Pros & Cons of Contracting vs. Permanent Employment
There are many pros and cons of contracting versus permanent employment that employers should consider when hiring for a new or existing position.3 min read
There are many pros and cons of contracting versus permanent employment that employers should consider when hiring for a new or existing position. A business might use a mix of different employment types to meet its labor needs. These employee types might include full-time, part-time, and independent contractors. When looking at the pros and cons of contract employment versus permanent employment, it's important to understand the difference between these employment types.
What Is an Employee?
An employee is a person who works for another person or company on a permanent basis. An employee can be a person who works either part-time or full-time for the business. This employee is expected to work based on an employment agreement and receives payment on a continued basis. This individual might receive payment in the form of a salary or an hourly wage.
What Is a Contractor?
A contractor, also known as an independent contractor, provides his or her services to an outside organization. Contractors are usually hired for a predetermined amount of time and at an established hourly or daily rate. Typically, a contractor is hired for a short-term project and is assigned a specific task to complete. Contractors are expected to work independently and maintain strong self-management skills.
Pros and Cons for Employees
Each of these employment types has both pros and cons for the business and for the employee. Many of the differences between contract and permanent employees revolve around how the employee is expected to work, the type of work they are expected to produce, and the benefits they receive from the company they work for.
Pros of Being a Permanent Employee
- Maintain set work hours and/or work schedule.
- Less financial risk due to receiving a regular paycheck.
- Maintain a continued expectation of work.
- Employer typically provides paid time off, vacation time, and/or holiday pay.
- Income taxes are deducted from paycheck.
- Might receive additional employer incentives or benefits, such as bonuses.
Cons of Being a Permanent Employee
- Typically have a daily commute to an office.
- Only have a limited number of days off per year.
- Provided with a limited scope of work.
- Might not have the ability to branch out and try different types of work.
- Less freedom to decide one's own schedule.
- Less opportunity to negotiate pay rates.
Pros of Being a Contract Employee
- Typically receive a higher wage than permanent employees.
- Might have the opportunity to work remotely.
- Flexible schedule and work hours.
- Higher control of the amount of work and type of work completed.
- Have the ability to test out a company and try many different companies.
- Have access to learning additional skills quickly.
Cons of Being a Contract Employee
- Work location might change drastically, depending on where a company is located.
- Might have a long commute or have to travel to the work location.
- Work is not guaranteed and might change on short notice.
- Holidays and time off are not paid for by the company and must be planned carefully.
- Might have financial difficulties since a set salary is not in place.
Which Type of Employee Should You Hire?
The key factor for deciding between permanent employment and contract employment is the expected duration of work that the employee is hired for. If hiring for a project with a set end date or time frame, a contractor might be a better fit. If hiring for tasks that are recurring or regularly scheduled, a permanent employee is a better option.
Generally, a business will hire permanent employees as its core staff and use contract employees on an as-needed basis to pick up extra work that the core staff is not able to complete. This gives the business an opportunity to complete tasks quickly or use a contractor's specialized skills that might not be available within the company's core staff.
Hiring Any Type of Employee
Regardless of the type of employee you are hiring, it's important to assess their skills thoroughly. The candidates should go through a pre-hire assessment that determines their skill level, ability to accomplish the required work, and their ability to fit into the company's culture.
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