They say the grass is always greener on the other side. If you are employed in a job that is not 100% fulfilling, you may look at friends who are consultants or contractors and envy their independence and freedom. Or you may be a contractor missing the security of a regular salary and paid leave. Which is the better option?
There is no right answer. The correct choice for you will depend on your career and the opportunities within it, your personal circumstances, your attitude to risk and your personality – are you calm and able to deal with the unpredictable or does uncertainty make you anxious? We are all different, and you need to consider all angles – not just the financial one – when considering the path of the independent contractor.
Be an entrepreneur, not a temp
Contracting is not a temporary solution. It is a conscious decision to change your career to a completely different employment model, that of an independent entrepreneur. It is a lifestyle choice, not just an alternative work option to get you over an obstacle such as retrenchment or an unsatisfactory employment situation.
When you’re up, you’re up
As a contractor you are your own boss. You are running your own business, even if you turn up in someone else’s office everyday. The product your business sells is your time, skill and expertise. So when it all goes right, the success is yours and yours alone, not that of a team, and can give you quite a high. Equally, you must take responsibility for things that go wrong. There is no one to blame for blunders but yourself. Do you have the resilience to learn from your mistakes and move forward, especially if the error has cost you a contract? Can you tolerate – both financially and emotionally – the loss of income that may result? If you prefer collaboration and enjoy contributing to a team effort, as well as having the support of colleagues when projects go off the rails, then you may not be suited to independent contracting.
Are you motivated?
What motivates you? Do you need the structure of a job description and clear objectives? Do you respond to the encouraging words of a boss or colleagues? Or are you a self-starter who finds motivation in achieving results? Are you able to pick yourself up after a blow? Can you perform at your best every day, even when you don’t feel like it? Permanent employees inevitably have days of minimal productivity; no one is at their peak every day. Salary is paid regardless. But expectations of contractors are higher. You are paid for results, not for attendance. Your client is paying a premium for your talent and expects you to deliver top performance whenever you are on their service.
Neither style is better than the other. We all respond to different motivators and it’s important to recognise what yours are, as you consider the factors that will ultimately determine your choice.
The legal and financial stuff
So you’ve made the decision to become a contractor. Even then, it’s not that simple. SARS has quite strict conditions that must be met to ensure a permanent employee is not disguised as a contractor. It is very important that you are correctly classified so that you – and potentially your client employer – are not hit with hefty penalties.
Historically, the preferred option among contractors was to set up a company. However, current tax legislation requires quite a few boxes to be ticked in order to go this route. An easier option is to engage the services of a contractor management company, such as Highveld, which, for a fee, will handle all the administration for you.
Whether you opt to trade as a company or a sole trader, you will need a good accountant. Attempting to handle your own books is a false economy; an accountant skilled in tax and bookkeeping for small business and the self-employed will help you take advantage of all the deductions you are entitled to and can save you money in the long run. You concentrate on meeting your clients’ technical needs and let a specialist SMME accountant take care of the other aspects of running your contracting business. Most importantly you will avoid any late tax penalties and other errors of omission.
Replacing employment benefits
As an employee you may have enjoyed access to an in-house medical aid scheme, pension or provident fund, and other benefits. It is important to replace these with private plans. When your income fluctuates, it can be daunting to commit to regular large expenditures every month; but it is critical to build them into your budget and make sure you have the cover you and your family need. Have a discussion with a financial planning adviser and thoroughly assess your savings and insurance needs. This may include income protection cover in case you are unable to work.
We can help!
Highveld and Rosstone Consulting can help you establish yourself as a professional contractor. Highveld provides end-to-end contracting and financial solutions that allow you to concentrate on marketing your specialist skills while we take care of financial, tax and labour services. We do more than ensure your compliance with tax and labour legislation, we make sure you maximise your earning potential and simplify your administrative burden. We can also give you access to a range of ancillary services tailored to the needs of contractors, such as travel, short-term insurance, wellness and more.
Rosstone Consulting has been providing expert tax and accounting services to individuals and small businesses for 25 years and can help you manage the business of your business. We also provide wealth management and financial planning services to give you expert advice on insurance and long-term savings products.
If you’d like to have a no-obligation conversation about your prospects as a contractor and your personal earning potential, contact Highveld on 012 367 5600 or firstname.lastname@example.org. We’ll give it to you straight.