Contract vs Permanent: The Pros And Cons For Employers

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?

What is a Contractor?

Pros of Hiring a Permanent Employee

  • 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

  • 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

  • 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

  • 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

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Hi there! I’m Rachael, Marketing Manager at Adria Solutions Ltd. Read more about me here: https://www.adriasolutions.co.uk/blog

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Rachael. Adria Solutions

Rachael. Adria Solutions

Hi there! I’m Rachael, Marketing Manager at Adria Solutions Ltd. Read more about me here: https://www.adriasolutions.co.uk/blog

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