Most people get into IT Contracting thinking they’ll be rich. They’ll make a whole load of money and in a few short years they will be all set for life. It seldom works out like that and here is why few IT Contractors get rich.
1. Not a Full Year
You can’t multiply your weekly rate by 50 to find out how much you’ll earn each year. Most people say that you should multiply by 45 even if you are in constant work.
There are lots of bank holidays that you won’t get paid for. You’ll surely need some kind of holiday yourself. You’re probably going to need some time off for sickness. Even if you don’t you won’t get paid for going to see the doctor, dentist, accountant, mortgage broker etc.
2. In Between Contracts
It used to be that when your IT Contracts was coming to an end and with about a month to go you could start looking for a new contract. However, it is more and more the case that clients want contractors who can start ‘right away’.
Unless you are one of those IT Contractors who keeps getting renewal after renewal then you are going to spend weeks (and maybe months) ‘between contracts’. You’ll be earning no money at all and using up your stockpile of cash.
3. IR35 Tax
Since the late nineties the Government, Treasury and HMRC now look upon the majority of IT Contractors as ‘disguised employees’. You’ll find that this is in order to implement ‘disguised taxation’ as they will consider you as an employee (disguised or not) for no other purpose in terms of benefits or rights.
IT Contractors caught in this way will not get the great benefits of being able to claim very much in the way of expenses that they used to be able to do.
You are going to hit a major downturn in the IT Contracting market at some stage. Unless you are very lucky, you will experience long spells without work or income. If you have invested your hard-earned cash in shares you will probably find that they have fallen to a fraction of their previous value as well.
5. Extra Costs
You are going to have to pay for a lot of the things you took for granted as a permie.
You’ll have to pay for your full National Insurance and for your Pension. Also, you’ll have your health insurance to pay for. Many clients now are insisting that IT Contractors have indemnity insurance so that they can sue them if things go wrong.
6. Your Spending Will Rise
What’s the point of earning lots more money if you can’t spend more of it? Why should you live in a small house in an OK area when you can now afford a big house in a good area? Why should you have an OK car when you can have a super-duper one. And why should you eat in OK restaurants when you can eat in the better ones?
You definitely will spend more money. That means that the date when you’ve made your pile and get rich will be further off. It also means that when you experience any spells out of work your cash position will deteriorate much more rapidly.
God help the IT Contractor who is fully leveraged as far as his outgoings are concerned (just check our Unemployed IT Horror Stories in our Jobs News section).
7. Easy Targets
In recent years, despite saying that they want to encourage small businesses, the Government and HMRC have increasingly seen IT Contractors as easy targets for filching more tax from. Expect there to be a new scheme for taking more of your money in tax about once every couple of years.
8. Imported Competitors
The UK Government, along with the EU, made an offer to the Developing countries in the Doha round of the World Trade Organisation sponsored free trade talks that would allow any IT Contractors from anywhere in the world, or any IT workers supplied by Contractual Service Suppliers from any country in the world, to be able to come and ply their trade here for 6 months of any year.
The talks have collapsed, at least for the present. However, the will is there on behalf of our Government to do this. So expect more in this area in the future to correct our ‘IT Skills Shortages’.
Schemes like this are sure to make it harder for UK IT Contractors to get work and is sure to depress rates.
9. Work Exported
Previously when companies did not have enough Permies they looked first for contractors. Now there are a number of other options. These include taking someone imported via the HSMP programme or they can send the extra work offshore.
All of this, again, decreases the number of positions available for IT Contractors and depresses rates for everybody.
10. Your Skills Deteriorate
They don’t send you on training courses as a contractor. Your skills deteriorate and after a few years you may find that the skills world has passed you by and you are experienced in skills that the market no longer wants or at lest wants fewer of.
You are also getting older and finding it a bit harder to get work – unless you’ve got yourself into more senior positions.
There are lots of things to enjoy about contracting but you won’t find that there are tens of thousands of ex-contractors who made their pile and got out rich.
Rich IT Contractors are few and far between. If you got rich from IT Contracting let’s hear your story.