On the face of things, becoming a contractor seems an absolute no-brainer for most people. After all, one only has to compare the typical day rates of contractors to see that it absolutely dwarfs the salaries for the same roles.

Of course, there is far more to this than meets the eye. While the daily pay rates are higher, and the tax advantages are well publicized, it’s not always as easy as the job boards make out.

Following on from this, if you consider becoming a contractor, here are four major points of interest you need to think about.

Can you deal with the uncertainty?

One of the reasons contractors are paid more is the uncertainty of their role. While an employer is guaranteed to be paid a salary for twelve months of the year, the same indeed cannot be said about a contractor.

After all, demand comes and goes. While you might be in the thick of a lucrative contract one month, there’s no guarantee that this will be renewed or if you will find a new one.

For many, this uncertainty is not worth the risk. It’s also worth adding that this uncertainty doesn’t just impact you, but it can affect other areas of your life, such as getting a mortgage. While your earnings might be higher, the fact that they can be inconsistent can make you more of a risk for lenders.

How will you be paid?

If you’re going to do it properly, you need to choose an appropriate payment vehicle. At this point, most contractors will opt for either a limited company or umbrella company approach.

Both have pros and cons, with the latter aiming to extract all of the paperwork from the process (with a cost attached). An umbrella company will do it for you rather than attempt to sort out the tax, pension contributions, and everything else yourself. This is a significant headache for many contractors, mainly because the onus is now on them to produce all of this paperwork (rather than their employer).

Let’s talk about paperwork

Following on from the above, let’s go into more detail about the paperwork. Whether it’s tax calculations and returns or sorting out your VAT or pension contributions, you are responsible for it all.

Some contractors will thrive on this. This is what they have always wanted – the role of having their own business. However, for others, contracting is about the work itself and not about getting tied up in paperwork. In these cases, you’ll need to consider if full-time contracting is for you or if you would be happy to sacrifice some of your income towards an umbrella company instead.

What about the benefits?

As we all know, some company benefit packages are worth sticking with a job alone. As a contractor, this is something that you won’t necessarily get.

Generally speaking, whether it’s the monthly gym membership or private medical cover, you’ll have to organise this yourself. Now, you can still take out these benefits yourself, but this is another reason why contractor day rates are much higher – they are responsible for all of these hidden costs.