Pros and Cons of IT Contracting

Pros and Cons of IT Contracting


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by Namratha


Contracting is where you are hired to work on a project or task for a set period of time, normally 6 or 12 months. You receive what is called a contract for service rather than a contract of service (perm position).

The 2 types of contracting are fixed term or daily rate. As the name suggests, on a fixed term contract you are paid a set fee for the length of the contract, normally 12 months. With a fixed term contract you are paid monthly and this amounts to the total cost for the contract. This is similar to a yearly salary however you will not be paid beyond 12 months unless an extension/renewal has been agreed. The more popular option is daily rate contracting where you are paid a daily rate for the days you work in each month. This option allows you to yield more income with contractors getting around a 20% increase compared to perm salaries. IT contracting within Ireland has become increasingly popular due to its benefits for companies and candidates.

Why do people get into IT Contracting?

Why become a contractor?

People go into contracting for several different reasons, but the main reason is to increase earning potential. As well as a higher income, contractors can be more tax efficient and utilise expenses effectively. Some people go into contracting to gain experience in different industries and environments, and in some cases, people consider contracting if there is a shortage in perm roles. Another reason is the increased flexibility and work life balance. Some contractors like to go travelling for 3 months during the summer while others like to take a month’s break between contracts to spend time with family.

IT contracting benefits for candidates

Contract benefits for candidates

  • Money

    You can get an increase of around 20% on your perm salary if you go contracting. Fenero Accounting and Contracting specialists reported that to date the average IT Contracting daily rate in Ireland is €421. That’s 421 x 20 days x 12 months = an IT Contractor Salary of €101,040. Of course you must remember that you don’t get paid for the days you don’t work so this calculation can vary based on the amount of holidays you take and sick days you are off.

  • Expenses

    Depending on which contracting route you go down you will have the ability to claim back expenses. On average contractors claim around €250 a month. Types of expenses:

    • Computer Equipment

    • Educational Courses

    • Phone and Internet

    • Travel

    • Company Car

    • Home Office

    • Relocation 

  • Gain experience quickly

    Contractors will be hired to complete a project and will be expected to get involved from the start, so this is a great way to gain experience and upskill.

  • Increased flexibility

    Contractors have flexibility around the days they work, if they need time off, they take it off and don’t need to worry about annual leave or holiday allowance.

  • More freedom and control

    If you work on contract you will have more control over the hours you work and direction you take. The most important thing is that the project is delivered on time.

  • Better work/life balance

    Contractors can decide when they work and what length of break period they take between contracts. This often leads to a better work/life balance. They can take regular holidays and dedicate time to friends and family. 

IT Contracting Benefits for Company

Benefits of hiring contractors for companies

  • Better match with project based work

    Employers can hire specialists for project work and only keep them on their books until project completion. 

  • Quick access to specialised skills

    Employers can get experts in for specific project work. This can help when meeting strict deadlines and ensuring a professional standard is met. Often it is extremely hard to attract certain niche tech skill sets for a permanent full-time hire.

  • Immediate impact and innovation

    Most contractors are experts in their field and can hit the ground running without needing any training or onboarding. They also bring experience from other companies and projects so can bring innovation and new ideas.  

  • Reduced risk

    Most contractors are hired on a contract which has an end date. This means the company is not paying when they do not require their services, the same cannot be said for a permanent employee. 

  • Increased flexibility and cost control

    By bringing in contractors a company becomes more flexible in when they can complete projects rather than relying on perm staff who may need to upskill. With a contractor you will be able to control costs for the project as this will usually be their sole focus. Perm staff may be involved in multiple projects and internal initiatives that can distract their focus and make allocation of costs to projects more complicated.

  • Lower headcount

    Contractors usually do not count towards a company’s headcount and are considered more of a resource acquired through procurement instead of HR. By hiring contractors companies can keep head count down therefore increasing productivity and reducing cost. 

Becoming an IT Contractor

Becoming an IT Contractor

When setting up as a contractor you can choose from 3 options:

  • Umbrella Company Employee

    This is where an accounting partner set you up as an employee of an umbrella company for tax and payroll purposes. This option is best for short term contracts and people who want to retain Social Welfare benefits. Best suited for daily rates up to €200 and employers PRSI is paid.

  • Umbrella Company Director

    This is where an accounting partner will set you up as the Director of an umbrella company for tax and payroll purposes. This option is for any length of contract and can help the contractor to maximise retention (how much of their daily rate they keep versus pay in tax). This fits someone who is not concerned about retaining Social Welfare benefits. Best suited for daily rates from €180-€400 and employers PRSI is not applicable. This set up is recommended if you are new to contracting.

  • Private Limited Company

    This is when you set up your own company to contract under. Best suited for 12 month contracts on daily rates of €400+ . This option can take longer to set up than the umbrella options but allows you more control around tax planning and ability to claim expenses. Check out the type of expenses above.

If you need some more clarifty to find out which option will suit you the best, you can find some answers in this FAQs blog on IT Contracting in Ireland.

Myths surrounding contracting

  1. Loss of Social Welfare – this is not true see Umbrella Company Employee Option above.

  2. Loss of State pension – false, everyone is entitled to a state pension

  3. Not getting access to a mortgage – false, contractors can get mortgages. Might be best working with an Accounting partner like Fenero who have a specialist who deals with this

  4. Holiday/Sick Pay – true contractors are not paid for holidays or sick days however this is why they get higher rates to cover this 

  5. Time off between contracts – most contractors take time off between by choice to travel or spend time with family

  6. Complicated/Expensive – this blog demonstrates how easy it is to set up as a contractor. Yes, there are monthly accounting/admin charges, but the earning potential of contracting outweighs these costs

Conclusion  

As you can see contracting is not as complicated as it may seem with many people and companies utilising its benefits. People mainly go into contracting because of the earning potential but the work life balance is usually what keeps them contracting. Companies will incur an extra cost for contractors but can get specialists to ensure project deadlines are met and effective workload delivered. Contracting helps companies to control costs, keep headcount down and increase productivity.

IT Industry Trends

Contracting opportunities are steadily growing within the IT industry as it ensures companies can find specialist skills efficiently. For example, if a SaaS company are looking for a React Developer for a project starting in 1 month that will approximately last 6 months, hiring a contractor is the best option. Firstly, the perm market is very competitive, and they may struggle to find someone who can start within a month. Secondly, the SaaS companies are controlling cost by taking on a contractor for 6 months rather than paying a perm salary especially if there is no guarantee of further React projects. Given that we are in a recession, I feel that contracting is the future of the IT industry in Ireland. I think that contracting reduces risk and allows companies to control cost which is especially important in such an unpredictable market. Click here to check out more IT Industry Trends.

How can GemPool help as an IT Recruitment Agency?

GemPool provides IT recruitment services for SaaS companies throughout Ireland. For SaaS companies we can offer market insights into daily rates, availability and advice on whether a contract or perm hire would be best to suit requirements. For candidates we can help you to seamlessly set up for contracting, provide job opportunities relevant to your skillset and advise you on a daily rate that aligns with  your experience, expertise, and current market rates.

I believe that IT contracting in Ireland is going to be the future of work in the IT Industry on the back of the COVID pandemic. Companies will want to reduce costs and risks associated with perm hires opening the way for a number of contracting opportunities. If you would like to get some insights into the current IT Contracting market in Ireland or hear about are IT contracting opportunities contact myself at cathal.mcaliskey@gempool.ie.


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