First let me say that I am not an accountant, nor am I giving anyone advice here to go in a particular direction setting themselves up for contracting.  In fact, the best advice I can give you is to speak to your own accountant to discuss how best to set yourself up for contracting.  I will also point out at this time that since I am an Australian some of the terms I use here may not make sense to people from other countries.

How to get set up as a contractor

Getting set up to become an IT contractor

There are a few ways that this is likely to go:

1. Recruiter

Many recruiters offer contract management services that includes all of your payroll, insurance, super, and other HR needs.  In this scenario all you need to do is submit a timesheet to them each week or fortnight and they will pay you.  At the end of the year you’re issued a group certificate for your tax return.  The recruiter takes a few dollars out of your hourly rate to cover these services (and some profit margin of course).

Many contractors operate under this system quite happily as it is simple, easy, and usually means the recruiter continues to work to place you in new contracts as each one ends.

2. Management company

There exists several contract management companies that operate separately to recruiters, such as CXC, that will provide payroll, super, insurance and other HR services to you for a specified rate.  The main difference between these companies and the same services via a recruiter is that the likes of CXC are not working to find you contract positions.  You are responsible for finding your own work either via recruiter or directly yourself.

This is a popular choice for contractors who may wish to freelance to many companies, contract directly with companies, or use a variety of recruiters for finding new contracts, while keeping their own paperwork overhead low.  The recruiters still take their placement commissions in these circumstances, but you avoid paying their contract management fees.

3. Your own company

Starting your own company is the dream of many individuals, and doing so as a contractor often seems like a great way to get some terrific tax breaks and keep more money for yourself.  The reality is often much different.  If you are considering starting your own company then professional advice from an accountant is my number one recommendation.  Setting yourself up incorrectly, or wasting time and money on a company for no actual tax benefit, is the downfall of many contractors.

Starting your own company is often chosen by contractors who freelance, deal directly with companies, or have their own proper customers.  Since a company involves some paperwork and additional expenses to other contracting models it is not an option to take without fully understanding all of the implications.

Insurance?  Who needs it…

You do!  Permanent employees have very few insurance concerns – their employer is liable for their actions, they have Workcover in case of injuries on the job, and their company superannuation plan often includes income protection and critical illness cover in case of serious problems.

Every contractor should verify that they have all of these types of insurance cover as well.  Depending on how you are setup for contracting you may be covered by insurance through your contract management company, or you may need your own policies in place.

You also need to consider any tools or equipment that you own and use as a contractor.  For example if you use your own laptop and it is stolen then you’ll need to replace it yourself.  Having insurance cover for this equipment can save you thousands when items go missing.

Do not enter into any contract or workplace without understanding how you are covered for things like injuries on the job, lost income due to serious illness, stolen equipment, or liability due to errors and mistakes.

In the next part of this series I’ll discuss how to calculate the hourly rate to charge as a contractor.

About the Author

Paul Cunningham

Paul is a former Microsoft MVP for Office Apps and Services. He works as a consultant, writer, and trainer specializing in Office 365 and Exchange Server. Paul no longer writes for

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