Planning for absence – saving money and arranging time off

For most, being a contractor or consultant affords greater flexibility in working patterns. As the owner of your limited company, the only person you need to ask for time off is yourself but it can be a difficult thing to get used to after working as an employee.

In this instalment, we look at what you need to know about arranging time off for planned absences and how to deal with unexpected absence.

Planned absence

Most contractors and consultants plan holidays around contracts; at the end of a contract that is unlikely to offer a renewal extension or just before starting a new contract. It is also possible to take time off during long-term contract; but if the contract is less than a month, it is best to work the full duration of the contract without any time off. Similarly, it isn’t particularly wise to take time off in the first month of a contract.

When deciding how much time you want to take off annually, it is worth considering what holiday entitlement you used to have:

  • Eight public holidays – worth planning around as clients will tend to be quieter around these dates unless the contract stipulates otherwise.
  • Most independent workers want more or at least the same amount of holiday each year than when you were a permie. The holiday you want to take will reflect whether you want more time off or perhaps you are working as much as possible to build your business or save for something else.
  • Think about when you want to take time off – if you’re lucky, you may be able to secure back to back contracts but being flexible about taking holidays when work drops off could allow you to recharge while securing the next contract.
As an example; taking the public holidays and an allowance for 5 weeks’ holiday, you are looking at 46 weeks for earning in the year.

That’s a great starting point for working out your rates, but it doesn’t take into account any unplanned absences.

Unplanned absence

There is nothing more motivational than being your own boss – if you don’t work, you don’t get paid and you could adversely affect your relationship with the client to boot. That’s why contractors and consultants are more likely to work through minor illnesses and arrange personal appointments around their work than permanent employees.

There will be instances when you can’t work due to illness or other unplanned circumstances and you need to ensure that you have made provision for this sort of absence (financially) as well as understanding the consequences of taking the time off.

With this in mind, it is prudent to allow for 2 weeks unplanned absence per year. Take this from the 46 weeks working, this now means there are approximately 44 weeks spent earning per year.

You can lessen the impact of unplanned absence through investing in private medical insurance as well as critical illness cover, which can expedite treatment and cover your lost earnings should you suffer a serious illness or injury; but prudent savings can cover lost earnings for shorter absences.

So, you can base your rates on 44 weeks per year; to save enough personal capital to cover unplanned absences or look to pay yourself salary and dividends throughout the year by retaining the capital needed within the business. In our guide to business planning you can find out more about financial risks and financial provisions for taking unexpected time off.

Being able to afford time off is only one facet of managing absence. As a contractor or consultant you also need to ensure that you comply with your contractual conditions and IR35.

Tell don’t ask

As the owner of a limited company the client has a contract for services with your limited company; which is distinctly different from you being an employee. The only person you need to ask for time off is you, but you still need to ensure that you fulfil your contractual obligations. Your client is paying for services that are delivered, so if you don’t deliver you don’t get paid. The majority of clients are supportive of contractors taking time off; providing it does not impact on delivery. Taking time off at critical stages in a project is not acceptable and the client could be within their rights to pursue your limited company for breach of contract, unless you provide substitute resource at your own expense.

For contracts where you are working outside of IR35 you also need to ensure that you are not acting as an employee don’t request holiday or use the company’s leave systems to log or track it. All you need to do is inform them of the planned absence and ensure that the hours you log on the timesheet or invoice reflects the absence in the time period.

You need to ensure that when notifying a company of absence you:

  • Plan your absence around the client’s needs to some extent – not in the first month of a contract or at critical stages when you are needed.
  • You tell the client you are taking time off (do not ask permission), you can show professional courtesy by being flexible with dates e.g.” I’m taking a week off in August, would the 7th or 14th work better for the project?”
  • Give as much notice of absence as possible – even when the absence is short for an appointment, it is good business etiquette to let your client know when will be unavailable.
  • Do not follow ‘employee protocols’ such as using the holiday request forms, sickness protocols, or providing sick notes. You are a separate business and therefore you simply explain and plan for the absence whilst satisfying your contractual terms.

Next steps

It is important to look at how much holiday or down time you need each year – this allows you to plan your rates and contracts accordingly to:

  • make financial provisions for absences,
  • plan contracts around longer planned breaks, and
  • manage your clients’ expectations to work into contractual terms for delivery.

Remember that you are a service provider not an employee; so act accordingly:

  • don’t expect to be paid for your absence,
  • notify clients and extend professional courtesy when planning your break but don’t ask permission to take the time off, and
  • don’t use any employee absence protocols to record time off or provide proof of illness to a client.

Taking the time to formulate a strategy for your planned and emergency absences will ensure that you retain a steady income stream and your clients are supportive of your working patterns. Afford your clients professional courtesy – you are providing a service and the client expects you to deliver as per our contractual agreement. Be flexible, courteous and confident when discussing absences.

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