Dear Contractor Doctor,
I'm really attracted to the thought of contracting, but was wondering if you could tell me what the difference between temping and contracting is?
My background: in permanent employment in rural Wales working as an IT Support Technician. I want to move to London without jumping straight into another permanent position.
Contractor Doctor says:
This is a good question because there are far too many categories for people who, in one way or another, don't have permanent positions. The three you will run into most of the time are: contractor, agency worker, and temporary worker (temp).
According to the London-based Professional Contractors Group, the term 'temp' means that a worker accepts assignments on the basis that they will not become a permanent employee. The temporary worker is paid by an agency, but their work is not under their own control. They work for one agency, and then perhaps do other work for another. Temping is a very flexible form of work, but one that is changeable and, as its name suggests, is not one to take you through your whole career. Temps do have one advantage though: if they work for one agency on a regular basis they are able to claim benefits like holiday pay and sick pay under the Employments Rights Act 1996.
The term 'agency worker' is one used by a number of labour sources; the trade unions like to complain about the use of agency workers. Here the issue is: what kind of agency do you mean? A temporary work agency uses temps; an employment agency may handle a short-term assignment as in when someone covers for maternity leave; or there are, of course, agencies that place contractors. The TUC likes to complain about all of us; but we are very different kinds of people.
This difference is very important in legal terms for contractors. A contractor either works for their own limited company, or for an umbrella company which simply keeps the accounts for the contractor. But, says John Kell of PCG: ''A contractor controls and runs their own business.'' That is the key element that makes a contractor different from other kinds of workers.
A contractor controls and runs his own business
The contractor accepts a series of assignments from different clients, usually through the services of an agency, but not necessarily. The contractor determines how the work is done, and where it is done. The contractor may hire a substitute to do the work for them. If you want to stay outside IR35, you need to bear this definition very much in mind. IR35 is a piece of tax legislation introduced in April 2000 that treats some contractors as employees for tax purposes - it's expensive. Avoiding IR35 is certainly possible, and many contractors do so. When contractors cease to control their own businesses, they normally fall inside the IR35 tax legislation and although they still call themselves 'contractors', the HMRC considers these workers as 'disguised employees' and taxes them accordingly.
If you plan on working on your own for a long time, you probably want to become a contractor and to set up your own limited company. If you are just making a transition while moving from one place to another, you might consider temping instead, or choosing an umbrella company to make the transition easier.
Good luck with your contracting!