This article is a basic FAQ about contract work.
Whats the difference between working as a contract and a standard (PAYE) employee?
- More money than an employee doing the same job as a PAYE worker.
- Flexibility to change jobs quickly.
- The self-employed fall into tax bracket 'S'. This means you pay 5%
PRSI as opposed to about 13%.
- Ability to expense your..er...expenses.
- Ability to move between different types of work and constantly learn
- No Health insurance, pension, etc unless you get it yourself.
- The expectation that you can "hit the ground running". You're
hired to be more productive than an unexperienced worker and you'd
- Occasionally there can be periods of unemployment in between
- Occasionally resentment from full time employees. "Contractor scum.
Getting paid twice as much for the same job I do..."
What are the risks involved in contract work? / Is contracting for me?
Contract work is for you if...
- You are good with people. Contracting is more about being able to
sell yourself then a standard job.
- You know your stuff and can communicate it effectively.
- You work well under pressure.
- You can pick up new concepts and ways of working quickly.
Contract work is not for you if...
- You have no savings or are bad with money. You will be paid more but
the risk is that your contract may not be renewed. You need to be
able to budget.
- You are risk averse. There is an amount of gambling on getting a
contract extension or a new contract. If this will completely stress
you out or you have a huge mortgage to pay then it may be better to
stick to a stable job.
- You're a "clockwatcher". Contractors are expected to earn their
keep. If you hang around waiting for the day to end you probably
won't last long.
I want to get into contracting. What type of company do I need to set up?
There are three main types of setups
An Umbrella company is essentially a payroll agency. They put you on
their books for a monthly fee. You send them your monthly invoices and
expenses; They collect the cash, do your monthly payroll, pay your tax,
and transfer your wages into your accounts. Example: MACS Umbrella
- Hassle free.
- No need to set up a company.
- Can be relatively expensive.
- Most payroll companies will not expense capital purchases. i.e.:
Purchasing a computer for business use.
A Sole trader is a one-man band. You send out your own invoices, keep a
record of your own expenses and pay yourself. At the end of the year you
declare your taxes to the revenue.
- Relatively Hassle free.
- No need to set up a company, though you should register a business
- If you earn less then €20,000 you are not liable for tax.
- Unlimited liability: Your personal assets are at risk from lawsuits
or debts of the company. If you manage to burndown your employers
offices you're personally liable for the cost.
- Most recruitement companies will not deal with a sole trader.
- Does not look professional.
A Limited Company is a registered company with limited liability and
directors and all that grown up stuff.
- Limited Liability: You are not personally responsible for business
debts (unless you act illegally).
- Ability to expense capital purchases such as computer equipment for
- As a director of a company you can transfer a large percentage of
your income into a pension tax free.
- Necessary to form a limited company. This can be done by a company
formation service (Costs around €350), or by yourself. Check
- Limited companies have to stay in operation for at least 5 years.
Even if you finish working for the company it still exists in its
own right and you need to provide end of year accounts to the
What do I do about tax?
- Work out your own tax.
- Get an accountant to do an end-of-year accounts and tell you how
much tax you owe.
- Get an accountant to do your monthly returns and end of year
Whichever option or combination of options you choose, send your tax to
the revenue. You can use the revenue online site or send it through the