Contract vs Permanent employees: How to scale your business

9 min

To take your business to the next level, you need the talent to do so. But knowing how to sc...

To take your business to the next level, you need the talent to do so. But knowing how to scale your business and choosing between contract and permanent hires is a challenge many organisations face. With numerous advantages and disadvantages to consider, making the right decision can be difficult.

That's why we've put together this blog to help you better understand the pros and cons of contract vs permanent employees. By the end of this article, you will gain a greater insight into how to scale your business. 

Contract vs Permanent: What’s the difference?

There aren't many differences between an employee and an independent contractor regarding how they conduct their jobs, and both can bring immense value to an employer. 

The key difference between the two is that permanent employees are hired to work exclusively for a business and will be tasked to complete their assigned tasks within the hours their employer sets within the permanent contract. On the other hand, contractors will work as self-employed professionals or as part of an agency. They will work fixed-term contracts and can pick and choose who they work for, what projects and assignments they want to work on, and when - they are not obliged to work exclusively for one employer. 

In terms of pay, a permanent employee will receive a salary and company benefits from their employer. In contrast, a contract worker will typically be paid at the market rate for the specific time they support a business - be it a set number of hours or for the duration of a project.

Now we've established the differences between contract and permanent employees, let's look at the pros and cons of hiring each - starting with the pros and cons of hiring a contractor. 

Hiring a contractor: What are the pros?

Contractors come with a wealth of experience and expertise to immediately impact your business. They can help your company overcome staff shortages and fill gaps within your team where specific skills are lacking. We've comprised a list of the pros that could be found in utilising a contractor when looking to scale your business. 

1. Contractors can save you time and money

Although contract workers often make more money than permanent employees, they don't come with the expenses associated with a permanent hire. Additional costs, including office space, taxes, and employee perks, are covered by the contractor or agency you partner with. Moreover, as contractors don't receive a salary, you only have to pay for the time you need and can afford, so you can manage your finances effectively without overspending. 

As mentioned, when hiring a contractor, you will get someone with the experience to get started immediately, meaning you will save time on training and onboarding that you would with a permanent hire. In addition, contract recruitment agencies like 3Search can shorten the hiring time, as they have a network of contractors they can call upon when you need support.  

2. Hiring a contractor is less of a risk

You don't have to commit to a long-term deal when you hire a contractor. So, if the contract worker doesn't hit the ground running or isn't the best fit for your business, it's far easier to part ways with them. Of course, contractors are experienced professionals and come equipped with the specific skills you need, so the likelihood of them being unable to resolve your hiring issues is minimal. 

By partnering with an agency to help you hire a contractor, you get the added reassurance of them finding the talent that meets your requirements. Contractors often have a portfolio of work for you to look at, so you can be sure you're making the right decision. You could always treat a contractor like giving someone a trial run, where you can observe their efforts on a short-term basis before deciding on whether to utilise their services long-term. 

3. Contract recruitment is a flexible solution 

Another advantage of hiring a contractor is the flexibility they bring. For example, if you have a project you know will take three months to complete with added support, you can hire a contractor to work specifically for the three months you require their services. In addition, the flexible contracts you can provide an interim employee allow you to pick and choose when you need assistance with your headcount and for how long. 

Once the temporary hire has completed the work and the time you agreed, you have the flexibility to decide to work with them again, extend their contract with you or scope the market for another contractor. 

As contractors tend to specialise in a specific niche, a contractor is a perfect solution if you need to fill a skills gap within your team to complete a project. Instead of committing to a permanent hire whose skills may only be required for a short amount of time, you can hire a contractor who has the flexibility to lend their skills for the necessary time you need. 

Hiring a contractor: What are the cons?

When considering the cons of hiring contractors, it's essential to know that although cons can be viewed as negatives, these reasons alone shouldn't put you off hiring a contractor. Ultimately, we feel that giving you this transparent insight is key to helping you make the right decision for your business. 

1. You may have less control over workers

Typically, contract workers work independently, selecting for themselves what jobs they take on, what tools they'll need, and when and where they will complete their work. Therefore, when hiring a contractor, a company should classify those workers as employees if they wish to oversee every aspect of what they do and how they do it. 

However, as contractors are often highly skilled and experienced professionals, who, at some stage, will have worked as a permanent employee, they will be able to communicate with you and keep you updated on their progress. So, although you may not have complete control over them, they will never leave you in the dark.

2. A contractor could be less loyal 

As contractors aren't permanent members of your brand and won't necessarily work exclusively for your business, they may appear to be less loyal to your organisation. Additionally, as they won't receive company benefits or necessarily join your team at social events or every business meeting, they could appear distant from your business. You may also find they have to prioritise work for their other clients over yours, but this can be resolved with effective communication and transparency between both parties.

In time, you may turn to the same contractor to work on future projects, and the contractor themselves could even reach out to you, offering their services. You may find a contractor who can become a loyal part of your business which you can outsource when you need them. 

3. Contractors can be harder to recruit

Hiring a contractor can be harder to recruit as opposed to sourcing a permanent employee. Sometimes if the job description is described as being 'fixed-term,' this can detract certain candidates who could be contractors seeking a more long-term deal for better job security and financial stability.

