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Insights from practitioners in Information Management

Issue 96 – To contract or not to contract that is the question

This month we are looking at the benefits (or not) of joining the ranks of the contractor sector. If you have ever wondered what it was like to work on fixed-term contract but haven’t been motivated to find out on a personal level, we hope this edition will give you some food for thought. Of course if you would like to experience first hand the benefits of joining (or re-joining) the contract sector, then please contact our offices, we would love to hear from you, we have project work and contracts waiting for those people with the right skills and abilities.
For some people however, a full time job represents stability, a chance to earn a decent wage, a chance to buy a house, get holiday and sick leave entitlements and the possibility of career progression.

If you have been following the changes to workplace laws in recent times (and lets face it, it’s pretty hard to miss unless you are stuck on a mountainside in a cave somewhere), you will not have failed to notice that “times, they are a changing”. As organisations try to reduce costs and bottom line expenditure outsourcing has become commonplace, and “off-shoring” the work even more so and those “safe” “permanent” roles my no longer be quite so safe as they once were. By the way – when did you last update your CV anyway?

We would like to thank you in advance for forwarding on this edition to interested friends and colleagues. If you would like to read any of the back issues of this edition or the main edition of Information Overload you can find these on our web site – http://www.iea.com.au.

Lorraine Bradshaw
Marketing Coordinator & Projects Officer

In this issue we will look at:
•    You never know where a contract position may lead
•    A “permanent” job is not the only option
•    Niche Specialist vs. Generalist Agencies
•    Going it alone – becoming an independent contractor
•    How do you get the most out of your contracting experience?

You never know where a contract position may lead

Contract work is a great way to “try before you buy” or “try before you decide to move to a permanent role”.

In periods of down turns and hiring freezes for permanent staff, organisations may be able to contract in the skills and expertise they need. And when the ban is lifted, guess who they are the most likely to offer the permanent job to? Don’t think that can happen to you? Well in the last few weeks that is EXACTLY what has happened to 2 of our contract personnel. Great news for our contractors and their new employers – not so good for us at IEA :-/

A “permanent” job is not the only option
Given our recent comments about the changes to the Industrial Relations laws, do any of us have a truly “permanent” job anymore? The answer is probably not. But where does that leave you? Well for those of you who are reading this and are not currently “on contract” through IEA or any other agency, you may like to consider fixed-term contract placements as an alternative to a “permanent” role, especially if you consider that contracts can range from a day to a year with every variation in between.

What are the benefits of contracting?
•    Contracting puts you into places and situations that you may not have thought about before. Of course this may put you off working in a particular industry or with a particular organisation entirely, but short, fixed-term contracts do allow you to try before you “buy” in.
•    Employment agencies should be able to offer you a variety of work, although it is entirely up to you whether you take a role or not. It should also be noted that you are never put forward for a position without being contacted first.
•    Depending on the agency you choose to work for, you should get offered positions that are well within your range of skills and abilities. (Please note, this may not be the case with all agencies – especially if they don’t really understand your qualifications and experience).
•    You can finish a contract with as little as 24 hours notice – although to be fair to the client, we hope that you don’t, and
•    The pay is generally better and as a casual you get “leave loading” on top of the base hourly rate.
•    And you can use the money you receive in the contract sector to persuade banks and other lending institutions that you are in a stable work environment and therefore not a bad credit risk.

Of course there are also downsides. These can include:
•    There is generally no holiday or sick leave cover; if you don’t work you don’t get paid. But if you put aside the additional monies you earned (leave loading) you will cover this “problem” quite nicely.
•    There is generally a steep learning curve – every organisation is different, including the systems they use, the practices undertaken and of course the people you will be working with.
•    Contracting is not for everyone – if you are not happy outside your comfort zone, then you will struggle going into a new workplace on a regular basis.
•    And despite what we have said about there being more jobs than people, we (and other employment agencies) cannot guarantee additional work beyond your current contract. In reality of course, the work is available for those with the right skills, abilities and attitude.

So you’ve decided to take the plunge, which agency do you work through?

