Employee v's Contractor

What are the main differences between being an employee and a subcontractor?

This repsonse arises from the growing number of queries I am receiving from individuals from across most sectors who have found themselves on reduced working time or have recently joined the ranks of the unemployed. 

Many are now looking at the option of setting up their own business and are using their positive attitude and ambition to fully utilize their skills and expertise in the context of running their own business.

Lets look at the pros and cons!

What does it mean to be a Subcontractor?

Pros of contracting;

  1. Potential Higher rate of pay
  2. In some cases a variety of work, moving from company to company.
  3. You can write all sorts of expenses off against your tax bill, eg telephone, motor & travel
  4. You can actively look for work from a many different Principle contractors and can work for any number of them at the same time
  5. You are now more attractive for the main contractors to hire for short term projects as they do not have any prsi or holiday obligations to you
  6. You're now 'working for yourself'.


Cons of contracting;

  1. Have to pay an accountant to do your books – the cost depends on the size of your business and the nature of the work – but a good accountant is essential to the success of your business
  2. No sick leave or statutory benefits as this is class S prsi
  3. You've now become the 'guru'.
  4. You more than likely will be registering for vat at some point (unless a vat exempt activity) which will include the obligation to prepare vat returns
  5. Insurance will have to be taken into consideration
  6. All records, invoices, receipts have to be retained and presented to your accountant to prepare returns.

What does it mean to be an employee?

Pros of being an employee

  1. All employees are paid a salary/wage, plus most have some additional benefits, the most important of which are mentioned below
  2. Paid Holidays
  3. Bank Holidays
  4. Class A prsi which give automatic entitlement to most social welfare benefits
  5. If a permanent employee is made redundant, then the company normally pays some redundancy to the employee often amounting to 4-5 weeks pay for each year of service.
  6. Accountant not required and record keeping not required


Cons of being an employee

  1. Restricted to working for one employer, can not freely look for work elsewhere, ie, devoting all your time and energy to one employer
  2. Possibly a lower rate of pay than self employed
  3. Periods out of work in between jobs
  4. Difficult to actively promote your services

Combination of Both (be an employee with one employer and also be a subcontractor to others)?

Why not combine both?  It is possible to be a paye worker as an employee and at the same time be a subcontractor to other main contractors or private individuals – it would be no harm to give this option some thought as with the right motivation you would have the best of both worlds and would be in a very good position to take advantage of opportunities as they arise, to increase ones income and to have a source of work immediately should the paye income end.

Conclusion

Setting up as a contractor (self employed sole trader or limited company) has some obvious benefits. There are some hoops which need to be jumped through in order to set things up, but once they are set up they should be setup for good. Once the setup, the rewards of contracting can be pretty good. While there is not much paperwork, the key thing is to keep all paperwork on file.

Going as an employee gives security and protection as well as future benefits through the prsi system.

Many people now find that they can combine both systems and this may give more opportunities to make the best use of ones time.  

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