The high rates of inflation and cost of living crisis is never far from news headlines these days, with inflation hitting double figures earlier this year.
But wages are just not keeping up with the trend. In this article, we look at the stalling wage growth and how contracting can help protect you from the effects of inflation.
A recent report from think-tank, The Resolution Foundation, suggests that wage stagnation is costing households dearly. The report looked at what wages would be today if growth had continued the same trajectory after the 2008 financial crisis and determined that low-middle income households would be making £11,000 per year more than they are now, taking rising prices into account.
The UK is also lagging behind Germany, with the Resolution Foundation report comparing wage growth between the two countries. Germany is currently £4,000 behind inflation.
The high rates of inflation coupled with the fact that most wages are just not keeping up, means that most people are struggling. And a recent IPSOS poll found that two thirds of UK adults think that the economy will get worse over the next year, with half of those polled saying that they are worried about their financial situation.
With so many people in permanent roles not getting the pay rises that would help protect them at times like these, they are effectively suffering a pay cut due to increased costs. At the recent Spring Budget, Chancellor Jeremey Hunt said that inflation “destroys the value of hard-earned pay.”
A recent BBC analysis of an ONS survey reviewing average hours and earnings shows the clear difference between existing rates of pay and where they would be if they had kept up with inflation, according to profession. Nursing professionals, ambulance staff and teachers are the worst affected, with teachers being £5.5k worse off than they were in 2012.
Staff shortages, increased pressure and rising responsibilities add to the stress of coping on a low wage.
As a result of the current financial crisis, many people are looking for an alternative to secure their financial future. This might be why contracting, and the wider gig economy, is growing so rapidly. But how does contracting protect people from inflation?
Contracting, particularly short-term contracts, can provide a viable solution for inflation for many people, as rates are generally higher than in permanent roles. This is because rates will usually be reviewed more frequently.
In some cases, flexible working during a labour shortage can also help the contractor charge more for their time, and provide the flexibility needed to open multiple income streams to further boost their earnings.
Working as a contractor, or on shorter contracts can be complicated. Having to juggle work with administration responsibilities such as filing a self assessment return, and ensuring that you pay the right amount of tax and NICs, and negotiating rates and terms with employers might make anyone want to run back to permanent employment.
But working with an umbrella company can protect you from all of that.
As your employer, the umbrella company takes care of your tax and National Insurance contributions, as well as negotiating rates and terms with your employer. Being employed by an umbrella company also provides the benefit of continuous employment, which might make it easier for you to access credit and secure a mortgage.
In short, working with an umbrella company gives you the best of both worlds. The freedom and rates you get from short term contracts combined with the security of a permanent employer.
If you’d like to find out more about how working with an umbrella company can help you, we are always here to answer your questions. Don’t hesitate to get in touch and we’d be glad to help.
Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions.
We have evolved to provide a range of expert services; such as Funding, becoming a leading provider to the contracting industry.
We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.
With JMK as your trusted partner, even the smallest team can process the largest payroll, regardless of payroll type.
Have a look at the wide range of services our Funding can provide to you and your business, it is far more than just payroll and finance.