Contractor vs employee: Which should you hire?

Do we hire a contractor or an employee on a permanent basis? This is a dilemma that hiring managers and companies face on a daily basis.

As you well know, there are a number of options available when hiring new employees. The two main categories are permanent employees and temporary employees in the form of contractors on hourly rates.

Generally speaking, most workforces are primarily made up of permanent employees who are supplemented by a few contractors for certain projects or when the business is especially busy. Of course, this differs across industries and is heavily dependent on what the nature of your work is.

As an employer, it’s natural to want the best people for your teams.

But, which is the best solution for your business - contractors or employees? 

In this article we aim to advise you on the benefits of both contract recruitment and hiring permanent employees, highlighting the situations where each is preferable and outlining 4 key considerations for you to take before making the decision.

Contractors: Flexible, agile and effective

32% of organisations are replacing full-time employees with contingent workers to save costs 

The contract recruitment market is becoming increasingly popular for employers across every industry. There is a wealth of quality and diversity in terms of the talent available.

This has largely come from the dramatic increase of people in ‘non-standard employment’, that is, professionals seeking work outside of the traditional permanently employed model either as contractors, temporary workers or self-employed consultants.

It is an attractive way of working for many reasons, but largely because it offers the professional to gain a breadth of experience across diverse settings from not being tied down to one specific employer.

And from the employer’s perspective, it means they can get highly-skilled people with the specific skills they require for a short period of time and at short notice - which is imperative when an organisation is adapting to ever-changing market conditions. As a result, this ‘new’, fast-paced form of employment has significantly benefited global economies.

Organisations typically hire contractors when:

1. Specific skills are required for certain projects
2. Expert abilities are needed to optimise growth
3. Uncertainty needs to be managed in an economic downturn
4. Undergoing a period of technological change
5. Additional headcount is required for busy periods, maternity leave or absences
6. A replacement is needed for a sudden departure

The advantages of contract recruitment in those 6 situations are:

• More flexibility for you as the employer
• Faster to make a hire
• Improves business efficiency
• It can be more cost-effective overall
• Less management is required
• Can function like ‘try before you buy’ where you can offer permanent role afterwards

Permanent employees: Stability, growth and succession

Hiring people on a permanent basis is the more traditional approach. Search for someone who matches your expectations, make sure they fit in with your culture and hire them for an indefinite period.

Permanent jobs are typically more appealing for those professionals who are risk averse and look for a high level of stability in their employment; knowing when the next pay cheque is coming and exactly how much it will be.

They may also have their eye closely fixated on their future and have a career path mapped out which can more easily be progressed through by securing permanent jobs and being promoted. This aspect hugely impacts companies’ retention rates and in turn, their succession planning of identifying future leaders.

Permanent employees are likely to be the preferred hire when an organisation can identify that the specific role will have a consistent flow of work that needs to be done and there aren’t any periods that are slow.

Organisations typically hire permanent employees when:

1. They are planning for their future and want leaders to develop from within the workforce rather than being hired externally
2. A brand new role has been created
3. An employee leaves a permanent role
4. A review of business workload reveals the requirement of a full-time employee

The advantages of hiring permanent employees in those situations are:

• You benefit from their skills for a longer period of time
• Brings a constant level of stability to your teams
• More inclined to be invested in the success and growth of your company
• An in-house team of workers makes it easier to evenly divide workloads and keep on top of progress

4 considerations when deciding between permanent employees and contractors

Both types of employees have their merits and will benefit your company in differing ways, but it can be difficult to make the decision - especially if your business is relatively new. 

These are some of the considerations you should make when deciding on how you want to hire for a certain vacancy within your business:

1. How long the role is required for: If you are hiring for a transformational project that has a set timeframe and the individual will have served their purpose once it is completed, a contractor would be the more logical choice.

On the other hand, if you can identify that they will bring value to certain tasks beyond the end of the specific project, hiring a permanent employee may be the way to go.

2. The objectives you want to achieve: Before setting out to hire, you should know what specifically the chosen individual will bring to your business.

Do they need specific skills, prior experience or qualifications to successfully complete their tasks? Will you have to invest time and resources in getting them up to speed? All of this will have a big impact on the type of employee you eventually hire.

3. Will you need to scale up or down: Some companies’ workloads fluctuate seasonally, while others stay constant all year round. The nature of your work affects the type of employees you require.

Needing to scale up your workforce at certain times means you will be more likely to benefit from contract recruitment when you can call upon contractors' skills and expertise as and when they are needed most.

Otherwise, permanent employees who will get to know the ins and outs of your company are the better option.

4. Whether your business is growing or settled: How far your business is along its growth trajectory also plays a role.

If you can invest time and money in training everyone you hire, then that will help you create a core group of skilled employees. If not, why not hire highly-skilled contractors to come in and use their skills for your benefit!