State of independence: Contracting and freelancing as an engineer

Careers Advice
24 October 2014 | Careers Advice | thomas thomas

Written by: Parasol

It’s no secret that now is a good time to be an engineer. Professionals with technical ability in niche areas are in demand, as companies compete to attract and retain talent amid an unprecedented skills shortage.

Barely a week goes by without a survey of employers and recruiters identifying engineering as an area in which qualified individuals are in short supply. If you’re visiting this site, the chances are you have the credentials that businesses are looking for. You may therefore want to consider joining the growing number of engineering professionals swapping traditional employment for the world of contracting and freelancing.

Contractors are used by organisations that want to gain access to a particular skill or area of expertise on a short-term basis, but wish to avoid hiring someone permanently. They are typically hired to work on a particular aspect of a project or scheme for a set period of time. Many contractors use technical recruitment firms in order to secure assignments.

Increased earning potential, greater freedom and flexibility and improved professional satisfaction are just some of the benefits of contracting. Once they make the leap, many engineers never look back.

So how does one go about setting up as a contractor? The first step is to decide which route to go down in terms of your structure and employment status. The vast majority of engineering professionals opt to either join an umbrella company, or set up their own business.

Contracting through an umbrella company

Joining an umbrella company is an attractive option for many newcomers to the world of contracting, as it enables the individual to try their hand at working independently without the hassle of going into business on their own.

Assuming they join a reputable, compliant provider, the contractor will receive a contract of employment plus statutory benefits such as holiday pay, sick pay and paternity / maternity pay. The umbrella company will also look after admin and tax and National Insurance (NI) contributions, leaving the individual free to concentrate on their assignments. It’s this aspect that makes contracting through an umbrella company an attractive proposition for anyone with an aversion to paperwork, whatever their age or level of experience. 

Setting up a Limited company

Having ‘tested the water’ by working through an umbrella company, engineering contractors who decide they are in it for the long haul will quite often go on to set up their own Limited company.

Becoming a director of a company opens the door to additional tax benefits, boosting the individual’s earning power even further. Indeed, on average Limited company contractors take home 18% more every month than their umbrella counterparts. However, being your own boss comes with extra responsibilities, such as ensuring the correct amount of tax is paid and preparing company accounts.

Limited company contractors also need to be aware of fairly complex legislation, such as IR35. For this reason, most engineers seek assistance from a specialist contractor accountant as opposed to a generalist, high-street provider.

If you are thinking of becoming a contractor but are unsure which route to go down, you can click here to take our five-question ‘umbrella or Limited’ survey.

Whatever you decide, we wish you well in your contracting career!

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