5 Things That Contractors Starting Out Should Know About From A Financial Perspective

Some things to consider as a start up contractor from a financial perspective.

In just the past few years, the nature of work has undergone a dramatic transformation. While contractors and freelancers have existed for a long time, technological advancements mean that an increasing number of people are drawn to the idea of being their own boss.


Like starting a new job, becoming a contractor can be an intimidating experience. But when you do become a contractor, you have a lot more to worry about than making new friends or meeting sales targets. There are many advantages to contract work, but the financial side of things is very different to that of a traditional 9-5 job, so here are 5 things that start out contractors should know from a financial perspective.

Be Prepared For Financial ups & Downs.

One of the most obvious qualities of contract work is that you won’t have a steady income. Your income one month will be totally different to the months behind and ahead of it, particularly when you are just getting started. Even if you have a few different jobs lined up for the near future, or the promise of regular work, nothing is guaranteed when you are a contractor.

For this reason, it is important to plan ahead, to have some cash you can fall back on, and to be prudent with your spending while you get a feel for your cash flow. Ideally there should be some overlap between the job you are leaving and the contract work you do, so you can make an informed decision about when to take the leap and fully immerse yourself in contract work.

Consider your Pay Rate

If only out of curiosity, most of us have calculated how much we earn per hour. When you become a contractor, this figure can suddenly seem to jump dramatically. While most companies don’t mind paying a higher amount to contractors, because it’s still cheaper than hiring a full-time employee, you need to remember that the per-hour wage is not as scalable for contractors as it is for full-time employees.

Even if you get paid €100 for an hour’s work, you’re not going to fill 40 hours with that rate, and certainly not at the beginning, so don’t expect to be taking home €4,000 a week in the near future. There will always be 168 hours in a week, but there won’t always be 40 hours of work, so you have to stretch whatever you take in.

Be Confident in the value of your work

New contractors often feel awkward when it comes to putting down a price for their work. Many people will be afraid that charging X amount for Y hours will make them look arrogant, or unrealistic. Furthermore, there is a fear that no matter what number you put down, someone else will be willing to do it for less, which drives many people to undervalue their work. Ironically, this can sometimes cost people business, as a lack of confidence can make it seem like the quality of your work is not as high as your competition, and a business may be willing to fork out a little more if they think the result will be better.

This is a hurdle all new contractors must overcome. One of the best ways to do so is to join an online group and ask others how they arrive at their own valuations. There will be plenty of people online with the first-hand experience to know what works, and since most of them won’t be your direct competition, you can get some truly great advice for your specific field.

The Lack of security as a contractor

For all the advantages of contract work, one of the biggest disadvantages is a lack of security. While a person in full-time employment may be entitled to paid annual leave or sick days, contractors enjoy no such benefits, and only get paid when they actually hand over work. For this reason, it is important that you put aside a portion of every pay cheque, no matter how small.

You need this rainy day fund to tap into, because further down the line, whether you simply want some time off or find yourself unable to work, there will come a time when there is no money coming in.

Self Employement and taxes

In order to keep everything above board and avoid incurring penalties further down the line, it is important to register as a self-employed person from the get-go. This can be a little daunting, as people fear running afoul of the tax man, so it may be in your best interests to get some advice from an accountant, or someone who has already been through the process.

The good news is that there are advantages to being self employed with regards to tax, such as a reduced USC rate, and an earned income tax credit for self-employed people that is set to rise from €1,150 to €1,350 in Budget 2019. Making sure you take advantage of all the benefits available to you is another reason to seek expert advice, at least in the beginning.

Entering the world of contract work can seem scary and complex at times, but it can be an attractive alternative to working for someone else. There will be risks and challenges involved, but if you plan properly and do things right, contract work can offer you a tremendous amount of freedom and satisfaction, as well as a high quality of life.

If you would like to discuss anything from this article or have any other questions relating to working as a contractor, get in touch with us today and we’ll be happy to advise you.