Contractor (noun) – a person or firm that undertakes a contract to provide materials or labour to perform a service or do a job. See also: freelancer
A contractor provides a specialist service in return for a fee. Organisations usually hire contractors to acquire a particular skill for a set period of time, especially when they do not wish to hire permanent staff to fill the position.
Generally, when you picture a contractor, you think of blue-collar workers. Many tradesmen are hired on a contract basis to finish a project, including building, plumbing and electrical work, and then invoice for their services according to the contract agreed between themselves and the client.
However, contractors are not restricted to the blue-collar world and are becoming increasingly prevalent in the white-collar industry.
This can be attributed to the emerging contingent workforce, otherwise known as the gig economy, as companies and individuals emphasise flexibility, specialised skills, innovation and labour cost control.
Individuals are looking to contract as it offers greater flexibility, an opportunity to select their hours and greater control over work life.
Employing contractors also assists companies to quickly fill a position that requires a high skill level which might not be possible to fill with a permanent employee.
Contractors and employees differ in a range of ways, with contractors offered more control. While the employer has complete control over an employee and dictates their working hours and tasks, the relationship between a client and a contractor is more equal, with a contract negotiated to establish the hours required to work and the specific job that is to be completed, with the contractor able to discuss with the client the best way to achieve that task successfully.
The freedom that a contractor experiences does have some drawbacks, as they say, with great power comes great responsibility.
The employer bears the financial responsibility for an employee, regularly paying a salary, making superannuation contributions and deducting income tax, and an employee being entitled to employee benefits such as annual leave or sick leave.
Alternatively, a contractor does not have the same security. They must invoice for their services and arrange to pay tax and GST to the tax office and make their own superannuation contributions. There is financial pressure for a contractor to ensure they have a steady flow of business, and therefore cash flow and a contractor must take on all the compliance and insurances. Finally, unless specifically negotiated, contractors are rarely entitled to employee benefits such as sick pay.
It’s a balancing act between the advantages and disadvantages, but more people are turning to contracting, creating the aforementioned contingent workforce. Through a survey, it is predicted that approximately half the workforce is expected to be part of the contingent workers. Hence, companies and individuals need to come up with solutions and strategies for working within the concept.
Already there is a solution available to help ease some of the struggles associated with contracting with companies that offer contractor management. They can invoice on behalf of the contractor, paying tax, superannuation and ensuring compliance, and working alongside both the client and the contractor to help establish the initial contract. By taking care of the financial and compliance aspect, the contractor will have more time to focus on what they are good at – enhancing their skills and getting the job done.
If you are interested in learning more about the contingent workforce, download the ‘New World of Work’ e-book
If you are a contractor or are looking to become a contractor, consider whether Pendragon Management’s contractor management solutions are for you… talk to us… on 02 9407 8700 reach us at [email protected]