What is contract work and is it better than permanent work?

Contract work is increasingly common in a number of sectors, including marketing, IT, and project management. But what does are the benefits of contract work, and how does it compare with permanent employment?

Contract work definition

Contract work is when an individual is contracted to perform services for a client for a specified period, whether that’s a few weeks or a few months. It’s a popular way of working in fields like copywriting and IT consultancy.

Unlike permanent employment, contract work is relatively flexible for both employer and worker. Contract workers may work with a number of different firms every year, on a range of different projects. While the variety can appeal to contract workers themselves, employers often value contract workers because they can bring specific skillsets to individual projects, and because it can be a more cost-effective way of filling gaps without increasing headcount.

So you’re thinking about taking on contract work – but what are the advantages and disadvantages?

Types of employment contracts – pros and cons

If you’re considering taking on a temporary contract, or if you’re weighing up the benefits and drawbacks of contract and permanent work, there are some important factors that you should bear in mind.

Contract work

  • You’ll be paid much better than a conventional employee doing the same job
  • You can work flexibly – if you need to take a few months off, you will be able to do so provided that you’ve set money aside
  • You have the sense that you are your own boss, and you are in control of your own working destiny
  • You’ll build up a broader base of knowledge and contacts, thanks to working in a wider variety of environments and with a larger range of people
  • However, you will have to look after your own financial affairs, including taxes
  • You probably won’t be entitled to any other employment benefits
  • You won’t have the certainty of long-term employment

Permanent work

  • You’ll have a regular income, and you’ll be able to plan much further ahead
  • You may receive some other employment benefits, such as pension contributions
  • There may be a clearer route for career progression
  • However, you are likely to be paid much less by the hour or day
  • You’ll be tied to one employer, and you may find this restricting

Contract vs permanent work – the tax implications

If you’re considering starting contract work, it’s important that you understand the potential tax implications.

To begin with, it is likely that you will be treated as self-employed, meaning that you will have to look after your own tax affairs.

However, contract workers should make themselves familiar with tax legislation called IR35. This is designed to combat ‘disguised employment’ – that is, when an individual is to all intents and purposes employed, but is considered self-employed by the employer.

Falling foul of IR35 can cause serious financial headaches for contract workers, and it’s important that you take steps to avoid it, particularly when drawing up contracts. You can read our comprehensive guide to IR35 for more information.

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