When your income is contract

Considering contracting? Working as a contractor can be lucrative. You may even get paid more for the same job an employee does and you’ll be the master of your own time. To be a success in the long run, however, you need to know the financial facts of life:

  1. Understand the difference between temping and contracting. A temp is a temporary employee of the company, says Nina Mapson Bone, general manager recruitment at Chandler McLeod Group. The employer pays a temp’s superannuation and Workers’ Compensation and provides insurance. A contractor is in effect a company and must get an ABN number and pay their own superannuation, public liability and accident protection insurances. 
  2. Negotiate. Contracting can be lucrative, says Mapson Bone, but make sure that you negotiate a high enough hourly rate to cover holidays, superannuation and insurances.
  3. Have a plan. Chances are that you’ll have trouble taking a break from work because you’ll be so busy. None-the-less it’s important to consider how you’d cope financially if you had a gap between contracts.
  4. Budget. The big bad B-word sends some people into hibernation. If you’re a contractor, however, you’re going to need to plan both your spending and saving to be sure you’ve got money to tide you over when you need it.
  5. Build up an emergency fund. If your budget works then over time you’ll build up three months of living costs in the bank. That way if work dries up temporarily you can still live comfortably until your next contract comes in.
  6. Market yourself. You are your own product and the higher your profile the more contracts you’ll land. Get a website, tweet to industry bods, and press the flesh at networking opportunities.
  7. Take your tax deductions. One of the juicy benefits of contracting is tax deductions. You’ll be able to deduct the costs related to work such as computers, travel, and mobile phone costs. Do it right and this can add up to a few thousand dollars a year.
  8. Save for tax time. Have you heard the one about the contractor who didn’t have the money to pay his taxes? Contractors have to take care of their own tax. Instead of spending the lot when you get paid, open a bank account earmarked for tax and save up for your tax bill.
  9. Get an accountant. Doing your own accounting and tax can be a big headache. In most cases accountants can save you more than the cost of their fees. They can also help avoid falling fell of some of the Australian Taxation Office’s trickier rules such as those relating to personal services income. 
You are your own product and the higher your profile the more contracts you'll land.