Permanent vs. Freelance

For the purposes of this article, I may refer to Permanent employment as "Perm".

As I am sure you are aware, I am the Mobile Specialist focusing on contract/freelance opportunities in Berlin, and as such, this post may be slightly biased. I apologise in advance for this, and will try not to lean too far one way or the other... So let's begin!

What exactly are we talking about here?

Ok, let me start from the beginning, as if you, the reader, are unaware of the different types of employment. Though you do have an employment contract for (most) jobs, regardless of the category you want to put it in, there is a difference between the employment types. There are more than just these two, but for now, let's just look at Permanent and Contract.

Hang on a second, how does that make sense?

For perm, you need a contract (most of the time), but for contract, you also need a contract...? Let's go ahead and ask the question...

What's the difference?

Permanent employees work at a company. They get paid by that company (generally PAYE for UK based companies) and that company then pays their tax and NI contributions through the payroll services. Employees will generally receive a Salary, which is paid monthly, and the measurement for this Salary is ￡ per annum (that's per year, FYI).

Image from https://buzzsouthafrica.com/

This situation can vary slightly, some people are permanently employed but they have a wage, which could be paid weekly, fortnightly, or sometimes daily (more so with cash-in-hand roles where tax is sometimes avoided. Avoiding taxes is not advisable at all!).

The point is, the employee's get paid directly by their employer. But further to this, they may also receive extra benefits. Some, like holiday time, are mandatory (20 days plus bank holidays, or 28 days in lieu of bank holidays, for UK based employees, as a minimum). Others, are just bonuses, such as healthcare, company car, dental, bonus structures or even massages (My fellow Darwinites know this luxury!).

There is also often the option to switch job roles within an organisation, though this is subject to the discretion of the company. Furthermore, there is some degree (even with at-will contracts) of protection against unfair, unwarranted, or abrupt termination, thanks to severance policies, such as redundancy packages, disciplinary procedures, workers rights regulations and other UK laws.

More often than not, there are training options within permanent employment, allowing for a PDP (Professional/Personal Development Plan) to be in place.

Yeah, yeah, Peter. We knew all this...

But what about that other type of employment we mentioned....the contract!

So a contractor/freelancer, is someone who is technically self employed, and is not committed long term to a single employer.

(I'd like to take a moment to explain that I am not speaking of temporary employees. Though these kinds of employees are not committed to a single employer long term, this is the only similarity they have to contractors.)

Contractors generally work through an Umbrella Company (or managed agency), or their own company (i.e a LTD company). If they work through an umbrella, then the umbrella company is payed by the employer, and they then pay the tax, national insurance, any other expenses, take their fee, and then pay the remainder to the contractor. Depending on the umbrella company you choose, retention rate of earnings could be as low as 60% or as high as 85%. I'll leave you to do the research.

Image from axethetax.org.uk

If the LTD Co. route is chosen, you can retain more than with an umbrella company, as there is no external fee to pay, but you have to handle your tax returns and NI contributions yourself (or get an accountant to do it if you're lucky enough to know one!). If you get it wrong and underpay your tax...well that's a story for another article I think.

I'm seeing more benefits for Perm work...

Well, yes, I suppose so far we have leaned more towards promoting the benefits of permanent employment. Why would anyone want to hand over up to 40% of their earnings, or risk underpaying tax and being chased down by the taxman, for a contract that may only ensure work for 3 months? It just doesn't make sense...

Except contractors can make up to 5 times more money per month than permies. Why? Because they tend to be specialists and therefore in high demand. A good contractor can normally secure a new project before the end of the one they are currently on. And when I say 5 times more money, let's look at iOS Developer rates (because that is where my expertise lie) at present, that don't even come close to a 5 fold increase.

• - Permanent Senior iOS Developer - London Based - ￡75,000 pa (including overtime)
• - Freelance Senior iOS Developer - London Based - ￡550 per day (not including overtime)

Let's do the math...s...

• ￡75,000 / 12 months = ￡6250 pcm
• ￡6250 / 20 working days = ￡312.50 per day.

Let's not even talk about the overtime, you can already see the difference is clear, and these are just estimations. But you can't have a holiday as a contractor, because you're only there for 3 months, right?

Well, yes, actually, that is right. But in 3 months, you'll make ￡33,000 based on the above figures. In 3 months! So take a month off, take a holiday, buy a new car, visit family, and then secure you're next three month project!

What about this specialist business?

Ah, yes, well this is the most important part for me. As mentioned earlier, I deal with the Contract Market, and therefore, I only deal with the best of the best. I'm in no way saying that permanent employees are not as good as contractors, because that would be foolish, but what I can say is that in order to make it in the contract world, you have to be G-O-O-D! And then some.

As a contractor, you are that guy that gets a phone call when an application is due for release and the permanent team have discovered a barrier that they need a specialist to come in and smash to pieces, in order to hit that target product delivery deadline. And you know you're going to get paid shed loads for doing a job that you love! Because how else would you be that good? And you get to take a month or three off once the job is done!

But yeah...perm's cool too I suppose ;)

As always, if there are any questions, opinions, or criticisms regarding this, I'm always open to hearing such comments!