A simple way to avoid this issue is to partner with an agency that can tailor your vacancy to attract the right people. Despite occasionally being harder to recruit for, if you work with a contract recruitment agency, the hiring time can be shorter - as mentioned earlier in the pros of hiring a contractor.

Hiring a permanent employee: What are the pros?

Regarding the advantages of hiring permanent employees, there are various reasons why hiring this type of talent is a great way to scale your business. We’ve picked three of the main benefits of hiring a permanent employee to help you make the right decision to overcome your hiring challenges.

1. A permanent employee is more loyal

Permanent employees are typically more loyal to your company and help you establish a more committed and efficient team in general. As you've provided them with job stability, company benefits and a competitive salary, a permanent hire will be more willing to commit to your brand long-term. Additionally, if you provide training and upskilling opportunities, this will increase your employee's loyalty. Ultimately, if you invest in your permanent employee, they will be more motivated and morally obliged to invest in your business as a loyal team member.

Moreover, permanent employees are often more invested in the future of your business and will remain loyal to you as they help you achieve the brand's short and long-term goals and objectives. Additionally, they will be more inclined to align themselves with your mission, vision and values, and you can trust they will go out of their way to help you and your business succeed. 

2. Permanent employees have more potential

You are more likely to discover the potential of talent who you employ permanently. The longer you keep someone within your business, who works efficiently and meets your expectations, the more of an opportunity you will have to see them grow. Additionally, suppose you see potential in an employee, for example, a graduate or entry-level staff member, by investing in your permanent employee through additional training and support. In that case, you will reap the rewards in the long run.

As mentioned in our previous point, permanent employees who remain loyal to your business will be able to help you get the most out of future talent when they reach their true potential. Of course, it can take time for permanent employees to reach their potential, but once they do, it can do wonders for future-proofing your business and helping you hit new heights. 

3. You can divide workloads easier with permanent employees

When it comes to scheduling the work within your teams, having permanent employees on hand makes dividing workloads easier. By keeping your hires in-house, you can simply reach out to your talent in the office or remotely to see what their capacity looks like, speak to them about future projects and track their progress.

If an ad-hoc request comes in or you have to react to a project quickly, knowing you have a team of permanent employees you can turn to and rely on to support with responsive tasks is a significant reassurance for any employer.

Hiring a permanent employee: What are the cons?

As we've looked at the pros, it's important not to shy away from the cons. But similarly to our contractor section, these disadvantages shouldn't keep you from hiring permanent employees. We've listed these potential cons to show you the challenges you could face while hiring permanent employees.   

1. Hiring a permanent employee can be more expensive

When you hire a permanent employee, you must consider the additional expenses involved. Although employee salaries are frequently lower than an independent contractor's hourly rate, hiring permanent staff increases business costs. In addition, with permanent employees, you can be required to meet their pension and tax obligations as well as provide them with additional perks, like health insurance and other company benefits like bonuses and commission rates.

Despite being the more expensive option between contract and permanent, they can be worth the investment in the long run. As mentioned, when you invest in a permanent hire, you encourage loyalty and increase the chance of your talent reaching their potential for both themselves and your business. 

2. A permanent hire is a larger commitment

Unlike a contractor who can enter your business and make an immediate difference, permanent employees can take longer to embed themselves into your business and may not produce results immediately. Not to say these results will never come, but ultimately hiring a permanent employee is a larger commitment that requires patience.

However, with the right recruitment partner by your side, you can increase your chances of finding someone who can come into your business, drive change and hit the ground running.   

3. Permanent recruitment can take longer

When you hire a permanent employee, you may find the overall recruitment process takes longer than hiring a contractor. The recruitment process can take time, from determining the skills you need writing a job spec and going through the interview stages. Further, you must consider the time the onboarding and potential termination process will take.

Working with a specialist permanent recruitment agency can help reduce the process of finding the right talent you need and onboarding them into your business in a short space of time that doesn't disrupt or hinder the progress of ongoing projects.

Contract vs Permanent: What’s best for your business? 

When weighing up the pros and cons of hiring a contract vs permanent employee, it's essential to ask yourself some important questions to help determine which option makes the most sense for your business. Here are some questions you can ask yourself when figuring out what's best for you. We've also added some prompts as examples to get you thinking.

  • Why do you need to hire someone? (increase resources, fill a skills gap, replace a former employee or cover for talent away on maternity)
  • How much support (headcount) do you need?
  • What specific skills do you require?
  • How long do you need the support? (to cover a specific project or multiple assignments)
  • What’s your budget?
  • What level of experience do you require? (entry, mid, senior or executive)

We appreciate that deciding between contract and permanent hires isn't easy, especially when finding the best ways to scale your business. However, you'll be pleased to know we're here to help.   

Need help with contract and permanent recruitment? 

Hiring a permanent employee or contract worker has advantages and disadvantages. The needs of each business will determine which route is best when looking to bring new team members on board. However, if you're still unclear, our specialist recruitment consultants have the experience and expertise to support you through your hiring journey.

At 3Search, we have a broad range of services to help you find the best talent to help scale your business. Take a look at our contract recruitment and permanent recruitment services, or get in touch with a member of the team today. 

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