A looooong post.......Comparing contracting to consultancy (or any other permanent employment) is multi-faceted. It’s not just about money, but about quality of life, risk appetite, corporate promotion appetite, and lots more. However a few basics….You can’t compare a £400 a day contractor with an 80K perm salary. Only a brave contractor would bank on 10 months work per year. More sensible would be to assume no more than 8 months a year at 20 days a month = 160 days. An 80K perm person would need to target a day rate of £500 a day. If they then work closer to the realistic maximum of 220 days in a year then they make 110K, which is just like an 80K perm getting a 30K annual bonus in a really good year.If you do know any £400 a day contractors, then its more likely that they should be compared to perm people on about 60k-65K, not 80K. Even then, the comparison is not simple. London weighting is much more obvious on contract rates than on perm salaries, as is the premium for certain industries – banking generally and investment banking in particular.You also can’t say contractors don’t get benefits. All but the silliest contractors work out their day rate based on the package they would receive as perm, not just the base salary. Whether those contractors subsequently purchase those benefits (through their limited company) is another matter, but no different to a permanent employee choosing which benefits to sign up to through a flex-benefits package.Health insurance for example. What makes you think contractors don’t have it? £150 a month will get you a fantastic cover. At 500 a day the cost is paid for before your elevenses on the first working day of the month. Remember – it’s a corporate tax deductable item.Benefits are taxable for both contractors and perm in exactly the same way – they show up on your P11D. In both cases the COMPANY pays for them as a pre-tax business cost and the employee pays any personal income tax due. A clever contractor will include any P11D benefits into their tax planning and thus minimise tax due.Which of course brings me onto tax. It’s well documented elsewhere, but contracting is tax efficient. Just as an example, a perm salaried employee on 80K will take home 53K per year and if in London will spend up to 3K per year commuting. A contractor on 80 turnover will pay the commuting cost as a corporate travel expense and THEN take home between 60K-65K per year depending on whether their spouse works or not. There is nothing immoral in this. A contractor WILL generate almost exactly the total tax footprint as a perm, but a large chunk is VAT which is paid for by the contactors end-client. What is clear is that if you have a good run of billing as a contractor, the tax flexibiiity is likely to make you a lot better off. 200 days of billing at £800 a day would require a whopping £190K salary to provide the equivalent take-home and pension.However, it is simply not all about the money. A fellow contractor has just turned down an extension to go cycling around Euroope for three months – there will be NO hit on his career as a result. He does it every second year!You mention having to network? Are you suggesting that there is less networking in consultancy than in contracting? Lots of contractors do not network – they just rely on agencies to find work. Imagine what kind of projects you’d be allocated to to if you did that in a consultancy! How long would your promotion take!You mention working from home. Again what makes you think that contractors don’t do that? In many cases the right to work from an independent location is written into their contract as part of showing they are self-employed. I WFH a few days a fortnight.You also mention progression. That’s the one area that is tough in contracting, You get asked to do what you’ve already clearly done. However the good contractors do still make sure there is some functional/knowledge growth in each engagement. But it is hard to move UP. However, lots of contractors really like that. They get to do what they like, without ever having to worry about “Up or out”.And finally….NO annual form-filling, balanced scorecard bull$hit, performance appraisals! Woooooooooooooo!There are lots of good things about consultancy/perm employment, but its too simplistic to assess the merit of contracting on the simple comparison of day rate x days billed.
