Contract vs Permanent – Which is Best for Employers?

Freelance and contracting work has grown in popularity as an employment solution over the past decade, with many professionals now favouring more flexible options for working when considering a new role. As an employer, you want to choose the most cost-effective solutions for expanding your workforce whilst also offering employees job security and ensuring that you keep talented individuals in your company.

Deciding between contracting and permanent employment is just as important for business owners as it is for employees, as you want to build a team of flexible and skilled individuals whilst also always having workers available for more general tasks.

This is particularly important for those working in the tech industry and embedded software specifically, where specialists are often needed to advise and help with short-term projects.

This article discusses the difference between contract and permanent employment, outlines the situations where each employment type is best, and weighs up the pros and cons of each.

Contracting

A relatively recent development in the recruitment and job industry is that more and more employees are choosing to quit their positions in a company to work as a freelancer instead. As working from home and digital nomadism are on the rise, fixed-term contracts are becoming a more popular option for those who don’t want to be tied down to a specific employer.

 What is a contractor?

A contract worker is an individual who is hired on a fixed-term contract in order to offer their services to your business or work as part of a project. They are typically paid an hourly or daily rate and usually work independently.

Fixed-term contract vs contractor are two terms that sound similar, but mean very different types of employment. Whilst a contractor usually belongs to an outside organisation or is self-employed, an employee with a fixed-term contract is hired by an organisation and has all the same rights and benefits as permanent employees, they’re just only employed for a specific period of time.

When should you hire a contractor?

A fixed-term contractor is usually hired when a new team member is needed seasonally or casually for a role. Contractors are also often brought in during a particularly busy period of work, or if there is a project taking place that needs specialist input.

You may also hire a contractor for a while if one of your staff is off on maternity or paternity leave, or in the case of an illness that removes an employee from work for a couple of months.

In the embedded software market, many hires are for a specific project and so there is always an endpoint when the employee will no longer be needed on the team.

Advantages

  • Contractor recruitment is incredibly useful in cases where you have a ‘gap’ in your company resources that needs to be filled for a short period of time
  • There is more flexibility with a contracting than permanent employment, meaning that you can bring in workers during busy periods to help relieve the pressure on your permanent staff
  • Outsourcing contractors only when you need them is a more efficient way of running a business, and makes sure that you never have employees left with nothing to do
  • Contracting is the best way to bring in someone with particular knowledge and skills when a specialist is required for a project
  • It can be more cost-effective overall to hire a contractor, as though they earn slightly more per hour than permanent staff, you won’t spend as much overall
  • Less management is required when working with contractors, as they often only need a briefing or outline before going away and completing a task under their own steam
  • If you are really impressed with the work of a contractor, you can offer them a permanent role in your company at the end of their short-term employment

Disadvantages

  • A contractor does not have as much loyalty to your company as permanent employees, which means they may not prioritize your work if they are doing several different jobs at the same time
  • Some people are put off by roles that are described as ‘fixed-term’ as they do not have the same security as a permanent role and are not as financially stable
  • It can be harder to communicate and get hold of a contractor as they may not work regular office hours and may be involved in projects with other companies at the same time as yours
  • Writing a fixed-term employment contract takes more time and effort, as employers have to be very careful with the clauses relating to start and end date, in case you have to terminate the contract earlier than expected
  • Contracted employees do not receive the same benefits and holiday allowances as permanent employees, which will stop many people applying for a role
  • Terminating fixed-term contracts can sometimes be difficult, and occasionally will be taken to an employment tribunal if your contractor feels they have been treated unfairly

Permanent Employment

Permanent employment is a more traditional method of hiring and is the route that most employers go down when they are looking to expand their business.

A permanent employment contract is more appealing to those who are looking for job security and want to develop their skills and career from within a company, and is the best way of keeping very talented employees working for you.

For our clients, this occurs in businesses where software development is a core part of their offering and they will have an ongoing need for talent in that area.

What is permanent employment?

Permanent employment involves hiring a full-time individual to be part of your business long-term. They will have a yearly salary, access to employee benefits, and be involved in the day-to-day working of your company.

When should you hire a permanent employee?

A permanent employee is often needed if you are expanding your business and need more members of staff to handle the work that you are doing each month. If you’re wondering whether you should you hire a full-time employee on a permanent contract, it will usually be because a new role is created in your team, a previous permanent employee moves on from their position with you, or if you review your business’s workload and decide another full-time team member is needed.

