If you’re an entrepreneur considering how you can launch that all-important first start-up, it’s likely that staffing costs are front and centre in your mind. For many modern businesses, staff are the main asset – and whether they’re software developers or marketers, their calibre will often be what makes or breaks a business. But with the going rate for such people already high enough, spending money on staff can seem somewhat excessive. Contractors who can work flexibly, though, are often a wise answer.
What is a contractor?
Many people in Britain are still employed on a permanent basis, which means that they’re contracted to work specific hours at specific times indefinitely until either side breaks the arrangement. A contractor can differ in one or both of two ways. First, they may be hired for a certain period only – known as a “fixed term”. Secondly, their hours can be left deliberately unpredictable: one month they may work just for an hour or two, for example, while during a firm’s busy month they may be needed several times a week.
Managing their pay
From the payroll team’s point of view, meanwhile, perhaps the main aspect of contract work is the fact that contractors are responsible for their own tax payments. While permanent employees will usually have their tax deducted by you “at source”, contractors will receive all of it and later pay their own taxes through self-assessment. They will also be responsible for covering their own pension contributions, which means contractors are often an attractive choice for many firms. However, many companies worry about whether they’re doing the right thing. When it comes to making sure you’re operating within the law, PAYE compliant Umbrella Companies know all the rules – so make sure you choose a reputable firm.
Laws to consider
Even if you outsource all of these functions to an umbrella company, it’s still worth familiarising yourself with the ways in which the law works in order to be sure that you’re not inadvertently breaking any of the rules. It’s not illegal, of course, to employ someone on a contract basis – and it’s common practice in all sorts of industries, but there are some rules which an employer shouldn’t break, and the most high-profile one in recent years has been the imposition of IR35.
As getting paid as a contractor can have significant tax advantages to the contractor themselves, some people choose to become contractors even if there’s no other reason for them to do so – even if they’d simply be a normal employee if they hadn’t gone down that road. The IR35 provision prevents people in this specific scenario from doing that, and it’s usually strictly applied – so it’s wise to be sure that any so-called contractors you have on your books aren’t simply employees in disguise.
As this article has shown, hiring contractors can be a great solution to your start-up staffing woes. Of course, no staffing solution is ever perfect – and hiring contractors does come with downsides from time to time, like increased staff turnover. But with contractors offering flexibility both in terms of money and of time, it’s clear that hiring some may offer a smart solution to your problems.
