Contracting vs. Permanent Employees: Our Experts Reveal the Pros and Cons

The shape your hiring strategy takes will often rest upon one important question: should I hire permanent employees, or should I use contractors?

Both workers have their place, and both may be relevant for your business in certain roles and at certain times. Understanding which is the best fit for your organisation, or a specific role within it, is a matter of weighing the pros against the cons.

Let’s compare these employment types and see if we can gain a bit of clarity on which will work best for you. 

Contractors

The popularity of contractors has increased sharply in recent years. The emergence of the gig workforce, demand for niche skill sets and rising talent shortages have transformed what was once a fringe group of ultra-specialised workers into a genuine core hiring option. More people than ever are leaving their jobs to become their own boss, with almost a third of Australians now preferring freelance work to being an employee. With so many contractors now available, the question has turned from ‘can I employ a contractor?’ to ‘should I employ a contractor?’

The pros

• Cost savings: While often commanding a higher hourly rate, contractors allow you to only ever pay for what you need when you actually need it. They aren’t entitled to a number of employee benefits such as holidays, leave loading, super, payroll tax and office equipment which all cost organisations additional money. They also require less onboarding, less training and less management than permanent employees which makes them attractive from a cost saving perspective.

• More flexibility: Contractors enable organisations to be agile in their recruitment. They can cover a short-term labour gap (e.g. maternity leave), they can grant access to a unique skill set (e.g. cyber-security specialist) unavailable internally and they can be onboarded and removed quickly. Particularly in recent times, flexibility has been crucial for organisations to stay afloat increasing the demand for contractors.

• Less management: Experienced contractors require less management than permanent employees. In most cases, a quick role briefing and project deadline is all they need to get the job done. Hiring top contractors avoids the HR headache of permanent employees allowing you more time to focus on other demands of your business.

The cons

• Less loyalty: Contractors could be described as mercenaries of the working world. They can work for many businesses simultaneously and tend to report to the highest bidder. This means there’s no guarantee that you’ll be their number one priority, nor that they will be as invested and engaged to perform at the same level as a more accountable permanent employee might. 

• Less authority and control: Sure, you can set guidelines, requirements and deadlines to try and manage your contractors. However, because they are more autonomous, and can work independently using their own tools, systems and resources, inevitably you will have less control. As employers grow increasingly concerned with such things as cyber-security and competition, retaining this control is a detractor for hiring contractors. 

Permanent employees

Traditionally, jobseekers have preferred permanent work, buoyed by the sense of belonging and stability such employment provides. However, taking on full-time or part-time employees is a big commitment and responsibility for organisations, who are required to support this person professionally and financially throughout their tenure. This makes the decision whether to hire permanent employees or not critical. Let’s look at the pros and cons. 

The pros

• More stability: By hiring full-time employees you’re able to build a strong and loyal team that works well together. You can mould them into your preferred shape, and ensure that they are invested and engaged to ensure business success. Conversely, an over reliance on contractors can be disruptive to team cohesion which can impact performance.

• More control: Hiring permanent employees grants you greater control over your organisation. Everything is kept in-house, making it easier to lead staff, manage workloads and keep private information secure. Permanent employees tend to be more invested and focused on organisational objectives whereas contractors can have divided loyalties.                                                                                                                                                         
• More organisational knowledge: Over time a permanent employee will build up a deep well of knowledge about your business and its stakeholders. This knowledge becomes invaluable over time and helps businesses run efficiently, effectively and smoothly. Contractors often aren’t within organisations long enough to grasp such knowledge, and if by chance they are, they are likely to take this confidential knowledge elsewhere. 

The cons

• A significant investment: Hiring, onboarding, training and retaining permanent staff are costly exercises. Add in paying salaries, taxes, insurances, office costs, ongoing mentoring, professional development and performance review programs and you’re looking at a big bill. In an ideal world, these costs are an investment and will be paid back with interest, but it’s not guaranteed. If a permanent employee leaves, that’s a lot of sunk costs.

• Hiring the wrong person: Permanently hiring a bad fit for your business is costly. Bad people decisions can impact culture, engagement, performance and productivity, which all cost time, money and resources. Once a permanent employee passes probation, removing them can be challenging (and expensive if done incorrectly). In these situations, you are forced to restart the recruitment process from square one. 

Contract or permanent employee? As with so many questions in business, there’s no right or wrong answer here. Both have pros and cons, and the answer lies in truly understanding your business and its needs. Do you want flexibility or stability? Do you need a quick fix or a long-term solution? Grasping these needs will (hopefully) make your decision far clearer. 

Whatever you decide, the Ignite team can assist providing both permanent and contract recruitment services. 

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