Take Home Pay of IT Contractors
So how much take home pay do IT Contractors actually get as compared to permanent employees?
That depends, a lot on which tax route IT Contractors take.
It also depends on the skills they have and the amount of experience they have in those skills.
It depends, again, on whether these skills are old or relatively recent.
Contractors Double Their Money
As a rule of thumb, you should expect to get double as a contractor what you got as a permanent employee.
To find out how much you should expect to earn for the skills you have you should look on ITJobswatch. Look in the contractor section.
However, that is not the end of the story.
The downside is that there are certain rights you have as an employee that you won’t get as a contractor.
If you want to keep those then you will have to pay for them yourself.
Contractors Have to Pay for Benefits Themselves
So, what kind of benefits are we talking about that contractors have to pay for?
- Holiday Pay
- Sick Pay
- Maternity Pay
- Pension contributions
- Life Insurance
- Unemployment Insurance
- Employers National Insurance contributions
- Professional Indemnity Insurance in case you cause a problem at work
- IR35 Insurance in case you are investigated
- Accountant’s Fees
Financial Advantages of Being a Contractor
So that cuts back a bit on the financial advantages that you get as an IT contractor.
However, it cuts two ways.
There are financial advantages that you can get as a contractor that you cannot get as an employee.
A lot of this depends on the tax status that you choose.
Inside IR35 or Outside
This depends on whether you are inside IR35 or outside it.
If you are caught in its net, you will have to join a contractor umbrella company.
There your tax status will be as an employee of the umbrella company.
They deduct your income tax and national insurance contributions and send them off to HMRC.
There are some small expenses that you can claim but these are becoming fewer and fewer with each Budget that goes by. See what umbrella company expenses you can claim.
You would expect to retain 60% to 65% of your income going that route.
It’s not too much difference to being an employee.
Operating Through Personal Service Companies
IT Contractors who operate through Personal Service Companies (Limited Companies) pay less tax normally.
That’s because there are a number of business expenses that they can claim.
They can claim, for example, for equipment that they have to buy and even for such things as travel and subsistence, esepcially if they are working away from home.
Normally contractors can get to keep between 70% and 75% of the money they earn using this route.
A lot depends on their individual circumstances.
Tax Efficient Limited Companies
However, there are service providers who help contractors to use their limited companies more tax efficiently and they can allow contractors to keep in excess of 80% of what they earn.
So, as you can see it is not a simple questions as to how much take home pay you can expect as a contractors.
Your take home pay depends on a number of factors.