Contract vs permanent employment

The rise of the contract role – assessing what is right for you

At some point in a candidate’s career, they will have to make the difficult decision about whether to accept a contract role or a permanent position within an organisation.

Roughly 25% of the workforce has been employed in contract roles since 1996 following an upward trend that began in the early 1980s. Within the IT industry, utilising contingent workforces is a regular occurrence due to the nature of the work often being highly specialist in terms of skill-set and project-based. Depending on a client’s current business model and transformation plans, the use of contractors can fluctuate throughout the year. This mode of engagement allows the client a great deal of flexibility to adapt their workforce to meet changing demands, which can be highly advantageous.

At M&T Resources, we work with professionals whose preference towards contracting or permanent employment may be in flux throughout their career. Why? Changing priorities, preferences, life and career stages, and market trends. When demand for contractors is high, candidates are in a great position to be selective in their choice of organisation, length of engagement and their rate. When demand is higher for fixed term or permanent employees, candidates may be in a better position to engage in this type of employment.

As such, it is important for candidates to understand the pros and cons of being engaged as a contractor versus a fixed term or permanent employee, so they can make smart choices for the benefit of their career.

For transparency, let’s break down what the two types of engagement mean:

Contractors – Contractors work an hourly or daily rate and are paid for the time they work for the client. Contracts can range from very short term to a number of years. Depending on the type of contractor (i.e. PAYG or PTY Ltd), they may or may not be responsible for organising their own superannuation, insurances and other processes.

Employees – Employees are hired by a company for either a fixed term period or permanent engagement. They are paid a salary on an ongoing basis and are covered by their employers corporate processes, tax and superannuation obligations, and insurance cover.

Now let’s break this down into some more detail on these types of engagement – their similarities and differences, and potential benefits and challenges of both contracting and employment.

Potential benefits of contracting:

• Rates are typically higher as they contain weighting for leave and the reduced job security – rates generally sits at around 20% more than an employee salary equivalent
• Hours can be more flexible, dependent on the client and project
• Increased flexibility to move between contracts on completion and ‘test out’ a wider range of organisations
• Flexibility to take extended (unpaid) time off in between contracts with no limit on annual leave, sick leave or personal leave
• Project-based and varied work, which can allow contractors to progress more quickly in their skills and experience, and avoid being pigeonholed
• Building extensive networks is made possible by working with a larger pool of professionals, which can lead to valuable future opportunities
• Opportunities to travel nationally / internationally may be higher

Potential challenges of contracting:

• Minimal job security; contracts can be terminated at any time and notice pay could be as little as one day to four weeks depending on the contract
• Uncertainty and the negative financial impact if finding a new contract takes some time
• Mortgages and loans may be more challenging to obtain
• No entitlement to paid annual leave, sick leave, personal leave or public holidays, which can be tough during company shut down periods over the holidays
• No access to paid long service leave or paid parental leave
• Exclusion from / limited access to employee benefits such as discount schemes, bonuses & incentives, corporate partnerships and other employee perks
• Less likely to be offered learning & development opportunities than an employee
• No designated growth trajectory within the company, meaning no direct internal career progression
• More risk and administration for PTY Ltd contractors who are responsible for organising their own company tax, insurance cover, superannuation and other requirements
• Visa restrictions may not allow you to engage in contract work as this is not classed as ’employment’

Potential benefits of being an employee:

• Being seen as part of the team, rather than a temporary addition
• More job stability, meaning less frequent job searches, and easier access to loans & mortgages
• Entitlement to paid annual leave, personal leave, sick leave and public holidays
• Opportunity to progress internally within the organisation, with a clearer growth trajectory
• More likely to be offered learning & development opportunities funded by the employer
• Access to paid long service leave and paid parental leave, if eligible and available
• Eligibility for redundancy pay where appropriate
• Access to the full range of employee benefits and perks offered by your employer, including discount schemes, bonuses & incentives, corporate partnerships and more
• Superannuation payments and income tax deductions are arranged by your employer
• Minimal financial risk, with insurance cover the responsibility of your employer

Potential challenges of being an employee:

• A lower salary than an equivalent contractor rate – typically 20% less
• Less variety in your work due to typically longer time spent in a role
• Set number of paid annual / other leave, often limited to 20 days (although purchased annual leave / unpaid leave may be an option depending on the employer)
• More involvement in company politics
• Less flexibility with typically a four week notice period to terminate your employment

Benefits and challenges vary widely between different organisations and therefore the above should be considered a general guide only. Furthermore, the decision between contracting versus employment is highly complex and linked to individual circumstances and priorities. Personal choice and careful consideration should always be the driver when accepting a role, whether that be contract or permanent.

At M&T Resources, we work with our clients to fill both types of engagements. Whilst we are able to provide our insights into the different types of roles, the above does not constitute financial, commercial or legal advice.

We are here to support candidates through their journey, whilst also always encouraging individuals to do their research and work out which option is most appropriate for their current situation.