Niche specialists vs. Generalist agencies
The beauty of working through a generalist agency is they are on some of the large employer bases preferred suppliers lists and common use contracts with Government agencies.

As you can imagine, there are also some potential disadvantages in undertaking work through a generalist agency. The main reason is they don’t know you or your specialisation. They are unlikely to know the subtle nuances of your profession, language, and what a job really entails. Consequently they may not charge the correct rate for the work that you are being asked to do (and yes we have seen this occur in many instances). If the agency does not charge the correct rate, then the likelihood is that your hourly rate may be lower. So be prepared to negotiate if you think the rate is poor.

As a specialist agency in library and records management there are a number of advantages:

•    We know the language, the industry, and will pay you the correct rate for the job you are being asked to do;
•    Variety of placements – and can assist everyone from state government to private enterprise
•    Job length varies from 1 day to 1 year and every variation in between
•    If you work on fixed term contract for IEA, you are employed by IEA – we pay your tax and super – did you know if you work for some agencies they won’t pay your super if you don’t earn over the requisite $450 per month? Well we do and always have done.
•    If you have a problem at work, we will sort it out for you.
•    We know everyone by name.
•    We encourage a revolving door policy. If you decide to work elsewhere for a while we are first in line to offer you congratulations and we hope that one day you will come back to us with additional skills and knowledge. The more skills and experience you have, the more opportunities open up for you and the more money you are likely to earn.
•    We have a comprehensive Occupational Health and Safety Induction. We know the first day on a new job is likely to be the most dangerous so we ensure you undertake an online white collar worker. Should the unthinkable happen, we also have an Injury Management Policy and workers compensation insurance! But we would rather you didn’t need to use them ?
•    And perhaps the most important aspect of working as a contract employee for IEA  is that we keep in touch with you. Not only do we speak to you on your first day to make sure you got there ok, and they are treating you well. We also speak to you on a regular basis throughout the contract so that we can make sure everything is going well, and if not, what we can do to help you. Of course you don’t have to wait for us to call you, the entire team at IEA are ready to help if you need to speak to us.  

Going it alone – becoming an independent contractor:
There are some people who may not see the benefit of working through an employment agency, preferring to source their own work and of course doing all the associated admin that goes with it. If you are not already working as an independent contractor and would like to consider it as an option – here are some things to consider:

•    You need an ABN
•    If you earn more than $75,000 per year (gross) you need to also be registered for GST (goods and services tax)
•    You will need to organise PAYG (Pay as You Go Income Tax) which is based on an assessment of prior and future earnings. This will need to be paid either annually or quarterly – you can nominate.
•    You will also need to organise and pay your BAS (Business Activity Statement) – this is also paid quarterly.
•    You also have to make provision for your own superannuation payments.

Insurance requirements:
If that isn’t all, you also need to provide the following:
•    Evidence of Workers Compensation and / or Income Protection
•    Public Liabilities and Professional Indemnity Insurance of between 5 -10 million dollars (you may also need to consider aggregates ie., someone making more than one claim against your professional capabilities in a calendar year). Depending on which organisation you work for these figures may not be adequate and each contract should be read VERY carefully.

All that being said – how on earth do you calculate your hourly rate?

Let’s use ALIA’s formula for casual employees requiring 25% loading on the annual salary to calculate an hourly rate for a librarian wanting to earn $50,000 per annum.  Remember the 25% is to cover sick leave and annual leave entitlements, which you will not accumulate as a casual, and you certainly won’t accumulate them as a freelancer.  So using the formula you should be charging a minimum of $31.51 per hour.

[minimum annual salary] x 1.25
________________________________________52.2 x [hours in a standard week]    =     50,000 x 1.25
________________________________________52.2 x 38    =     62,500
________________________________________1983.6    =     $31.51 per hour

Examples can be found at http://www.alia.org.au/employment/salary.scales/2002-2003/casual.part-time.html

This covers your leave entitlements but what about the 9% superannuation contribution that employers make? If you add that to your hourly rate you should now be charging $34.34 per hour.  Please note also, this is set to rise to 12% over the next couple of years and needs to be taken into consideration.

