Fixed-Term Contract or Permanent: What's Right for Your Business?

Fixed-Term Contract or Permanent: What’s Right for Your Business?

If you’re currently looking to hire your next IT professional, there’s plenty to consider: From hiring strategies that will help you hire quickly and efficiently to the small tasks like writing job adverts that bring you quality applicants.

But before all of that, you need to decide exactly what you’re looking for. Whether hiring a fixed-term contract or a new permanent employee is what’s best for your business.

Or indeed, whether you should be considering hiring both…

Fixed-Term Contract and Permanent Employment: What’s the difference?

First and foremost let’s quickly explain the differences between fixed-term contracts and permanent employment.

A fixed-term contract is a form of employment where an employer hires a contractor or short-term employee to fill a position for a specified, temporary period.

This can be a period of time, like 6 months with a set end date, or for the duration and completion of a project.

Meanwhile a permanent employee is what it says on the tin: Someone who is hired permanently by a business with no set end date for their employment.

There are perks and benefits to both for employers, which we’ll explore in this article.

Fixed-Term Contract Advantages and Disadvantages

Employing someone on a fixed-term contract can be a huge benefit for your business, and sometimes is essential.

But there are pros and cons and advantages and disadvantages of hiring employees on fixed-term contracts that you should consider.

Advantages of Hiring a Fixed-Term Contractor

  • You have them when you need them, for projects and plugging employment gaps.

One of the main and biggest advantages of hiring a fixed-term contractor is the ability to dictate exactly how long you need them for.

This can be stipulated in the terms of the contract to be either the length of a certain project, or a specified length of time. 

So if you need urgent assistance on a project or to hire someone for only one project, then a Fixed-Term contractor is perfect.

Similarly if you have someone going on maternity or paternity leave, having someone fill their role for X amount of months is a common use of a contractor.

  • They can often be more experienced, and better at hitting the ground running.

Professional contractors are experienced at inserting themselves into a business and becoming a part of the team. 

When onboarding a new employee, you may have to spend time teaching them the processes, software and technology they need to be able to work with.

Whereas a contractor often has a broader skill set out of necessity, or you can choose a contractor who better fits the position, and who you won’t have to invest in to get them up to scratch.

  • It can save your business money.

Because you only have the employee around for exactly when you need them, it can save your business money in the long-run. 

Instead of having to hire a new, full-time and permanent employee, you can hire a contractor. While an employee on a fixed-term contract may be more expensive day-to-day, being able to have them only for when you need them can actually make them a much more cost-efficient hire.

Additionally, you only need to pay them their day-rate and any additional equipment costs. Whereas with permanent employees there are a slew of benefits that you’ll need to be prepared to pay for. 

As well as any training and development opportunities you’ll need to offer to keep around permanent employees.

Disadvantages of Hiring a Fixed-Term Contractor

  • They won’t stick around forever.

Obviously when a fixed-term contract is finished, they’ll be gone. No matter how good they are or how much you like them.

While you can offer a permanent position, there’s also no guarantee that a professional contractor will be interested in sticking around.

While you can offer additional contracts for other projects, they may already have their next position lined up for when your contract ends.

  • They can be expensive.

While they can be more cost-effective than hiring a new permanent employee, there is no escaping the fact that Fixed-Term contract employees are expensive.

The day-rates for a contractor are typically higher than how much you pay a permanent employee daily. Sometimes, they’re much higher. 

This is typically due to the risks associated with the role not being permanent, and the need for additional pay to balance this lack of job security. Although that doesn’t make the cost any easier to swallow!

  • When the contract is finished, they’re gone.

When a fixed-term contract is finished, the contractor is often gone, with another job already lined up. This can make it difficult to extend the contract at short-term notice if needed.

Additionally, depending on the contract you drafted and they signed, when the contract and project is finished, the contractor may be gone with no responsibilities to your business. Meaning that if any technical problems arise, there’s no guarantee they will provide any assistance.

Permanent Employee Advantages and Disadvantages

However, you may consider that instead of an employee on a short, fixed-term contract, you may want to hire a permanent employee instead. But there are still a few different advantages and disadvantages that you should consider.

Advantages of Hiring a Permanent Employee

  •  Commitment from the employee.

When you hire a permanent employee they are usually in it for the long haul. A study from the Bureau of Labour Statistics over in the US found that an employee stays with a business just over 4 years on average.

Meaning the employee will become much more ingrained in the business, familiar with the processes of the company and be able to act more efficiently.

  • Greater control over the employee and your business.

Obviously with permanent employees, you have a greater degree of control over the business and the employees. If you want to restructure, you can move employees into different departments and reassign on projects and clients.

