Contract or Permanent?

[ShadownINja]

Dunno much about the industry but given the double dip recession thingy that people are predicting, being in a permanent position might offer him a degree of safety. Contract when we're out of the recession.

[cheadle hulme]

Is this one role/ 2 possible payment methods? If so, the contractor would likely come under IR35 and the tax benefits are not what they used to be. In fact, if fin services is anything like accountancy, its difficult to be deemed outside IR35.

The 2 packages seem similar in terms of hard cash, so it comes down to whether your mate wants security or more freedom. I contract as I love being able to take holidays when I wish or don't feel like working.

[Mojooo]

Permanent job easily for the secuirty etc

24 years old and 40k is hardly doing bad!

[bigandclever]

Just some thoughts, all of which are up for argument!, skewed slightly by a misunderstanding on my part...

musclecarmad said:

£40,000 net

Do you mean net or gross? Obviously it makes a significant difference to the money aspect of addressing the question. A very, very, very broad rule of thumb when comparing permy to equivalent contract rates is take the annual salary figure and divide by 1000 to convert to hourly rate.

So, 44000 / 1000 = £44 per hour (note 44k because I've added the pension benefit in)

=> £40 * 8 hours = £352 per day

==> Since the contract is at £250 per day, the £40k (net) permy job is 'better' than the contracts equivalent.

Then add the car, and the many other (assumed) benefits to permy employment - training; promotion; staff jollies...

Regarding job security, for both permy and contract positions, the notice period, and hence the 'security', is limited by the contractual terms.

You can never assume "it is likely you will always have a contract to go to". And choosing contracting simply because of the tax planning aspect is a bit daft IMO. I don't believe it's possible to take more than 80% contract value out from the company to the individual, at least without dodgy practices.

Having said all that, I've contracted for years, couldn't ever go back to permy

FWIW A mate of mine does contract work for both BA (flying) and a software house (sitting on his arse coding). Best of both worlds

[bigandclever]

musclecarmad said:

£352 per day works out at around £1408 per week which is £6101 per month.

352 per day works out as (352*20) 7040 per month, gross.

musclecarmad said:

Therefore if we assume you work 11 months of the year that's £67,000 per year which is far more than the permie role.

Realistically there are 260 Monday-Fridays less 10(ish) bank holidays less 10(ish) days personal time = 240 working days in a year
240 * 352 (the 'required' comparison rate) = 84480
240 * 250 = 60000

musclecarmad said:

Can't you also make use of the vat flat rate scheme and offsetting expenses (private car 40p per mile etc) and other costs of contracting. Then you can take some of your money out as dividends etc.

You can indeed. As always it depends on personal circumstances but if, for instance, your mate set himself up on the flat rate scheme with a Trading Sector of "Financial Services" then he would be on a 12.0% rate. However, in the first year you get a 1% discount from HMRC, so he would actually be on 11.0%

I'm sure you can work out what the numbers actually are, but it should be clear that if he bills client at 17.5% and passes VAT onto Hector at 11% then he is financially up on the deal. Whether that's the best thing to do depends on his VATable expenses, and obviously needs another set of calculations.

musclecarmad said:

So, whats the general logic for that general formula?

There is no hard and fast rule, some will work on salary divided by 1500 for instance. The gist of it is to give a broad basis for comparison. In your mate's situation, for instance, I have no idea what the cost to him of the company car will be (tangible), against how much a car would cost him personally (again, tangible), against how much he wants a car (intangible), against how much he needs a car. It's prefectly possible to plug in all the tangible variables and come up with another number that is vastly different to what I came up with

If you were so inclined, you could look at it as follows (again, massively simplified and full of assumptions and rounding):

http://www.thesalarycalculator.co.uk/salary.php
44k gross (so still including employer pension contribution as a 'value') = monthly take-home of £2,700

Then play with all the calculators at http://calculator.contractoruk.com/ to get an idea of the required daily rate to match monthly take-home. You'll find that £250 per day covers the cash take home aspect. But, then you add some bits to compensate for the permy perks that you're missing out on and come up with a number. For instance, you could argue from your example that the permy holiday pay is worth 23 days (permy allocation) * 250 (contractor rate) = 5750 'benefit' to the permy that the contractor would want absorbed into the daily rate


It's all bks without the correct figures though, and I have no doubt I've contradicted myself along the line. That's why "salary / 1000" as a very broad brush has always worked for me

[anonymous-user]

I wss told over the weekend that Firefly in Singapore where crying for co pilots, I have no knowledge in the field just comments made by mates who ae over the weekend, and Sing is not abade place to live.

[robsti]

musclecarmad said:

My best mate is a pilot by profession as he is now qualified but he cannot get a job for love nor money. With the budget airlines he would have to wait till next year and I think with Ryanair he'd have to pay £30,000 for something. Easyjet need another £2k for a JOC licence or something and it just seems to go on and on.

Anyway, due to my contacts I can get him a job in my industry on either of the following and he has asked me for advice on which to go for and I don't know so am after some pointers. So, PH brothers, what would you rather have:

1. A permanent role on PAYE on £40,000 per year with a pension that you contribute 5% and the employer contributes 10%. You also get a company BMW 1 series (Bottom of the range boggo spec). You get 23 days paid holiday per year and 2 weeks sick pay at full pay.

2. A role as a contractor on £250 per day which is £1250 per week which is paid as £5,000 4 weekly so it actually works out at £60,000 per year if you take no holidays. There is obviously no other benefits as you are a contractor but the contract is for 12 months and it is likely you will always have a contract to go to.

Now, the downside with the PAYE role is the fact that £40,000 net isn't all that much nowadays, but the £4k company pension contribution is a good thing and the company car is as he is a similar age to me (he's 24) so it saves on insurance etc and the paid holiday is good.
The advantage of a contractor is the tax element as he can offset a lot of his expenses etc, but you need PI cover and an accountant etc.

I initially thought the employed role but can't quite figure out what to tell him. I know my brother is a contractor and you can earn decent money if you stick at it and work up to 'team leader' etc

I'm having beers with him tonight so any help before then useful.

23 days holidays is against the law!