contractors pay no more than lip-service to these simple rules.

The Importance of Renewals

As a contractor you should have as many weapons as possible with which to beat your next contract from a prospective employer. Given that your CV or Resume screams that you have the relevant skills and experience does it have the most important indicator of your quality as contractor on it for all to see (and, potentially, confirm)? Your renewals?

Think about it: if you meet a contractor who moves around almost non-stop, flitting from short contract to short contract you should be hearing alarm bells. Okay, one or two short contracts in a varied career are acceptable but you really should be looking for the tell tale sign that this contractor is someone possibly worth hiring because other people have kept asking him to stay. Apart from that one short role I've always had at least one renewal offered (and sometimes taken for the sake of the CV/Resume).

The Importance of having a GOOD CV/Resume

Okay, so you have the renewals. How do you let prospective employers know about them and the skills and experience that bought you those renewals? Why, with your CV/Resume. This is going to be the first thing that anyone, agent or employer, will see that gives you the chance to sell yourself. I'm not going to go into the ins and outs of the CV: that can be for another article; suffice it to say that if you get this wrong you're not going to be working anywhere. I was lucky in that for my first contractor CV I had a friend who was already an experienced contractor and I've since learnt to ask 'friendly' agents to have a look and critique it for me to keep it fresh and up to date. If you're not sure then ask someone to help you: either a more experienced colleague or, heaven forefend, a knowledgeable agent (is that an oxymoron?).

Conclusion

I've barely scratched the surface here but it should give you an insight into the wonderful world of contracting. There are, of course, many more issues that I could have touched upon but these seemed the best for a short paper like this. Perhaps for the next I'll expand on some of these points or introduce some more.

In the meantime should you finally choose to contract a little warning: it is an interesting way to earn money and pursue a career but it isn't for everyone. Note that you have to look for work every few months (you can't guarantee the renewal and should start looking 3-4 weeks before the end) and it also has an impact on your partner (should you have one). It may be that the constant pressure of having to find work does not sit well with them so make sure you have the support of everyone before you start.

Happy contracting!