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Working Direct vs Working with a Contractor Agency

Working with an Agency vs Contracting directly – which one to choose?

 

If you’re considering becoming a contractor, there are a wide range of factors to think about – from marketing yourself as a contractor  to whether you will work directly with your end client or through a contractor agency.

Once you’ve done your research and decided to set up as a contractor, you might already have potential clients in mind or you might have already established links with contract agencies. Whilst some contractors prefer to work with an agency to take the hassle out of looking for a contract, others enjoy the challenges and perks that come hand in hand with working solo.

Below you’ll find some of the pros and cons of both options, as well as tips to help you navigate the contractor market and make the most out of it, whether you opt to work directly or through an agency.

 

The benefits of agency contracting

 

Credit Control & Cash Flow

 

Credit control and cash flow is an area that concerns many contractors and freelancers, particularly with clients. This is a significant pro to working through an agency – direct contractors are totally at the mercy of their clients when it comes to when they get paid, whereas those working through an agency can set up payment terms, meaning they will get paid within the agreed time frame, regardless of whether or not the client has paid.

 

Better Contracts

 

Many agencies have well-established connections with a steady stream of regular, relatively lucrative clients. This gives contractors access to a broader range of contracts, without having to go out and look for them themselves. What’s more, direct contractors have to spend a significant amount of time sourcing their own contracts, fitting networking and marketing activities around their contract work.

 

Negotiating Terms

 

Many contractors, particularly those who are new to the industry, find it difficult or daunting to negotiate their own contract terms. Working through an agency takes that element of stress away as the agency will handle the negotiations for them – after all, they also want to maximise their earning power and secure the best rate possible for their contractors.

 

Competitive Rates

 

Contractors often find that recruitment agencies have enough negotiating power to demand higher rates for contractors from their clients. However, when looking at rates, it’s also important to take the agency’s fees and commission rates into account.

 

The benefits of direct contracting

 

Control

 

Direct contractors have greater control over projects they get involved with, negotiating their own terms, setting their own rates, handling their own marketing, and sourcing new clients when they need more work. However, with this control comes increased responsibility, which is why some contractors choose to hand over to an agency. When you’re in control of dealing with your clients directly, you will also have to manage  any unhappy or uncooperative clients.

 

No Fees, Excellent Pay

Whereas agency contractors will be obliged to pay fees, direct contractors will not. And, with agency commissions tending to be around 12-20%, with those agencies specialising in higher skilled and experienced contractors taking a cut of around 40%-60%, this can make a significant difference. Of course, you won’t pay this directly, it is usually added to your rate so that the client foots the bill for both your rate and the agency’s, however this can limit the rate that the client is prepared to pay you, the contractor.

 

In this respect, working directly can prove more beneficial, allowing you to set your rate approximately 5-10% higher than your usual agency rate.

 

Market

The market is changing in favour of direct contractors, with recruitment increasingly being undertaken in house in order to cut out the agency and reduce costs.

 

Don’t forget about IR35

 

Working directly with clients can help you avoid complications with IR35. When you work with an agency, there are both upper level contracts (the contract between the agency and the end client) and lower level contracts (the contract between the contractor and the agency) at play.

 

It is usual to adapt lower level contracts to ensure IR35 compliance and it will be easier to do since you have a sight of it. However, problems can arise if the terms in the upper level contract do not mirror the terms set out in the lower level contract, particularly when it comes to key IR35 factors such as substitution, control and mutuality of obligation. Read more about the rules surrounding IR35 here.

 

In the eyes of the HMRC, the upper level contract is a better reflection of the true agreement as it ‘’details the client’s expectation of you as a worker’’ despite the fact that you as a contractor are highly unlikely to ever see this contract.

 

Working directly with the client gives you full visibility of all agreements in place, so there’s no risk of HMRC pulling you up over a contract that you’ve never seen and have no control over.

 

Next Steps

 

Whichever route you decide to take – agency or client – making sure that you are making the most out of your contract is important.

Get in touch with Contracting Scout to find out how we can help with your options and financial services we offer to contractors.

Still Unsure About Your Options? Get in Contact

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