Contract Hiring versus Permanent Employment: Choosing Your Path01 Sep, 20238 min
When it comes to choosing between contract hiring and permanent employment, job-seekers should be guided by their career ambitions, current situation, and personal preferences. While contract jobs often accommodate a specialised skill set that organisations may not need to hold on to over the long term, they lack the benefits packages, stability, and security of more permanent employment arrangements.
At the same time, contract hiring can prove lucrative for those with the desire to choose their own clients, negotiate terms, and manage their own businesses. On average, contract employees earn more than their permanently-employed counterparts, particularly if they work through a staffing agency that can negotiate favourable terms on their behalf. It’s not uncommon to see rates of remuneration reaching 50% to 70% higher than the equivalent role under a permanent employment contract.
This guide will help you understand whether contract hiring or long-term employment is the right path for you. We’ll answer the question of “what is a contract job,” discussing how these roles differ from permanent employment before focusing on making the right choice for your situation.
What is a Contract Job?
In contrast with permanent employment, contract jobs offer a certain amount of latitude in terms of work duration and hours—contractors often have the freedom to take on multiple projects simultaneously or pursue their own business ideas and personal interests in the gaps between job posts. Similarly, as long as they remain productive and deliver the service and level of productivity outlined in their contract, contractors are often free to create their own schedules.
Whilst long-term employment is typically salaried, most contract jobs will be paid on either an hourly or project basis via the business a contractor is working with or the agency they’re contracting through.
In the UK, where staff on permanent employment contracts will—in almost all cases—pay their taxes through pay-as-you-earn (PAYE), employees in contract jobs will be expected to pay their own taxes, either employing an accountant to manage this aspect of their business for them, via the agency that they’ve utilised for contract hiring, on their own behalf via HMRC’s Self Assessment tool, or via an Umbrella company.
Contractors and consultants work across almost every industry and sector, usually supporting organisations across a range of diverse specialisms with their in-demand skills. This can provide plenty of experience, additional opportunities for networking, and further professional learning and development, which contractors may lack due to the independent and transient nature of their work status.
One of the primary differences between contract jobs and permanent employment is the focus on deliverables.
Contractors will work with the organisation conducting the contract hiring to ascertain their exact needs and ensure they possess the expertise to provide this specific service—in contrast to a permanent employment contract, which will typically outline a broader range of deliverables, as well as the not-uncommon requirement to address “any other duties” that are in line with that role.
Businesses will often utilise contract hiring to address urgent needs, bringing in new staff to meet a certain demand or cover peak periods without the need to go through the lengthy administration of the long-term employment hiring and onboarding process.
Whilst 94% of working-age adults are in permanent employment according to the latest data published by the UK Government, skills gaps have meant that employers are still eager to utilise contract hiring to address these shortages and gain the skills they need to remain competitive—with contract vacancies up by 17% in 2022.
If you’re interested in learning more about the intersection between global markets and contract jobs after reading this article, see our recent article on whether the struggling economy is responsible for a rise in contract roles for further expert insights on this dynamic area of recruitment.
Contract vs Permanent Employment
It’s possible to compare contract jobs to permanent employment, but it needs to be reiterated that making a choice between the two styles of working will require you to consider your current situation, preferences, and career ambitions before you make the leap—something we’ll detail in the next section.
As we’ve already touched on, contract hiring comes with a raft of benefits over permanent employment and some disadvantages. But what do these benefits look like beyond higher pay and greater flexibility?
- The ability to gain skills and foster connections in diverse industries. Contractors aren’t just required to work in the same sector as they’ve always focused on, and indeed as long as they’re bringing the right skills to the table, there’s no reason why a marketing expert formerly employed in entertainment and media can’t transition towards financial services marketing, for instance.
- Faster entry into roles. Contract jobs won’t provide the same level of onboarding—and likely very little training—in comparison to permanent employment positions, as most organisations will be looking for someone with the right skills profile to meet their urgent needs on a specific project. As a result, these jobs are great for those who want to hit the ground running, start hitting targets, and provide their expertise across different work environments.
- A greater degree of autonomy. For workers that prize independence, contract jobs offer a level of autonomy that often outweighs the freedom offered by businesses focused on permanent employment. Contractors can dictate what projects they take on, the companies they work with, and the overall direction of their careers.
At the same time, these benefits won’t likely detract from a candidate’s decision to focus on gaining permanent employment with an organisation. Indeed, the entrepreneurial spirit that can drive a contractor to success can also help permanent employees stand out from their colleagues and pave the way for their professional development. So, what are the benefits of long-term employment?
