As an experienced recruiter, I am often approached by people in my professional network for advice on what’s involved in switching from a permanent career into day rate contracting within Internal Audit across the UK financial services market.
I’m something of a rare breed in recruitment because I have spent much of my career working to find people for both permanent and contract jobs. Most recruiters, even at my own firm, tend to focus on one or the other. This has given me the opportunity to gain an understanding of two very distinct marketplaces and listen to the experiences of people on both sides of the divide.
As a result, I thought it would be a good idea to summarise this regular bit of “careers coaching” and make it available online. The caveat is that I am a very specialised recruiter. I’ve spent 15 years helping internal audit professionals find jobs in the UK financial services sector. This narrow viewpoint means that some of what I say here is not going to translate neatly to other marketplaces or locations. Some of it will.
“My firm has been using contractors recently who get paid more than me and take two months off every summer between contracts.”
This is often the starting point for the idea of moving from permanent to contracting. Internal Auditors see contractors working in their teams, enjoying less stress and earning an attractive day rate and hear tales of enjoyable periods of downtime between contracts, funded by this extra income. It's hard not to be jealous of such a utopian existence. But there are two sides to every story!
It’s true, some career contractors have had periods where work is plentiful, rates are high, and they can pick and choose when and where to work and for how long. But I have also spoken to those same contractors during more challenging macro-economic conditions, where their contract has been cut short due to budget constraints, there has been a lack of new opportunities and therefore greater competition for those that do exist, and the two months break in July and August was forced upon them with no income and no idea when their next pay cheque would be. They were not able to take a holiday for fear of missing out on applying for a job and spent long hours making applications, talking to recruiters and, if they were lucky, preparing for and conducting interviews.
As a contractor, you have to be prepared to take the rough with the smooth. Take advantage of the good years and manage your income with prudence for times when things aren’t as easy. A good audit contractor will naturally handle risk and uncertainty better than their perm counterparts. Not everyone can cope with the uncertainty that comes with changing jobs every 6 months or so.
“I want to contract because the money is so much better than I can get in a permanent job.”
The biggest driver for making a move into contracting is cold, hard cash. There are about 250 working days, so people simply multiply that by a typical daily rate and come up with a big number. What’s not always taken into account are the following:
Tax & National Insurance – the advent of the IR35 tax legislation means that many contractors now pay tax and NI the same as permanent employees
Zero income between contracts
Zero income if you take a holiday, public holidays or when you’re sick.
No bonus or company pension contributions
No free private medical insurance, life assurance and other soft benefits, which are standard with most perm jobs.
Umbrella company charges
So, the correct calculation to make when assessing the earnings potential of contracting is to use a realistic number of working days each year, taking into account forced and voluntary time off. The correct figure to compare that to is your total compensation in a permanent role – assigning a value to bonus, pension, insurance, training and paid leave, etc.
Contracting should always come out as more lucrative. It has to be because the day rate reflects the short-term nature of the engagement and the associated risks. But the gap is often not as wide as people initially think.
“I’ve decided to move to contracting, so can you share suitable job opportunities with me.”
People often overlook one important practical step when deciding to make a move to contracting -the notice period.
Firms hiring contractors almost always need them to start working at short notice with an accelerated recruitment and onboarding process. They can’t wait three months for someone to work out their notice period. Even a month is too long in many cases.
To be an attractive candidate to the contract market, you will need to resign first and be prepared to gamble without a job to go to. Quite an unsettling prospect for many risk-averse auditors with commitments to manage.
“I can jump straight back into a perm role when I’ve had enough.”
In a good jobs market, contractors will usually be welcomed back into permanent roles. However, in a good jobs market, contractors often remain as contractors. It’s when things tighten up that perm roles become a consideration again, and in these periods, employers typically put up more barriers to entry, and it can be harder to switch back to perm.
Then, there is also the question of earnings versus seniority. For a move back to perm to make sense to a contractor, the salary needed often only comes with leadership roles. However, audit contractors are not always used in leadership or line management positions because they are transient. A protracted period of contracting doesn’t always move the marketability of one’s skills forward by as much as would be needed to secure the desired salary.
Conclusions
Contracting is great. It offers a variety of experiences and a chance to learn new skills and gain exposure to different industries, build a wide professional network and earn really well. It can also give you more control over work/life balance.
But contracting also diverges you from the permanent marketplace, so long periods as a contractor can lead to you becoming typecast in that role. The decision as to when to do it and how long for can have a big impact on your future career path.
IR35 tax legislation has narrowed the divide between the earnings available from these two ways of working, making the decision harder as to which of these ways of working is the best.
Both codes have their own merits, and hopefully, by helping audit professionals to better understand the differences between these two types of employment, you can make informed decisions that align with your personal aspirations and priorities. Good luck!
If you are interested in speaking further on these topics or you would like to have a confidential chat about your next career move or business objectives, please do not hesitate to contact me at david.stacey@eamesconsulting.com