How many unpaid hours do you put in to your business?  Have you considered those when determining your worth?  How much time do you spend on the administration of the work you do for your client/s? – Timesheets, invoicing, chasing up payments, bookkeeping and accounts.  In my experience a freelancer generally can expect to add about 10 – 20% to their paid working time.  In other words if I work (and I am paid for) a 30 hour week I can expect to actually work a 33 to 36 hour week i.e. 3 to 6 hours of unpaid work to keep my accounts up-to-date.  This may even be increased a little if you’ve got GST to worry about.  If you are working for more than one client have you taken into consideration the telephone conversations you may have with your clients that are not part of your paid working hours?  

Do you charge them for this time or give it them as good will? Again, if working for more than one client what kind of record keeping do you have in place to ensure that you are up-to-date with the client’s requirements?  Have you costed the time taken to maintain the records into your worth or do you perform these tasks as unpaid hours?

Do you have professional indemnity and public liability insurance?  How much per year does it cost?  Let’s assume it costs $1,500 per annum – and that’s conservative – it therefore costs $28.74 per week.  How many hours per week are you working?  If you are working a 38-hour week, you need to add another 75 cents onto your hourly rate to cover your insurance cost.  You are not covered by your client’s workers compensation, so do you have income protection or workers compensation insurance?  How much does it cost?  Do the same calculation as you did for public liability for your workers compensation and/or income protection and add it to your hourly rate.  How much have you invested in equipment that you use to support your business: – PC, modem, printers, mobile telephone, and car?  How much do you spend on consumables: – paper, toner, electricity, telephone calls, postage, fuel?

Now think about what benefits you get from being a freelancer.  I have had conversations with people who have said that the tax benefits of claiming their vehicle, equipment etc. means that they can charge less.  How does the taxation system on personal services income affect you?  The tax benefits may not be so good if you work for only one client.  Also think about the quality of life benefits you get from being a freelancer – ability to stay at home with the sick children, choices of when to work – these benefits are hard to value in a monetary way but still have significant value to all of us.

Realistically, if you are a freelancer and you want to earn a wage equivalent to a person in a permanent position then you have to know what all your expenses and benefits are and charge accordingly.  

Why are many companies choosing to use freelance contractors over agencies and permanent placements?  Because most freelance contractors don’t know their worth and significantly undercharge.  

At the end of the day you think you are getting a good deal by invoicing at a rate of $31.51 per hour but when you take all other costs into consideration you are more than likely earning less than $20 per hour.  

One final point to remember if thinking about becoming an independent contractor is the 80/20 rule. If 80% of your money comes from one income source the tax office may determine that you are not an independent contractor at all but an employee.

Which is really something to think about.

How do you get the most out of the contracting experience?
•    Be willing to learn from as many people who are willing to teach you.
•    Always be polite – you never know where the next job will come from, if you think this is only a two week job it doesn’t matter what attitude you have – then you are wrong. Perth is a very small place….people talk…make them talk about you for the right reasons.
•    Repeat business – clients ask for people they like, and who know the work and the organisation.
•    Be helpful – but be aware of the duties as stated in your contract – if you do more you should be paid more.
•    Dress standards apply. Always bear in mind that you are representing yourself, and future business opportunities – again be remembered for the right reasons.
•    Time keeping is essential. Some fixed-term contracts have a limited time span due to a variety of reasons. If you are going in to replace someone who is on annual or sick leave, the host employer is not likely to tolerate tardiness or Mondayitis !!
•    Do not abuse the host clients property – internet, email, phones, stationery etc
•    If you are asked to undertake additional work with the client (host employer) please ask them to speak to the agency representative. You may find yourself working without a contract and associated workers compensation etc if you do a few extra hours here and there – to help out. You may also need to be paid more.
•    Be confident in your skills and abilities – and if you need someone to talk to – we are only a phone call away.
•    And finally – enjoy yourself, you spend a good portion of every day in the workplace, so start the day with a smile rather than a frown. You will only get one chance to live this day, so don’t waste time and negative energy wishing you were some place else.

With many thoughts

Lorraine