Contractor Vs Permanent Employee?

 contract vs perm blog


The Ultimate Showdown between Software Developers

Welcome, software dev. You’re in one of two positions…

You enjoy a permanent, full-time role… Contractors look to you and think that you have job security, and a guaranteed income in spite of how productive you may or may not be. Oh, and of course then there are the perks – the pension, the paid holiday, the health insurance.

Or you are that contractor – The permanent workers we’ve described above think of your day to day as exciting. After all, you’re free from being tied to the same desk - free to define your own destiny (and earn far more than their meagre, fixed salary).

Whether you’re that fulltime, fully-fledged company developer tempted by the allure of freedom, or a contractor considering a move into secure, permanent work, you’re probably wondering whether the grass is actually greener. So let’s dig in and weigh up the realities of each.

Home working heaven or contractor cabin fever?

Score a contract that involves home working, rather than being based on site, and they’ll be lies ins, coding in front of the telly, and endless cups of tea. Unfortunately however there are a few potential pitfalls to home working that are often overlooked, such as distractions that impact productivity, working hours that get longer each day and living spaces that are also stressful working areas. Then there’s the issue of cabin fever - before you know it you’ve not spoken to another human being for a week.

All of these reasons may well lie behind a massive upsurge in co-working environments. Today, 1 million people work in these creative, shared spaces, where 89% of members report themselves to be happier than when working at home.And another stat worth bearing in mind is that 70% of freelancers report feeling healthier than when they worked in a traditional office setting.

 “So, tell me about your weak points…”

Urgh. The dreaded interview. As a contractor you’ll likely have to be interviewed, often. This calls for polished interview skills and having all the answers – you can turn to Google, or you could be guided by a reputable recruitment firm.

 It’s not all about the money, but it sure does help…

As a contractor, you may face an ongoing struggle when it comes to finding and securing position after position that pays well and that offers rewarding work. Ultimately? You need to have an exceptional network or assistance from a specialist recruitment consultancy.

You may also need to wear multiple hats - from a marketer for getting your name out there, to acting CFO and onto administrator (all of which can increase the hours you need to work).

Finally you’ll need to budget and be more mindful about your finances. But all of this may well be by the by, if contractors earn more than the typical, fulltime coder. If we look to PayScale, we see a salary average of £30,664, and a scale of between £21,595 and £49,581 for fulltime software developers (although GlassDoor report a higher figure of £39,155).

However these figures don’t provide much in the way of salary insight as per specialism. For this we look to Contractor UK, where current day rates are coming in at £400 for software analysts, £410 for SQL developers, £470 for Java devs, and £450 for Scrum devs (to name but a few). Backing up these promising figures for the contractor is The Register, where it is reported that contractor earnings are, on average, 50 to 100% higher than for those in employment.

However it’s worth noting that contractors almost always face longer working weeks, with the average week totalling to between 45 and 50 hours, while those who are employed are only chained to their desks for 40 hours.

Taxes. It’s complicated.

As a contractor, you’ll need to consider tax – but it’s not all bad. On the upside, you can hold onto money that’ll eventually pay your tax bill (earning interest in the process), and you’ll have certain allowable expenses that cut down the bill that you do pay. Of course, this does introduce complexity and (if you’re wise) a necessary accountant’s bill.

It’s also worth noting that you have to register as a limited company; while your accountant’s bill will be higher than if you were simply self-employed, the tax rate you’ll pay falls to a fixed rate of 20%, no matter how much you earn. An alternative is to use an Umbrella Company that handles your pay (although you’ll see less 0’s in that bank account of yours).

Finally, you’ll also need to understand something called IR35. This legislation was put in place to stop business owners abusing the Limited Company structure. In short if you’re found to be making tax gains through dividends, you could well face a humongous PAYE tax and class 1 National Insurance bill. Ouch.


The legalities of contracting. It’s all too easy to tie yourself up in knots.

When dealing with clients directly there are many I’s to be dotted and T’s to be crossed. You’ll need to think about NDAs, contracts and service level agreement, at a minimum. You’ll also need to take out professional indemnity insurance to protect yourself from any unforeseen losses suffered, or perceived to be suffered, as a result of your work (and that’s just the tip of the iceberg). Get it wrong and you could leave yourself wide open for litigation.

Helpfully there are plenty of freebie resources out there with template paperwork, however in some instances there’s no alternative but to seek bespoke legal advice and services.

Non-payment. It’s a topic we need to address.

There’s an elephant in the room. Whilst we’ve discussed payment and contractor earning potential, we need to talk about clients who can’t or won’t pay. This can hit your finances hard. The upshot of which is that you’ll need to think about protecting yourself before the worst happens. Alternatively, as a fulltime employee, your monthly wage packet is always a sure thing.

For contractors a trusty recruitment consultancy can (once again) save the day. Any recruitment company worth their salt with have solid legalities in place and agreed payment terms ensuring you get paid in a timely fashion. In this case, there will be zero difference between contracting, and being a fulltime, and always paid on time, employee.

Workers with benefits (don’t underestimate those perks)

Those in employment typically benefit from a package of perks, and these aren’t to be underestimated in terms of how they add up. Here are just some of the advantages that a company may offer…

  • Annual bonus
  • Quarterly/project bonus in some companies
  • Performance targets and associated bonuses
  • 25 days of paid holiday (this may increase the longer you remain with the company)
  • Gym subscription or other discounted services
  • Free lunch/snacks
  • Freebie equipment such as a laptop or mobile


Contractor pro tips: Minimise risk, drive up profit and earning potential

As a contractor, you need to think like a business person. Here are three pro tips for having the best chance of making it work…

  • Become an expert in a single field and a powerful voice in your chosen niche – becoming well-regarded in a specialist area is a sure-fire way of clients that come to you. Consider an area where only limited competition exists, such as legacy languages for which there is still demand.
  • Invest time in growing your network – attending events and conferences, getting out there online, joining relevant professional social networks.
  • Always stay one step ahead - with training on emerging technologies and languages.


What’s it to be? The pros and cons of employment versus contracting are far from cut and dry and the most suitable way of working for you one day may not turn out to work for you come the same time next year. Still unsure? There’s nothing quite like professional advice from a software recruitment specialist, so we should probably talk.  |  +44 (0)117 428 9400


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