- Stability and job security. As we’ve mentioned in passing, permanent positions will provide job seekers with a regular income stream and greater security than the time-limited nature of contract jobs—as long as performance meets expectations and their employer remains solvent. This consistency can make it easier for individuals to plan their personal lives and obtain lines of credit.
- A clearer path towards career progression. Companies like to promote and develop internal talent, with 76% of business leaders saying that internal mobility is a significant focus for their organisation. As a result, an offer of permanent employment will typically come with a development plan, with mentorship, training, additional responsibilities, and the possibility of promotion all being features of a permanent role.
- Belonging and motivation. Permanent employment will often result in an employee building a strong relationship with their colleagues and the wider organisation they’re hired by. This can enable candidates to forge deeper relationships, participate actively in decision-making processes within the organisation, and feel more connected to a business leader’s vision and principles.
It’s clear that when it comes to contract vs permanent employment, the verdict is that each style of working has its own benefits—and that the disadvantages are largely related to personal circumstances.
For instance, a senior specialist with cloud and DevOps skills may be less interested in the direct path to career progression provided by a permanent role than an early-career software developer. On the other hand, a candidate that’s looking to work for an organisation whose vision they believe in may want to look at long-term employment options, particularly if they’re aiming to directly contribute to the strategic thinking around how to achieve that vision.
Ultimately, the decision as to what the right path is needs to be made by the individual candidate, but there are some considerations that we’ll share in the next section that will make that choice easier for you.
Contract Hiring or Permanent Employment: What’s Right for You?
So, now we’ve answered the question of “what is a contract job” and had a closer look at contract vs permanent employment, we can explore the considerations that will help you to decide which option is right for you.
We’ve also created this handy flowchart for you to follow, which can help you to condense these considerations into something a little bit more straightforward, hopefully easing some of the complexity of this career-changing decision:
First and foremost, particularly within a cost-of-living crisis, are financial considerations.
Whilst contract roles typically pay higher rates, you’ll be responsible for ensuring that you set enough of your remuneration aside to cover your taxes and any health insurance and pension planning you have in place. Additionally, contractors won’t typically receive long-term employment benefits such as sick or paid annual leave, meaning that contractors need to factor these possibilities—or eventualities—into their rates.
It’s a wise idea to assess whether you’ve relied on the consistency of these financial benefits from your employer over the last twelve months before you move towards contract hiring, and also research what competitive market rates are looking like for your skills, which will enable you to formulate a financial plan.
Alongside this, it’s important to consider how invested you are in working for an organisation whose vision you believe in. Successful contractors can work for employers of their choosing, but their time with these companies can be quite short.
If you require a set of strong principles and a robust, business-critical goal to achieve to stay engaged at work, it might be better to remain a permanent employee since you’ll be able to develop a deep understanding of company culture and even contribute towards the company-wide strategic planning that will help you to meet these aims.
Beyond matters of money and culture, reflecting on your progress so far could be worthwhile.
There’s nothing to say that an early-career candidate can’t achieve success within contract jobs, especially since they’ll offer an opportunity to work within a different sector or address different challenges from post to post, but it’s important to think about whether you’ve developed the ability to network and sell your expertise before pursuing contract roles, and whether you believe there’s more to learn from permanent employment or internal promotion before you begin the transition.
The Bottom Line
When it comes to choosing between contract jobs and permanent employment, individuals need to carefully consider their career ambitions, current situation, and personal preferences before making the leap. Contract jobs offer independence and a larger degree of flexibility than long-term employment, as well as the potential for higher rates of pay and the freedom to choose clients, making them an attractive option for people seeking contract hiring opportunities.
Despite this, contract jobs often lack the benefits packages, stability, and long-term security associated with permanent employment arrangements. Permanent roles can offer a clear path for career progression and opportunities for learning and development—meaning that early-career candidates can take advantage of this training to specialise and make themselves indispensable within the niche role they carve out for themselves.
Understanding the answer to the question of what is a contract job and conducting a thorough comparison between contract and permanent employment is crucial to making an informed decision. By weighing the benefits and disadvantages of both forms of employment, candidates can determine the right path for their unique situation.
Ultimately, it’s important to assess one’s financial considerations, their need for alignment with an organisation’s vision, and the desire for personal and career development when making a choice between contract hiring and permanent employment, guaranteeing success whatever choice is made.
Discover Contract Jobs or Permanent Employment With Our Support
At McGregor Boyall, we’re experts in connecting ambitious candidates with market-leading organisations across the globe. Our consultants have worked closely with FTSE 100 organisations, placing candidates that have gone on to achieve career success and deliver results. We support candidates through every step of the contract hiring and permanent employment process, helping them to discover roles that align with their goals. Contact us to learn more about our services.