Leaving paid employment for contracting role

[Missmummy88]

I’ve been offered a contracting role for someone I’ve been working for occasionally as a white label from my current job. It works out better for both me and my potential new employer as he will offer me 50% more on a day rate and he won’t have to pay the agency fee ( for context my current day rate is £100, he’s offering £150 - my agency charges a lot more!) He’s offered me exactly the same conditions so 3 days per week, ability to say no meetings between 3-4 when in school run etc, wfh 100% of time.

However, he runs his agency purely on contractors. He offers 12 month contracts with 90 day notice. Having worked for him for 9 months I know he’s a nice guy, his team seem happy and very little turnover and he said he’s never served notice on anyone. He also has the benefit of knowing my work standards, my ability to work well with clients etc and he wants me to do my current role but just for him.

I’ve only ever worked paye. I’m thinking of saying if he wants me it will have to be on paye or I stay where I am.

My current role has its issues for sure, over worked, poor management etc. But we are just about to apply for a mortgage, and I understand starting a new contracting role might really hold us back.

Is there anything else I should be aware of regarding contracting and paye. For context 3 kids, husband works full time and we only spend his wages and save mine. Which will obviously go towards mortgage - but only a small mortgage of around £450 per month. I quite like employee security!

What would you do!?!

If you're going for a mortgage I would ask if he would take you PAYE. It makes such a massive difference to the point of my partner and I, both established freelancers, taking PAYE contracts to buy a house. If that doesn't work for him then ask if you can join the team at a later date once you've finished buying?

When you say 'contracting' do you mean Ltd company contracting or is this a short term PAYE contract which pays a bit more as it's short term?

It may be worth it but firstly you need to check if the contract is inside or outside of IR35. It'll make a big difference to the tax treatment (irrelevant if this is a PAYE contract obvs)

Personally, a 50% uplift doesn't sound great. I'd expect at least 100% for the added risk and loss of security. Although I'm assuming that you'll also lose sick pay, pension, company benefits etc. Also, a day rate might not be a good idea if you're likely to be doing extra hours due to high workloads.

Just to add, I was a ltd company contractor for 10 years before going freelance. The risk thing is initially quite daunting but you get used to it if the money is worthwhile. I don't regret it one bit.

You can get a mortgage but most lenders will want to see regular income for at least 3 years.

I used to contract and I recommend a 100% uplift to factor in:
Holidays (as no longer paid)
Sickness
Lack of training - in my role I had to stay current in certain things so this was a personal expense.
Instability of work - though sounds like you do have security which to be doesn’t sound like a contracting relationship!

IR35 is key here. Would you work for anyone wise? Would you be paid to do a task rather than as an employee would be? From what you’ve described this is an employee relationship that they’re trying to not pay you as an employee for. For example as a contractor no one should stipulate your hours or place of work. You may be asked to attend certain things (ie x meeting on y date) that are necessary for you to do the role, but they can’t say ‘we want you to do 3 days a week, 9-5 on Monday, Tuesday and Thursday’.

I always work as a contractor but took a perm position when I was about to buy. I doubt he'll do paye if all his other staff are contractors. It throws up all kinds of pension and NI issues that he is then responsible for.

You could set yourself up as an employee of your own limited company though, I think.

You could set yourself up as an employee of your own limited company though, I think.

Unlikely to be cost effective on that day rate. You need to explain more about how you would be employed and make sure you understand the implications of the setup

You need to understood all implications. Sounds pretty dodgy. He should almost certainly be deducting tax and NI. I’d be looking for a proper employed role with full job security. Though I wouldn’t be telling them about having the kids with you whilst wfh

I'm a career contractor and switch between ltd company and umbrella PAYE. I'm confused re your current set up and some of the replies you've had on here.

As a contractor in either scenario, you don't get paid pension contributions, no security of employment etc etc. If you are working on umbrella PAYE inside IR35, you would expect a higher day rate than if outside IR35.

I'm almost exclusively a lifelong freelancer but if you're about to try and get a mortgage I'd sit tight. Would this employer wait for a bit?

Also all the same boring warnings as everyone else. What do they do about sick pay, are they making pension contributions? Will you be responsible for doing your own taxes? I have to pay an accountant for the latter because I'm too stupid to manage it myself and that costs £600 a year on its own.

The other half is attempting to move from paye to contractor and the rule of thumb in their industry seems to be double to triple the paye rate.

By the time you budget for employers ni (about 13%) annual/sick leave (about 10%), umbrella company or accounting costs (a grand or so), employers pension contributions (your choice but perhaps 10%), you are not looking to come out much better off.

I don’t think the 50% uplift is great to be honest, that will be eaten up by tax and NI, would barely cover holiday pay and sick pay if you needed it. The benefits of freelance work is that you can chose to take on work or not, work more flexibly and can take on additional work if you need more money. The rates of pay are usually much higher because you lose job security, have to sort your own tax arrangements etc - an extra £50 a day doesn’t really cover that.

You could go back and renegotiate - do you know what the going rate is for true freelance work in your area of work?

You need to consider very carefully if you would actually be better off. As others have said, no sick or holiday pay, responsible for own tax and NI etc.

You also need to consider the legality of working in this way if you are only working for one employer. You should be on PAYE. I work freelance and for the first time ever when I submitted my tax return earlier this year I was contacted by the tax office and asked to provide a list of the companies I'd worked for and copies of my invoices. They are tightening up on this.

As for getting a mortgage, in my experience you need be able to demonstrate at least 3 years of trading income and profit before you'll be considered.

@olive2621. Ouch, I hope the audit goes ok and that it's not too stressful.

They're definitely tightening up and we need to be more vigilant. Hence why I got out of contracting as it's becoming less and less beneficial, even if you are completely legit.

1. definitely don't do it until after you've got your mortgage.

1. This uplift - what happens with NI, Pension, Paid leave, sick pay etc? Because those things all make a big difference and if you were PAYE before, would have been covered by your employer.

1. Are those three days a week guaranteed? When you are on PAYE you're paid to be present As a freelancer, you're often only paid for work done. What if work is quiet - will he be able to just tell you that you're not needed today? ie does it work as a sort of zero hours contract?

1. You will have to do your personal tax returns as it's not going through PAYE.

1. What about equipment etc? Do you use a computer/phone for work? Who currently provides this or will you have to do so now? What about software etc? If you travel for work, how does that work re expenses etc?

The uptick could totally work in your favour but you need to be very very clear on the risks and rewards.

You can't be self employed if you're only working for one employer?