Top 6 Disadvantages of Contracting

Working as an independent contractor has become increasingly popular in today's job market - in large part because being a contract worker usually means having more flexibility and accessing a higher pay.

However, before you dive into the world of contracting, it's important to consider the differences between permanent and contract employees, and the potential downsides of this choice.

Being a permanent employee and contracting are two distinct types of work arrangements. As such, there are several differences in terms of employment status, contractual obligations, and long-term commitment.

Employees

In permanent employment, individuals are hired by a company as full-time employees and enter into an employment contract. They typically work for a single employer on an ongoing basis, with a more stable and long-term commitment.

Permanent employees can receive benefits such as paid vacation, sick leave, health insurance, retirement plans, and other employment perks. They also have a consistent salary or wage, often receive training and career development opportunities, and are subject to the company's policies and regulations.

Contract Work

Contracting (as a freelancer or a self-employed person) involves working on a project or assignment basis for a specific period.

Contract workers are not employees of the hiring company but rather work as independent entities or through an intermediary such as an umbrella company. They sign contracts or agreements for specific projects or timeframes, and their work is often result-oriented or based on deliverables. In some cases (though not all), a contractor can work on multiple contracts at the same time - thus potentially making more money.

Contractors are responsible for their own taxes, insurance, and other business expenses. They have more flexibility in choosing projects, setting their rates, and managing their working hours. However, contractors typically do not receive employee benefits, sick pay, or annual leave, and are not entitled to the same level of job security as permanent employees.

In many cases, self employed people who want to remain their own boss go on to starting a limited company.

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1. Lack of Job Security: Due to the flexible nature of their working relationships, contractors aren’t guaranteed work after the end of assignment or project.
2. Inconsistent Income: Contractors often experience fluctuating income levels, depending on the availability of projects and the success of their businesses. There might be periods of high earnings, followed by breaks with little to no income.
3. Limited Employment Benefits: Compared to permanent employees, contractors typically don't receive benefits such as paid leave, healthcare coverage, retirement plans, or other perks commonly provided by employers.
4. Responsible for Taxes and Finances: Contractors are responsible for handling their taxes, including calculating and paying income tax, National Insurance contributions, and managing their business finances.
5. Isolation and Limited Professional Development: Contractors often work independently and may miss out on the collaborative environment and opportunities for skill development available to permanent employees within a company.
6. Difficulty in Obtaining Loans or Mortgages: Lenders often favor permanent employees due to their perceived job security and consistent income. Contractors may find it challenging to secure loans or mortgages.

So, it's vital to understand these drawbacks, you you can make more informed decisions when considering contracting as a career path.

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Permanent employment provides stability, benefits, and long-term commitment, while being a contract worker can offer flexibility, autonomy, and a project-based work structure.

Many contractors feel that autonomy and flexibility (two of the main contracting advantages) are more important than the downsides, as you get greater control as a self-employed person than being an employee. However, it's important to keep in mind that contracting also involved many potential disadvantages, including job insecurity, lack of benefits, and limited employment rights.

The choice between the two will ultimately depend on individual preferences, career goals, and the desired balance between stability and independence.