14 Pros and Cons of Contract Work

Working underneath a contract can have some distinct advantages. There is no question, for example, as to what duties need to be performed or how much compensation will be given for those actions. There are some distinct disadvantages as well, such as the fact that the nature of most contracts is that they expire, meaning there is no long-term guarantees involved in most circumstances. Before getting involved in contract work, here are some of the additional pros and cons to consider as well.

What Are the Pros of Contract Work?

The primary advantage of contract work is that there are defined methodologies that hold all parties responsible for their actions. Those who are working in the contract have to perform to certain levels and in certain ways. Those who are paying for the work are also held to certain standards. Contracts also hold remedies in place to compensate for violations that may occur on either side. Then there are these additional advantages.

1. It gives people a chance to prove their worth without credentials.
Many employment opportunities will screen out a number of applicants automatically. They either need a degree, specific work experience, or both in order to qualified. Contract work allows for individuals who might normally get screened out a chance to prove their worth. In many cases, proven job skills often lead to full-time employment that doesn’t involve a contract.

2. It creates a personal business opportunity.
Because contract work is independent by nature, it gives workers the chance to form their own business. This has a number of advantages, including tax credits and deductions, freedom to operate under the rules of the contract, and the ability to potentially set one’s own hours. Many contract works take a small opportunity, build upon it, and then keep building to create their own business that soon hires other contract workers.

3. It allows for an easy out.
If you don’t like working with someone for some reason, the end of the contract dictates the end of the relationship. There’s a set deadline in place to look forward to which allows for hope to always be in the equation. There’s no risk of termination if someone doesn’t like you either because the stipulations of the contract are legally enforceable in a vast majority of situations as well. This means you get an easy out to go somewhere else if the relationship is not mutually beneficial.

4. It gives workers the chance to sample multiple industries.
Contract work is allowed in virtually every industry. For those who are looking to get a foothold into the marketplace, this is an excellent chance to explore how their talents may be put to practical use. Many times an employment opportunity arises from this experimentation because so many people get locked into one specific course of action. Maybe you did grow up wanting to be a journalist, but an opportunity as a marketing copywriter might be too good to pass up.

5. The only thing that matters is production.
When working under a contract, especially if you’re involved in an office environment with regular employees, there will be a lot of interpersonal politics going on. Everyone is fighting for their own bigger share of the financial pie. Since your existence as a contract worker is based solely on your production, you can stay out of the fray and keep your eyes focused on the prize. Politics can wait, so you can ignore the drama.


6. There’s a better chance of earning a paycheck during down times.
The costs of a full-time regular employee are quite high and it’s something most employees don’t realize. Someone earning $30k per year, for example, may be receiving $20-$30k in benefits from their employer they don’t even think about. If it costs $55k to keep a full-time employee or it costs $30k to have contract work done by you, if times are tough, who gets the job? You do.

7. You can earn more.
Contract work can pay up to 40% more per hour when compared to employees that are working full time in a traditional position. Although there are more taxes that come out of these wages and insurance coverage has to be handled personally, the increases in salary generally offset this so that you can really earn more while still getting to be your own boss.

What Are the Cons of Contract Work?

The primary disadvantage of contract work is that it requires a certain level of flexibility that some people are unwilling or unable to give. Although there is flexibility in work hours, there will be times when extended hours are required to meet the obligations of a contract. That can be particularly problematic in some industries that are deadline specific, so sacrificing personal time happens more often than not. Here are some of the additional disadvantages of contract work.

1. You become an island of one.
Contract work often involves independent work. There are times when you’ll be working all by yourself for extended periods of time. Home-based contract work may completely take someone outside of the social norms of mainstream employment. The advantage is that there aren’t distractions of influences that could negatively affect one’s work, but the clear disadvantage is that contract work puts people out on islands. Loneliness is a common side effect of this type of work.

2. You have to figure out your own taxes.
Contractors don’t have their taxes taken out of their wages. It is something that they must do on their own. At the end of the year in the United States, penalties even result if under-reporting of taxes exceeds $1,000. The first year of contracting is forgiven, but any additional years where not enough taxes are paid in advance can result in substantial financial fees that hurt your personal profit margin. US requirements have contract workers filing estimated taxes once per quarter.

3. Sick pay just doesn’t exist. For that matter, neither does vacation pay.
If you’re sick as a contract worker, you’re not going to be getting any income that day. If you take a 2 week vacation away from work, you earn nothing for those two weeks. There are no travel stipends, pension contributions, and in the US, you have to play the employer’s share of Social Security and Medicare taxes as well. You have the chance to make more money while you’re working, of course, but if you’re not working, you make nothing.

4. Contracts that don’t get renewed don’t provide any severance.
Unless it has been specifically negotiated into the contract, and expiring contract does not provide a worker with any type of severance. You just stop working, which means you stop making money. Even if the severance has been put into place, that’s the last payment on that contract you’re going to be receiving. Because many people budget based on the best of times instead of the worst of times, this can be quite the financial shock when it occurs.

5. There is no job security whatsoever.
The end of the contract is always looming when performing contract work. You really never know when your next payday is going to be. It is easy to get lulled into a false sense of security when regular clients provide a steady paycheck for months or years, only to suddenly stop placing orders or issuing contracts without notice. If you make a mistake under contract work, you don’t eat. That’s some big time pressure.

6. Labor law protections barely exist for contract work.
Employees are protected from discrimination and exploitation. Contract workers are barely covered at all. Even though workers must provide services in many states even if they don’t wish to do so, clients can pick and choose which contractors they want for whatever reason they want. Add in the fact that some clients aren’t going to pay for services rendered and the costs of pursuing that money and it can be a difficult existence.

7. Personal assets could be at risk.
Many contract workers operate under a business structure known as a sole proprietorship. This means that personal and business assets are combined. If a contract worker is sued for their professional responsibilities, it could place their home, vehicle, and personal savings at risk if they lose the case. Even if insurance is held against such actions, the risk of losing personal assets still remains. You may be able to file just one tax return, but that is more of a disadvantage for some workers.

The pros and cons of contract work must be carefully evaluated before this career option is pursued. For some, working under a contract status is a dream come true. For others, the lack of security and other requirements make it seem more like a nightmare. Contract work can be a challenging experience, but if planned carefully, it can also be an incredibly rewarding one.

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