Contracting in London

Making the switch from permanent to contract can be a bit daunting. However, in todays job market where there is a real skills shortage the risk is minimal. If contracting doesn’t work out there are thousands of companies looking for good DevOps people.

Many individuals could double or triple their take home earnings and not suffer any downgrade in benefits. But how do you get started?

Remember this is only applicable to London and people already living in the UK. I have no idea about how the US works and no London based contracts I’ve ever seen will do visas.  

Step 1: Be qualified

Not everyone can become a contractor. You need to be an expert. Companies don’t hire contractors so they can train them. They hire people that can immediately add value.

This site is specifically about Kubernetes so everything contained here is specific to being a consultant helping to install and manage Kubernetes clusters.

You need to be T shaped. This means you must have a broad background that encompasses Linux sysadmin skills and programming. You must be able to troubleshoot operating system level problems, know networking inside out and dig into and resolve even the most complex DNS problems. You’ll also need experience with one or more clouds. AWS is probably the most desirable skill and some contracts may demand certifications.

Many of the Kubernetes contracts will be looking for strong software development skills. Writing automation or API’s in Python or Golang as well as contributing back fixes to open source projects. Then on top of all of this you need to have used a bunch of DevOps tools like Terraform, Ansible, Gitlab etc. Plus have operational experience supporting platforms running in production.

In reality you’re looking at a minimum of 8 years experience to build your base of knowledge. Then at least 6 months of specialisation on top of all of that working with Kubernetes in production.

There aren’t many of these people around that are genuinely good and thus we have the skills shortage. If you are one of these people and you’re employed in a permanent position my advice to you is to get out now and start earning your true value.

99% are going to fail at this stage. For those who are confident you’re qualified continue to step 2.

Step 2: Getting a contract

If you’re based in or around London and able to make it into the office 2 or 3 times a week, and you have the skills listed in step 1. then this is incredibly easy. Send me your details and I’ll put you in touch with the contract department for a few London consultancies.

You’ll notice that getting a contract is the 2nd step and not ‘starting a company‘ or ‘printing business cards‘. You don’t need to start a company until you have a contract verbally confirmed.

A UK limited company, bank account, insurance and everything required to begin invoicing could theoretically get setup a few days before your first invoice is due. Although, for the sake of making things less stressful on the company you’re consulting for it may be best to get this all setup just before you sign.

You’ll need to put in a fair bit of effort to make your contracts successful so make sure you aren’t putting yourself forward for a job that you can’t do. Word quickly gets around if you get fired after a few days so try to be honest on the interviews.

The good news is that usually the HR process for contractors can be less annoying than for permanent people. You’ll generally get fewer interview rounds and a quick answer and start date. You’ll get 3 month, 6 month or 12 month contracts. Personally I prefer 6 month rolling contracts as that’s a nice balance between working and scouting for work.

How much should you accept as a rate? A minimum of £600 a day for contracts that require someone with all of the skills outlined in step 1. For your first contract I’d just take that and see if you like contracting. Subsequent contracts you should vary your rate depending on circumstance. As an example some banking contracts are really boring and don’t even let you use the internet during the day.

Don’t accept anything less than £750 a day for something in banking with onerous work conditions. As you get better and better, or at least more specialised and build a solid reputation it’s not uncommon to demand up to £900 a day.

Contracts will vary regarding who actually pays you. Sometimes you’ll get paid directly by the company you are contracted to and you may need to spend time chasing their payment department and dealing with NET30 payment schedules. This is not ideal and I’d avoid this.

Many recruitment companies offer a self-bill service where they will pay you on a specific day of the month regardless of whether the company has paid. The recruitment company I’m working with pays the full amount on the first Thursday of every month for the entire last months worth of days worked. This is extremely cool as they chase the payment from the company and you get a nice stable income.

Finally, IR35. I’ve never dealt with this. My advice is to steer clear of contracts that are inside IR35. If you really need to take a contract with this attached then you’ll need to increase the day rate significantly.

