Contract vs Permanent: The Pros And Cons For Employers

If you are looking to take on a new hire, there is a lot that needs to be considered. One decision you need to make is whether to go down the route of contract vs permanent employment. There are pros and cons associated with both options, so it is all about determining which is best for your situation. Many businesses use a mixture of different employment types to meet their labour needs.

That said, below is an explanation of the difference between an employee and a contractor. We consider the advantages and disadvantages of both so you can make up your mind about which best suits your needs.

Employer welcoming a permanent employee to the business
Investing in permanent employment is a long term commitment but that can have its pros and cons.

What is a Permanent Employee?

An employee is an individual who works for a company or business on a permanent basis and can be either a full-time or part-time worker. This employee is expected to provide work based on the employment agreement, and in return, they are paid on a continual basis. This person may get payment in the form of an hourly wage or a salary.

What is a Contractor?

Also known as an independent contract, a contractor provides her or his services to an outside business. Contractors are typically hired for a predetermined amount of time, and at an established daily or hourly rate. Typically, a contractor is hired for a short-term project and will be given specific tasks to complete. Contracts maintain strong self-management skills, as they are expected to work independently.

Pros of Hiring a Permanent Employee

There are a number of reasons why employers prefer to hire a permanent employee, including the following:

  • Commitment works both ways — With an employee, the individual is going to be fully dedicated to your company. Contractors will often have a number of businesses that they work for, and so they do not have that same level of commitment to your company.
  • You set the standards — You train and mould the person to suit the way you want things to be done at your business.
  • You are in control — You get more control over where, how, and when they work.
  • You can choose from different contract types — Although there is commitment, you do have numerous employment contracts to choose from, for instance, fixed-term or part-time.

Cons of Hiring Permanent Employee

There are also some drawbacks to consider:

  • It is a big commitment — While the commitment side of things can be a benefit, it can also be a drawback. No matter how much money your business makes, you are going to have the person’s salary to pay every month, so you need to be confident that you can commit to this.
  • It can be more expensive — You will typically pay a lower hourly rate when compared to what you have to pay a contractor, however, you then have to factor in the likes of training costs, benefits, and pensions.
  • Permanent employees have more entitlements — You have to consider all of the employment rights and entitlements, for example, redundancy pay, sick pay, minimum wage requirements, and holiday allowance.
Contractor vs employee represented by a clock and stack of money on a see saw
Choosing between a contractor vs permanent employee is not just a question of time vs money; there are other factors to consider.

Pros of Hiring a Contractor

There are a number of reasons why employers prefer to hire a contractor, including the following:

  • Expertise at your fingertips — There is only one place to begin, and this is with the fact that contractors, consultants, and freelancers tend to be experts at what they do. Therefore, they should be able to get up to speed with what you need quickly. They manage themselves and stay up-to-date with the latest regulations and trends. After all, they are competing with all of the other contractors out there!
  • You do not need to provide equipment — Contractors will have their own equipment. Unless there is something specific you want the company to use, such as software you have developed for your company, you can expect the contractor to have all of the standard equipment and software associated with the job.
  • It can be cheaper — Hiring a contractor can be a lot cheaper because you only need to pay their wage and nothing else. You do not have to worry about benefits, putting money into a pension, or anything of this nature.
  • You can hire as and when needed — Another benefit of hiring a contractor is that you can use their services as and when needed. So, if you have a drop in demand, you do not have to use or pay for their services during this period.
  • Fewer worries in terms of employment rights — You do not have to worry about being discriminated against, providing a safe working environment or that they might upset your workplace culture.

Cons of Hiring a Contractor

There are also some drawbacks you need to think about when hiring a contractor:

  • They may delegate to a subcontractor — If the person is busy, you may find that your precious tasks end up being delegated to someone else. Of course, you can stipulate that you do not want this to happen but how can you be sure that it won’t?
  • Lack of continuity — You may have an excellent working relationship with a contractor. However, once the assignment is finished, they may be too busy to work for you again. It can be quite frustrating.
  • Hourly rates can be higher — Contractors tend to charge more because they need to cover the risks that are associated with not having a full-time job.
  • You are not going to be their number one — You are going to need to accept that you are not going to be the individual’s number one priority. Contractors don’t place all of their eggs in one basket, rather they work on several different contracts at once.
  • Beware of IR35 rules — Employers must take extreme care that they are hiring contractors legitimately. If HMRC suspects that a contractor falls within the scope of IR35, the employer can face hefty penalties.

Final Words on Contract vs Permanent Employees

So there you have it: an insight into the differences between contract vs permanent employees. We hope that this has helped you to get a better understanding of the pros and cons so you can figure out which solution is going to be right for your company.

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