What Is IT Contracting?

Seeing as I'm an IT contractor I thought I'd tell you a bit more about it.

Most people know that you can either be a permanent employee or a "temp". In IT, we call temps "contractors". Who knows why? They are effectively the same thing. Only difference maybe is that in IT you get mostly fixed term contracts of usually 3 months but sometimes longer, 6 months, a year etc.

IT contracting was famous in the late 90s during the dot com boom and since then. Contractors were creaming it. Here in the UK, they were setting up PSCs (personal service companies) which were basically one man companies, and then getting their own company to invoice the client.

Why? Because they only had to pay Corporation Tax which is lower than income tax. They've closed that loophole these days but nearly every court case that has been brought has failed. Still, most contractors have been scared away from doing it and most now use an "Umbrella Company".

No, this is not a factory that makes parasols and such! It is a company that still takes away the hassle of invoicing and dealing with payments and communications with the client. Effectively, the contractor is a permanent employee of the umbrella company. You cannot save as much tax as before but you can still claim expenses as a deduction. It's not worth all that much but all the pennies add up.

Anyway, why do companies use contractors? Simple, because even if you pay them the same salary, it works out cheaper for companies as they don't have all the administration costs and headaches and additional taxes to pay for. Plus, they can hire and fire quickly.

Why do people still like to be contractors? Well, for one, being a "permanent" employee is not really all that stable. Anyone can get laid off and you won't necessarily get a huge pay day. Secondly, there are always plenty of contract jobs going and the demand for them will never wane. Third, you can really boost your CV by doing several contracts and in one year amass similar experience that might otherwise take you the best part of a decade. Fourth, it can often pay higher than the equivalent permanent role, although unfortunately contractor rates have been hit bad since the financial crisis started. Finally, these jobs are easier to get and I have worked many contracts without even a single interview! Now compare that with permanent jobs where you will typically be seen by at least two or three people and have to sit several rounds.