January 18, 2018

What is the difference between consulting and contracting?

OK, here’s my own definitions:

An Employee is on the payroll. You’ve typically got sick pay, a pension, annual appraisals, and are on an annual salary paid monthly or weekly. You also go on training courses that are paid for, and you’re still paid when you go on them.

A Contractor does pretty much the same work as an Employee. (I’m talking IT contractors rather than tradesmen contractors.) You’re part of the team and part of the head count. Except you’re paid when you send in an invoice, and you’re paid into your limited company.

You’re responsible for paying your VAT and PAYE taxes (tax for drawing a salary), and have to do your accounts and get them submitted every year.

If you’re sick or go on holiday then you can’t invoice for those days – so you’re not paid.

If you go on a training course then you pay for the course yourself, and you don’t get paid for the days you take off to do the course. I paid €2k to go on a one week Project Management course, and lost 5 days earnings at the same time. So the course effectively cost me €5k.

As a contractor you’re not quite a business owner – since you typically have just one client, and (more importantly) you’re paid per hour or per day worked.

It’s WAAAAY better than being an employee though, as your mindset is much more like that of a business owner. There’s no safety net now, and you’re going to live and die by your CV and ability to land contracts.

A Consultant is a specialist brought in to deliver particular results. They may be an employee in a company, or they may be a contractor.

While we’re on the topic, here’s a sliding scale that I have mentally burned into my head:

  • Student > Intern > Employee > Contractor > Freelancer > Agency > Productised Service > Platform

(Listen to www.tropicalmba.com/services or www.tropicalmba.com/consulting for where I got this from.)

I moved from Employee to (IT) Contractor back in 2000. There’s a whole industry for IT Contractors in the UK and Ireland, and probably in many other countries too.

I took a couple of jobs around 2009-2011 ish, to reskill into AdWords.

I then went back contracting as an AdWords guy – which meant sitting on client sites from 9-5 or 9-3, but getting paid into my business. AdWords contracts don’t exist the same way IT contracts do, but I got businesses to take me on as a contractor when I refused to be hired by them as an employee.

In 2014 I managed to have 3 of these contracts on the go at once. I thought it would shield me from the sudden loss of one contract. It didn’t – all three “popped” in the same week back in Sep-2014.

Cue me moving to be a Freelancer in Sep-2014 – I have clients, but I don’t go onsite, and I can work on multiple ones in any given day. They don’t know or care.

Now I’m an Agency because I’ve a small and growing team, and I’m starting to focus on specific industries (aka providing a “productised service” – a term I hate btw), with an eye to creating a platform.