Choosing between employment and contract

Have you ever considered to be self employed or do you prefer the "security" of employment relationship? Is there anything that might hold you back - or persuade you - to choose over the other? Working in a contracting department has taught me that many people are not entirely clear on the differences and benefits of employment and contract work. There are still many stereotypical misconceptions about both options.

The labour market in the Czech Republic is still strong and offers a great variety of attractive career opportunities. Unemployment has been low for a long time and inflation has returned to a favourable level after critical months. The high demand for skilled workers, together with low unemployment, is helping to boost wages, and employers are trying to attract new talent with more attractive pay and working conditions overall.

The overwhelming majority of the adult population in the Czech Republic prefers to work as an employee. It gives us security and often offers interesting benefits or the possibility of career growth. But there are other options and one of them is to work as a contractor, i.e. as a self-employed person. What does this mean?

Simply put, a contractor provides his or her services to other entities, for example by getting involved in a project that the company is working on or is about to work on. Contracting in IT is quite common when a company is looking for an expert - an external specialist, for example, to develop a piece of software or an application.

However, contracting is also increasingly common in other sectors such as engineering, construction or human resources. In neighbouring Germany, for example, this form of collaboration is extremely popular, with almost a third of the available positions being on contract basis.

Why should I be employed? And why work on contract?

As we have already described above, people cite greater security, stability and the possibility of long-term employment as the most important advantages of an employment relationship. You have clearly defined tasks and the tools you use to do your job. Your employer pays your health and social insurance for you, provides you with holidays and other employee benefits that you are not entitled to as an outsourced service provider.

Freelancers choose the projects they work on, the clients they work with, and are usually not tied to a specific job site or their client's work equipment. The financial compensation for contractors tends to be higher than what you would receive as an employee, giving you the opportunity to compensate for the absence of standard benefits.

As an employee, you receive a monthly salary, and as a contractor you charge your clients your daily rate, known as the Man-Day Rate. The income of a contractor can thus be several tens of percent higher depending on his experience and demand.

What about my career progression?

Now, let’s think about career development. A solid employer will also offer you development opportunities, such as trainings, or various courses and certifications. This support can lead to promotions and career advancement. For example, many companies have structured career paths and mentorship programs to help you grow while directing you in the way that will also benefit their business needs.

On the other hand, contracting offers more independence in your career development. You have the freedom to choose which skills to develop and which projects to take, even if you are considering a complete change of industry, for example. This can lead to a diverse portfolio and the ability to quickly adapt to market demands. However, it also means you need to invest in your own trainings and certifications which can be both time-consuming and costly.

How do I access opportunities for contractors?

If you were to ask contractors what they value most about their way of working, you'd probably hear the words freedom, liberty and good earnings most often. A contractor is his own boss, his only obligation is to deliver the service that has been ordered on time and to the quality required. But how does he get his first project? And then what happens when the project ends?

I agree that getting that first project can be a challenge. However, there are multiple sources to find the projects. Some companies advertise freelance opportunities on regular job portals, and there are other portals that focus specifically on contract positions. Of course there are social networks, particularly LinkedIn, and it is also very common and convenient to engage with a consultant at a recruitment company that offers contracting in its portfolio of services - such as Hays.

Want to try working as a freelancer? You should start from here:

Choose your type of business

Decide what services you will provide and who your potential customers might be. Check what the demand is in your industry, it's also good to be aware of the competition.

Register with the Trade Office
The next step is to obtain a trade licence - the type of trade depends on the service you intend to provide. For example, IT service providers usually operate a free trade license, while freelancers in accounting consultancy or construction, for example, are covered by a regulated trade license.

Register for social security and health insurance
As an entrepreneur, you must register for social security and health insurance. After registering your trade, you should report the start of your business to your health insurance company and the Czech Social Security Administration within eight days.

Register for VAT at the relevant tax office
There are conditions under which VAT registration is compulsory, but you can choose to register for VAT voluntarily. This will be advantageous for you if you do business with VAT payers and want to claim the VAT deduction.

Ultimately, the choice between employment and contracting depends on your personal preferences, career goals and financial situation.
I believe you now have a better understanding of the differences and benefits of employment and contracting and you can go for the one that fits your goals and needs best.