Advantages

  • Hiring a very talented employee permanently means that you keep their skills and expertise in your team for a long time, which is very beneficial to business
  • Permanent employees allow you to build a stable, loyal and more efficient team
  • There is much more job security in a permanent position, which is very appealing to a lot of people
  • Permanent employees tend to be more invested in the growth of your company and your business values, so are more likely to go above and beyond when completing their tasks
  • A permanent employee has more potential for career development and growth from within your company, and can take the time to develop specific skills that are useful to your line of work
  • The impact on a business of giving employees permanent contracts is that there is more loyalty to a business from these employees
  • If you suddenly need someone to respond quickly to a task or cover for another team member, you have permanent staff on hand who can help and who know exactly how everything is run already
  • Many employers prefer having an in-house team of workers, as this makes it easier to evenly divide workloads and keep on top of progress

Disadvantages

  • Permanent staff are an investment for a business; as well as paying salary, insurance and covering equipment costs, you will also need to provide training, support for career development, and regular performance updates
  • Permanent employment contracts are harder to terminate if a new member of staff isn’t working out for your business
  • The process of recruiting permanent employees can sometimes be expensive if you are doing all of the sourcing and screening yourself
  • You may end up with a team of staff with more general skills and miss out on hiring employees with specific talents and training
  • Highly qualified and talented individuals, particularly in the tech industry, now tend to be looking for fixed-term roles that allow them more freedom and choice
  • If you end up hiring a permanent employee who doesn’t fit your company, it can be a costly process to give them appropriate training and support, and often requires a lot of long-term work

Which is Best for Your Business?

Choosing whether you are going to hire a permanent employee for your company or just recruit a fixed-term contractor to help with work instead can be a difficult decision, especially if you’re just starting as a business. Everyone’s situation will be different, but there are several things to consider before choosing whether a contracted or permanent employee is best.

Duration

One of the key factors that will play into your hiring decision is how long another member of staff is required. If you have a big project coming up with a set timeframe then it might be a better decision to hire a contractor, as this will be a faster recruitment process and also allow you to outsource any specific skills that might be needed.

On the other hand, if you’re looking for another employee to help with tasks that regularly need completing or just to help lighten the workload of your other members of staff, a permanent employee is probably your best bet.

Objectives

Before deciding between contract vs permanent employment for your latest hire, also consider what you want this person to bring to your company. Do you have specific business objectives that you would like them to assist with, such as offering specialised services or just being able to take on more clients? Do they need to have certain qualifications and training, or are you just looking for someone who will fit in well with your current team?

Also consider whether you’re currently in a position to invest in the time and resources needed to onboard a new member of staff. If you’re just looking for help right now to tide you over, a contractor is probably your best solution.

Scalability

Some businesses have clients and workloads that change drastically on a month-by-month basis, and some have a steady, predictable stream of work. The nature of the services or products that you offer will affect the scalability of your business, and whether you’ll be better off with a permanent or temporary workforce.

Companies that deal with projects or clients on a one-off basis may benefit from having a more flexible team of contract staff who can be called in when their skills or advice is required, and who can take on projects in order to help out. If you find that you have a similar level of work each month then you’re more likely to benefit from a permanent group of employees who know the ins and outs of your business and can handle everything that comes your way as a team.

Development

Where you are in terms of growth and development will also massively affect the type of employees you are hiring. If you are willing, and in a financial position, to invest in training permanent employees then over time you will end up with a core group of very experienced professionals who are loyal to your company and able to handle a range of different tasks.

If you need specialist skills quickly and don’t currently have the resources to produce these in-house, then you’ll be better off outsourcing tasks and working with a range of fixed-term employees who can help you when needed and already know exactly what needs doing. This is less of a long term solution, but there are many instances where hiring a contractor yields faster and more efficient results.

Summary

Contract work vs permanent employment is a dilemma that more and more business owners are finding themselves stuck in, as hiring solutions change and remote or freelance work continues to grow in popularity. When it comes down to the question ‘contract or permanent – which is best?’, the best advice is to consider your own business goals, budget and the nature of your work and then decide which option is going to bring the most benefits in the long run.

For many projects in tech and embedded systems specifically, there are scenarios where either approach can work and we always do our utmost to understand the needs of the client so we can advise on the best solution.

Generally, most companies have a core group of permanent employees which is supplemented by contract workers during busy periods or important projects, but every industry and team is different. Both options have their benefits, and both can work brilliantly either alone or together.

Chris Oddy

About the Author

Chris is an award-winning recruitment consultant who has specialised in the electronics and embedded systems sector since 2008. Chris is passionate about technology and customer service.

 

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