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What is a Contractor

 


This is the first in a series of blogs aimed at providing businesses an informative insight into the often murky world of contractors.


…So what is a contractor?
Contractors, Consultants, Freelancers, Advisors, Self-Employed, Sole Traders? Have you heard any of these terms being used in or outside your company and found yourself confused as to what they are and how they fit into your organisation?

Well you’re not alone and a surprising amount of businesses and organisation out there still don't fully understand what a contractor actually is. This leads to a key issue in that if you don’t know what they are you could be missing out on a valuable resource that can integrate or work alongside your permanent workforce bringing a wealth of experience and skills.

Who are they?
Simply put, they are a non-employed professional offering their skills and experience to businesses on a flexible contract basis. Their relationship with the organisation they are contracted by is business to business as opposed to traditional employee to employer model.
Self-employment is on the rise and many industry experts believe that contingent labour will help in filling the gaps left over by the exiting migrant workforce in a post Brexit Britain together with the technical skills gap. Contracting is steadily becoming the new norm.

Why don’t they just get a regular job?

People prefer to contract for a variety of reasons
1. Self-Employment. Those that choose to contract want to pick and choose when they work and who they work for. Contractors, to a large extent, like to choose when to work particularly if they have personal commitments or projects that they could not commit to in a full time employed role.

2. Specialist Skills. Many contractors are highly experienced in their chosen field which means their experience and skills are in high demand. Contracting allows them to offer these specialist skills to numerous companies and industries.

3. Experience. Contractors can work across multiple sectors and industries which presents them with opportunities that might not exist to an employed person.

4. Financial Control. Contractors retain an element of control over their income. Some contractors like being able to dictate their worth where others like to be able to manage their finances professionally via their own business rather than through a company’s PAYE system.

5. Dictated to. Some industries will only take on certain roles on a contract basis therefore making it the only route to employment for many. Examples of this are technical industries such as IT, Automotive and Oil & Gas sectors.


How do people contract?
There are several ways for someone to contract their services out to prospective businesses
1. Limited Company. Most common is via a Limited Liability Company. The contractor will setup their own company and offer consultancy services via this entity. The Ltd Company is classed as the employer.

2. Umbrella Company. These are specialised companies who take on the burden of the contractor and manage the financial aspect of the assignment on their behalf. In this format the umbrella is effectively acting as the employer and responsible for arranging payment of all statutory burdens concerning Tax, N.I. and Pensions.

3. Self Employed/ Sole Trader. A contractor may opt to contract their services out using these methods and manage their own statutory contributions relating to their income.

How can you engage a contractor?
There are many ways to engage a contractor for work below are the two traditional methods
Directly. A company can sign terms with the contractor directly. The contractor’s Ltd company or umbrella will invoice the company directly for the services provided. Hiring contractors direct can allow the company to maintain direct control over the contractor with a clear visibility of actual spend and less time managing external suppliers. However, they will also be exposed to additional risk if they do not manage the compliance properly. There is also scope for disputes to arise over invoice payments which may have a knock on effect to the completion of the outstanding work. Under this arrangement the company will also be responsible for the contractor hiring process which can negate the point of being able to mobilise someone quickly.

Agency

An agency will act as the intermediary to recruit contractors for the business. It will also provide all the necessary management and payment functions required.
The benefits of using an agency is that they will take care of all the day to day management of the contractors allowing the company’s own staff to focus on its permanent employees. The Agency will also manage statuary compliance items reducing risk for the company. Agencies also maintain pipelines of suitable contractors saving you time and cost recruiting a contract worker. They can also act as an arbitrator should there be any discrepancies over the delivery or quality of services or payments.

I hope this short article has given you an insight into what a contractor is, keep an eye out for my next blog which will focus on how you can use contractors to grow and add value to your business.


Hewett Recruitment have been supplying contract recruitment solutions for 37 years. If you would like to discuss any contracting needs your organisation currently has please call Gareth on 01905 613413 or email gareth@hewett-recruitment.co.uk


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