How Contracting works

There are lots of words thrown around the world of recruitment that confuse people, and these are four of the most commonly misunderstood terms.

-  Temporary staff
-  Fixed Term Contracts
-  Contractors
-  Freelancers

You've proberly come across these terms before but what do they mean?

Temping and fixed term contracts

Temping is especially popular in industries such as IT or accounting where companies regularly need to fill short-term skill gaps to get projects completed and will look to swell their workforce.

To do this they will generally contact a temping agency that will hold on their books a variety of people with specialist skill sets. These people are ‘employed’ by the temping agency and loaned out to employers for the agreed time period. The individuals will generally submit time sheets to the agency signed off by their supervisor within the company they’re working for and will get paid by the temping agency with taxes automatically deducted.

The temping agencies make their money by taking a percentage of your earnings, so if you’re getting paid $15 per hour, the agency could to be getting paid $24 per hour for loaning you out. The benefit you get is the security of knowing you’re still entitled to sickness and holiday pay, and you will also have help from your agency when it comes to finding your next role when your time is up.

Now you may think, what a big margin the agency is making, however they have costs themselves; as your employer they have to pay your PAYE contribution, are responsible for pay rolling you, admin costs and running the contract. There margin is acutally quite small in some cases for the amount of work involved in running day to day operations.

You may also work as in temporary role for a fixed term contract. At the end or near the end of your contract you may have options presented to you which could be to renew or extend your contract, or to find other work.

A number of temps often ask, "am I losing money from my wages to pay for the agency costs?"  The answer to this question is normally NO. if you agency is reputable they will not charge you for thier service. In fact the employer you are working on site with is paying the costs. There would have been a cost to the employer to run his or her staff's payroll, insurance, admin, kiwi saver, and of course the time and cost of recruiting and managing you. So these costs are taken by the agency from the Employer in a "Margin".

If you feel that you wage is particualry low, then you should discuss this with your agency first, never discuss wages with other temps. obviously asking a person how much they earn, will not give you accurate information and often it will be very misleading !

Contracting

Contracting works roughly the same, but you’re cutting out the middleman. Rather than going through an agency, many companies employ contractors directly, usually on longer term agreements. This method has grown in popularity recently as financial instability brings the threat of redundancies. When a workforce does need to be reduced, it’s much cheaper to get rid of contractors than it is permanent employees.

As a contractor you have the same sickness and holiday rights as a permanent employee, although in some cases an employer may offer you an increased hourly rate to forgo these benefits. Your tax is all taken care of by the employer through the PAYE system.

Always make sure you check the small print in your contracts and always ask questions before signing on the dotted line – it’s very hard to make changes after the event.

As a contractor you are responisble for invoicing the client, in some cases this would be the end employer or on other cases it still could be a Recrutiment agency if you have found the end client via thier services.

Freelancing

Freelancing is where you really have to fend for yourself. As a freelancer you’re effectively a sole-trader with your skills as the product that’s on sale. You will need to market yourself and sort out all the ugly bits of work such as preparing invoices and completing a yearly self assessment for the taxman.

Freelancing gives you great opportunities to earn big bucks, and you can often afford to only take on the work that you really want to do, when you want to do it. On the flip-side, you don’t get any perks such as healthcare, holiday or sick pay. If you’ve got a long-term illness, you could be left without a wage for a significant amount of time. Make sure you have the funds (or insurance) in reserve to cover unexpected pay gaps before you consider freelancing as a career choice.

There are lots of crossovers – for example a freelancer could sign an exclusivity agreement with one company, which means they can only work for them, but they still won’t be employed by the company. You may also know of people who are contractors for part of the week but take on freelance projects at other time to increase their income. The work-life balance offered is exceptional as you can work to the days and times that suit you.

It’s a complicated area, and whatever path you take it’s important to remember one thing – get everything that you agree down in writing and signed by both parties, whether it’s pay, benefits or length of employment.