Whereas a contractor on a fixed-term contract is usually assigned to one project or client account in particular, and can’t be moved around as simply.

  • Your team is more stable and flexible. 

Need someone to step up and take extra responsibilities because of someone suddenly leaving your business? It can be awkward but generally not a problem. But if this was a contractor, they may point out that this is not outlined in their contract and not responsibility.

Disadvantages of Hiring a Permanent Employee

  •  Commitment from you, the employer.

Hiring a permanent employee is also a large commitment from you as the employer. You need to be sure that the workload demands the extra headcount, that there is an active pipeline of work for the employee to work on. 

If you don’t have the work or projects for someone to be working on, it’s a waste of money for your business and the new employee won’t be happy in their role.

  • It can be more expensive than hiring a contractor.

Hiring an employee on a fixed-term contract is more expensive for the day-to-day cost of salaries.

But hiring a permanent employee involved more costs than just the salary. You need to make sure that your hiring budget can accommodate their salary, as well as the other financial benefits such as pension, bonuses, and recruitment costs.

  • It takes longer and is more expensive.

Contractors are always on the look for their next role, due to necessity. Which means there are more contract employees searching for roles at any given time. Making it easier to fill vacancies, and faster.

Whereas permanent employees are less likely to be job searching, especially if they’re happy in their current role.

All of which can mean it takes longer to hire a permanent employee. And the longer it takes, the more it costs your business in recruitment costs, resources and time used, and missed revenue opportunities.

Fixed-Term Contract vs Permanent Employee – What’s Right For Your Business?

When deciding whether you need a contract or permanent employee for your business, there’s no right or wrong answer: It comes down to what’s right for your business. 

And a lot of that comes down to cost.

If you can’t afford to hire a permanent employee or it isn’t in the hiring budget, then you may be better off hiring a fixed term contractor (or series of) to support your businesses and team with the resources you do have.

But if you find yourself hiring (expensive) contractor after contractor, then you may find yourself spending more than you need to on a potentially less-effective and invested member of your team.

5 Things to Consider Before Hiring a Fixed-Term Contractor or Permanent Employee

There are a few different things for you to consider that are neither pros or cons, but are important to remember all the same:

1. How many upcoming projects do you have?

While you may need a fixed-term contract employee now, it’s worth looking at the long-term and the future of your business.

If you have a pipeline of projects coming up where you will be hiring a series of contract employees, would it make more sense to hire a permanent employee?

Someone who will be able to embed themselves in your company fully, will be more effective than hiring a series of fixed-term contractors. 

2. Can you afford a permanent employee?

When you hire someone on a fixed-term contract it’s simple to calculate how much it will cost your business: Their day rate multiplied by the amount of days in their contract.

But for a permanent employee, you need to factor in the cost of pension contributions, any bonuses the company pays its employees, and general increases to any company benefits that you offer such as health and dental insurance and company holidays.

So it’s important to consider more than just a permanent employee’s salary when hiring.

3. Should you hire a short-term contractor while you look for a permanent employee?

If you’ve decided that you’re looking for a permanent employee but your hiring need is especially urgent, it may be worth considering hiring a fixed-term contractor to act as a stop-gap measure. 

This can help to support your business while you look for a permanent employee, and relieve any pressures on you to hire quickly.

4. Would you consider a fixed-term contractor transitioning to a permanent employee?

Before you make the decision to hire, it’s worth considering if you would offer a permanent position to someone on an initial fixed-term contract. 

This can be because the employee is a great fit for your company, because they do great work or because you realised that your business needs them.

However, professional contractors aren’t necessarily going to accept an offer. And some who would, won’t want to wait until the last day of their contract for you to make that decision.

So it’s best to make this decision before you begin hiring, or early on in the contract.

5. When hiring a contractor you need to be careful with contracts and employment law.

There are hefty penalties for businesses found to be in violation of IR35, so it’s essential you do your research on understanding IR35.

And drafting an employment contract for a fixed-term contract can be its own headache, if it’s something you’re not familiar with.


Fixed-Term Contract or a Permanent Employee – Which Will You Choose?

Whichever you decide, we’ve got your covered. We’re experts in supporting IT businesses with their IT recruitment needs, and can guide you through the recruitment process and minimise the time and resources you need to commit to the hiring process.

We also offer advice by conducting deep dives into your businesses team structure, helping you to find gaps that are stopping your business from reaching its maximum potential.

If you’ve decided a contract IT employee is what your business needs, you can find out here just how we will work to support your business.

But if you’re looking to hire your next permanent IT employee, head here to see what we can do to support your business.

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