Ask LH: Should I Switch From Contracting To Full-Time Work?

Hi Lifehacker, I've been working as a contractor to my current boss for the past three months. He has offered to employ me full-time, which gives me all the benefits of holidays and so on and less hassle with invoices and budgeting, but that would result in a pay cut of roughly 20%.

He's offered to pay for further education in the industry on top of any licences needed for software, as well as a renegotiation of my salary every six months. Is the pay cut worth the stable and steady income?

Thanks Contract Sport

Contract picture from Shutterstock

Dear CS,

Switching from being a contractor to being a full-time employee often involves negotiation over appropriate pay levels. This isn't necessarily unfair; there are costs involved with full-time employees (such as leave loading and superannuation) which aren't required with all contractors. The higher rates you're paid as a contractor cover the fact that you'll typically be responsible for those expenses yourself.

Whether you need to want to make the switch in part depends on how in-demand your skills are. If you were scoring work steadily from other employers before this contract, switching to a full-time role may be less beneficial. If the industry is more unpredictable, it could be a worthwhile choice.

Given that your boss has suggested there will be a salary review in six months, it's a relatively low-risk move: essentially, you're only committing to a six-month contract at worst. However, make sure that you have a written commitment to both the salary review and to training being provided. If those are purely verbal promises, they're easier to renege on.

Cheers Lifehacker

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Comments

    As a contractor who has had a few sojourns into permanent employment, you should take account of the increased potential to be drawn into office-political situations which hitherto, you've been removed from. Most contractors hate being told to carry out futile, irrelevant tasks simply so a manager can tick a box on their performance appraisal.

    Saying that, being offered 80% of your current income, for the addition of all of the perks of being a FTE (paid leave, paid sickness, super, bonuses, parking, etc) that's not too shabby a deal.

    And with a get out clause just 6 months down the line, you can't really ask the employer to do any better.

    This is a decent site for doing comparisons between contract vs permanent rates

    http://www.users.on.net/~wallala/Calculators/salary_rate.htm

    Don't forget to account for the structure under which you are being paid.

    If you're a sole trader, this a no brainer.

    If you consult under a company name, and earn $200k per annum, you pay GST (which your employer gets back anyway so is probably paying for you), but you can buy stuff GST free, and only pay 30% tax on your profits.

    If you switch to a personal income of $160,000, you are suddenly in the 37c tax bracket, plus medicare surcharge, plus no GST input credits,

    If you're consulting for $50k per annum at the moment, it's probably not a big issue for you.

      mate dont forget PSI rules, it aint 30% of profits anymore...

        Huh, hadn't seen that, they've revised the 80% rule.

        It still looks like the old 80% rule... you need to use your 4 weeks off to ensure you get 21% of your income from another (revised edition: unrelated) employer - otherwise you're taxed as an employee anyway.

        My advise stands: if you earn over $100k and have the flexibility of being a contractor, spend money on a good accountant.

    I have often found that after contracting for many many years, you don't have a choice in the first place...If your employer comes to you to switch it will 99% of time mean no job if you don't take the offer, they see you as a peace of machinery not a person something to be traded, and if you don't like the offer they know there is 10 more just like you who will. SO, in the end it comes down to do you need a job? or not... can you hang out until your next contract role if so then don't do it. or do it if you simply want to join the day in day out drag of every other hassle free sheep.

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