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Talentplicity Consulting /TPC/Talentplicity Consulting /TPC/Talentplicity Consulting /TPC/

Contract Vs. Permanent Employment

Should you be offered a contract role, and what does that mean to you?

At some point every person in their career will make the difficult decision about whether to accept a contract or a permanent position to secure their role within an organisation.

Since the early 2000s approximately 30% of the workforce has been employed in contract roles, which is clearly an upward trend that began in the 80s. Particularly within the IT industry, relying on a contingent workforce is a common occurrence due to the nature of the work, often either project-based work and/or requiring a highly specialized skillset, technology or solutions.

Depending on each organization and the existing business model, the strategic planning stage and its scope, the utilisation of a contingent workforce may fluctuate throughout the year. This particular engagement model allows each organisation a great deal of flexibility in adapting their workforce to meet changing demands, which can be highly advantageous.

At Talentplicity, we engage professionals whose preference for contracting or permanent employment may be in flux throughout their career. Why is that? Changes in career stages, priorities, preferences, and life as well as market trends. When the demand for the contingent workforce is high, resources have greater options and can be more selective in their choice of organisation or type of jobs, length of engagements and rates. When the trend and demand is for fixed term or permanent employees, resources will be in a better position to engage in these types of employments.

As such, it is equally important for resources to evaluate and make an informed decision based on being employed, either as a contractor or as a fixed-term and/or permanent employee. This way they can make smart choices for the benefit of their career.

For clarification and better understanding, we can break down what the two types of engagement and their meaning:

Contractors – They 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. sole traders, PAYG or PTY Ltd), they may or may not be responsible for organising their own superannuation, insurances and other processes.

Employees – They 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, as well as insurance cover.

Now let’s break these types of engagement down into some more detail: Their similarities and differences, and the potential benefits and challenges of both contracting and employment.

Potential benefits of contracting:

  • Rates are typically higher as they contain weighting for leave and reduced job security. Rates generally sit at around 20% more than an employee salary.
  • 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.
  • Working with a larger pool of professionals, leads to building extensive networks, 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 secure.
  • 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 and incentives, corporate partnerships and other employee perks.
  • Less likely to be offered learning and development opportunities compared to 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 prevent you from engaging 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 and 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 and 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 and 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 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 two or four-week notice period to terminate your employment.

Summary

Potential benefits and challenges may vary between organisations and the information provided here 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 Talentplicity, we work with our partners to supply resources for both types of engagements. Whilst we are able to provide our insights into the various types of requirements, the information provided in this article does not constitute financial, commercial or legal advice.

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

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