Step 3: Starting a company

So you’ve passed the interviews and they have made an offer in principle. You’ll get a couple of days to sign so it’s probably time to think up some crazy company name. As long as it isn’t offensive there aren’t really any limitations. Remember, somebody made a successful company called Big Panda so whatever you come up with won’t be any worse. Obviously it needs to be something unique so adding ‘XXX Software Ltd’ or ‘XXX Consulting Ltd’ usually opens up the possibilities. You can check if your company name is available here.

Nowadays you can do literally everything online. For my company I actually did all of these next steps while sitting in a jacuzzi bathtub in Dubai. End to end process was less than 30 minutes.

Here are the complete steps:

A) Register your UK limited company for £12

  • You’ll need a credit card or Paypal to pay
  • Your company will just have Ordinary shares
  • You can do this without becoming VAT registered to begin with
  • Mostly take the defaults and set yourself as a 100% shareholder
  • Use your own or any relatives UK home address for now
  • Even if you screw it up your accountant can fix it all later

B) Buy company insurance for £43.84 per month

I used Hiscox Business Insurance but I’m sure any would do

C) Setup a business bank account for free

Tide.co is absolutely awesome. No branches, instant setup.

That’s pretty much it. You now have a company, some insurance that is legally required and a method of getting paid.

Beyond this you’re going to want to hire an accountant. You don’t need to do this immediately but you should really get one before the end of 6 months. They will need to sort out your VAT if you want to continue contracting as you’ll be approaching the threshold. You’ll also need to work out all of the details of what you’re supposed to be paying yourself.

As a general rule of thumb try to leave about 30% of your earnings per month in the account to cover taxes. This is assuming you’re not VAT registered yet.

I’d budget around £100 per month for a decent accountant who will do everything including payroll and bookkeeping. If you want any recommendations let me know.

Step 4: Profit

So what are the differences in earnings between permanent and contract. I’m going to guess most permanent people with the skills listed in step 1 are earning at least £80k per year. If based in the center of London at the top end a maximum of £120k. I’ve never seen anyone earn more than this. Let’s take £100k as the average.

The only value that really matters there is the takehome pay per month. A person earning £100k per year will be getting paid approximately £5,500 per month.

Now lets examine what a contractor earning the minimum amount per day (£600) for a Kubernetes contract would earn.

That image doesn’t have the per month but I’ve done the division and it works out to £8,676.18 per month.

You can earn much less than that if you pay yourself the highest wage. You can also pay yourself minimum wage and take dividends, or leave it in the company to earn more.

The benefits debate

You’ll have health insurance and possibly a private pension to come out of that. There are also the paid holidays that you need to account for. Plus paternity or maternity leave.

Take a look at your situation and work out if you can work for 6 months non stop without issue. If you’re the sort of person who can then these permanent benefits aren’t really benefitting you.

From a company loyalty standpoint I don’t believe this exists. Permanent people are just as at risk of losing their job at any time as contractors.

The most important benefit a job can provide is income. A higher income means you can invest and try to improve your own personal wealth. Buy property, crypto, save for a startup, try to develop some passive income. Try to dig yourself out of indentured servitude by working for a few years on a high day rate.

Summary

Regardless of how you do the math a high level permanent position is going to be around £5,500 take home. For doing probably the exact same job as a contract person earning around £8,000+ per month.

Recruiters ask me all the time: what would it take for you to become permanent? Well, nothing. If you extrapolate up what even the minimum contractor earns per month and try to come up with a yearly salary it’s probably higher than most company CEO’s. I always say £200k per year to recruiters as something that may tempt me.

And the trend is going up. Soon £600 per day will be the absolute bottom floor given the Kubernetes craze happening over the next couple of years.

As always if I’ve got something wrong please let me know and I’ll make the necessary correction. Also please remember none of this is expert financial advice.

Edit: the issue of IR35 has been raised and as mentioned above currently you can just ignore it. April next year things will either get worse, get better or stay the same. My bet is that private sector is much different to public sector and the skills shortage will drive day rates up and encourage workarounds by consultants.

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