By Maria Christensen Updated January 04, 2022
The freedom to choose jobs, a flexible work schedule and being your own boss are appealing aspects of contract work. But consider the disadvantages of not having an employer before choosing that route. With no one to handle – or remind you of – important financial details, you will have to carry the burdens an employer normally would.
You may find the freedom of contract work refreshing, but remember that there is no job security in being an independent contractor. Reviewing the pros and cons of contract jobs will help you decide if this path is a good choice for you.
Earnings for Contractors
Contract work is generally paid either at an hourly rate or a flat fee for a job. The disadvantage of an hourly rate is that there is no guarantee of steady, working hours and your income may fluctuate wildly. Working for a flat fee for a set time period or until a job is completed guarantees your income, but you must calculate your fee carefully to account for your desired hourly rate and the time needed to do the job.
You may find yourself working many extra hours to complete a job on time, which will dramatically lower your hourly rate. If you bill more, your clients might decide this is one of the big disadvantages of hiring contract employees that requires a switch to bringing this type of work in-house. The uncertainty that comes with contract work is a big drawback for many, explains executive recruiting firm, J. Patrick + Associates.
You Pay for Your Own Benefits
Most employers offer a benefits package to employees that may include health insurance, disability insurance, paid time off and retirement plans. As an independent contractor, you won't be offered any of these benefits by companies that use your services and will have to purchase them on your own, which can be costly.
If you're sick or want to take a vacation, no one will pay you for the time away from work. You also won't be able to draw on unemployment or worker's compensation benefits, if needed. If you want health insurance or other benefits, you'll have to pay for them yourself.
You Pay Higher Taxes
Paychecks from an employer come with taxes automatically deducted, but that's a duty you will have to take care of yourself as a contract worker. The company you're working for as a contractor will most likely pay you based on an invoice you submit.
You need to calculate the amount of income taxes to set aside and remember to cover not only your portion of Social Security and Medicare taxes, but that portion an employer normally pays, which generally doubles the amount withheld, explains legal website NOLO.com. You may also need to pay estimated taxes to the IRS on a quarterly basis. Set up a good bookkeeping system to keep track of tax issues.
Your Liability Increases
Depending on the type of work you do, you may be held responsible for damages caused during work, and you should consider the possibility of being sued for anything from slander to copyright infringement.
Even if lawsuits are dismissed, they're expensive to fight, so you may want to purchase general liability or professional liability insurance. You will need to adhere carefully to the terms of your contract to avoid breaching the contract, which could result in non-payment or a lawsuit.
FAQs
There might be periods of high earnings, followed by breaks with little to no income. Limited Employment Benefits: Compared to permanent employees, contractors typically don't receive benefits such as paid leave, healthcare coverage, retirement plans, or other perks commonly provided by employers.
What are the risks of contract work? ›
In fact, there are risks to both the contractor and employer. Independent contractors can risk tax audits and penalties to themselves personally, and they aren't eligible for benefits such as paid sick leave.
What is the disadvantage of contract position? ›
Lack of Stability
As mentioned with freelancers, contract jobs typically lack job stability or security. Because contract work consists of temporary projects, budget constraints, and fixed timeframes, independent contractors are consistently looking for their next role.
What are the disadvantages of having a contract? ›
Con: It takes time
It can lead to delays as well as confusion. Legal terms may not be clearly understood by both parties. A written contract takes more time and sometimes limits flexibility, but it also makes agreements easier to enforce.
Does contract work look bad on a resume? ›
The way you describe your work experience can be a game-changer. If your contract work is highly applicable to the position you're applying for, then this will most likely look great on your resume.
Is it worth doing contract work? ›
Contract jobs can help you break into an industry or company, boost your income, and provide you with a flexible schedule. They can also offer an opportunity to meet new people, learn new skills, and work within different departments, said Joan Smith, who is a certified career coach.
What type of contract is riskiest for the contractor? ›
A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor's cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss.
What is a high risk contract? ›
By statute, a "high risk” contract is defined as one of the following: A contract which is anticipated to cost in excess of $10 million over its initial term, or.
What is the most risky contract? ›
The PMBOK Guide (A Guide to Project Management Body of Knowledge) describes three basic types of contracts in procurement management. There is a cost risk associated with each contract type. Cost Plus (CP) contracts are most risky for the buyers and Fixed Price (FP) contracts are most risky for the sellers.
Can you quit a contract job? ›
Yes, of course, you can. Technically, no one can force you to work against your will, and you have the right to quit your job anytime for any reason. But, your contract probably specifies whether you have to give your employer notice and any penalties there may be for resigning early.
Employees in a contract-to-hire position typically do not receive benefits and remain ineligible for a healthcare plan or retirement savings contributions until they become direct employees. Additionally, contract hires are typically only paid for their work hours rather than receiving a fixed salary.
What is the flaw of contract? ›
The chief flaws in contract are: Incapacity. Mistake. Misrepresentation.
What are the disadvantages of contracting work? ›
Cons of Contracting (positives for remaining a permanent employee)
- Lack of Security. Looking for a job is almost a full-time job in itself! ...
- Additional Headaches. ...
- Lack of Training. ...
- No Additional Benefits. ...
- Higher Expectations to Perform. ...
- Difficult to Return to Permanent Work.
For example, a court will never enforce a contract promoting something already against state or federal law (you can never enforce a contract for an illegal marijuana sale) or an agreement that offends the "public sensibilities" (contracts involving some sort of sexual immorality, for example).
What makes a contract bad? ›
Contracts made under duress are invalid and unenforceable. Parties must voluntarily consent to be bound by the agreement without coercion or intimidation. If any party was compelled to enter into the contract against their will, it will invalidate the contract.
What are the disadvantages of using a contractor? ›
Con: They can't be paid on salary
One of the benefits of direct hires is that they can be hired on salary, and won't need to be paid overtime if they put in a few extra hours here and there. Contractors must be paid for the hours they work, no exceptions.
