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Contracting vs. full-time employment: which is best?

Published 1 Feb 2021
4 min read

Selecting the right employee is a serious decision, but deciding what type of employee is another thing entirely (especially when hiring internationally). For some businesses, the flexibility of contractors is the perfect choice however, many prefer the loyalty and connection of having a full-time team member. We’ve broken down the pros and cons of both options to help you decide what’s best for your business.

What is “full-time” employment?

Full-time employment is when employees are on a permanent contract where they work for a minimum amount of hours per week (usually 38). Full-time employees are entitled to paid leave and a written notice or payment on termination.

The Pros

Productivity Full-time employees are always focusing on the business as they have a schedule and can get more quality work done as they are not restricted to a short term contract. Loyalty Full-time employees have a sense of connection to their organisation and are always readily available to help. Through employee engagement and positive culture, full-time employees feel a sense of belonging to an organisation as a vital team member. Happy team members = higher profits. Consistency As full-time employees are committed to the business, they have their routine and know the organisation in depth they will perform tasks consistently and on an ongoing basis. Saves money Contractors generally cost more per hour than a full-time employee. Saves time Unlike having to go through procedures each time you hire a new contractor, you only have to onboard new hires once. Control Full-time employees perform tasks under the guidance and direction of their employer giving you more control over how things are done and what the final project looks like.  

The Cons

Entitlements Depending on where they’re employed, employees are entitled to benefits including paid leave, sick leave and maternity leave. Wages Employees are entitled to be paid consistently, even if the business is experiencing a low period.  

What is contract work?

Contracting is employment undertaken on an agreed short term basis. The period of work can vary between days or months. Contracts vary depending on the agreed working arrangements between employee and employer but usually take form as either a fixed-term (specific time only) or renewable (can be continued for a longer period if both parties agree).

The Pros

Flexibility A key positive of contract work is that the number of hours worked is agreed upon beforehand, so employers can select the time and money spent on the project. Provide own equipment Contractors have to provide their own tools and equipment (unless otherwise agreed), therefore less organisational assets are used. Less commitment Some contracts are as little as one day meaning that if you don’t like working with a contractor, you’re not obliged to stay with them longer than the agreed period. New perspectives Working with professionals outside of the business gives your company a fresh set of eyes to help you stay competitive and they may offer new insights you never thought of. Tax and superannuation Contractors have their own ABN, pay their own tax (rather than it being deducted from payslips) and superannuation. They essentially work for themselvesmeaning less expenses for the business.

The Cons

Time-intensive There is a risk of hiring an external contractor to work with your organisation as they’re not familiar with the company’s goals, values and culture, potentially causing issues within the business. The time spent showing them the ropes and aligning them with your company’s culture is all for nothing when they move on. You may lose a star employee Contracting is on a term-by-term basis, so there is the risk of the contractor not returning to work for you again as they have other commitments or have been offered a permanent contract elsewhere. If you’re scared of losing a contractor, consider offering them full-time employment. Relationship As contractors have a high level of control over their projects, it is hard to maintain an employee/contractor relationship. You cannot interfere with their work as this may risk looking like an employee/ full-time employer relationship (and therefore leaving you open to a Fair Work dispute regarding entitlements). Insurance Contractors aren’t covered under your company’s insurance, making you liable for any injury sustained on the job. Ensure you include necessary insurance requirements into the contract before they start to avoid this. Wages Contractors’ wages usually cost organisations around 15-20% more than permanent staff. Less authority Contractors have a high level of autonomy over projects they work on and how it is executed so organisations have little control on the work being done.

The wrap up

As you can see, there are plenty of pros and cons to both employment options. Look internally and see what the best option is for your business and remember, you can always offer a contractor full-time employment if you like what they do. If they’re based overseas, Employment Hero can help you manage your global workforce ethically and legally. 📝 Need more information on employment contracts? Our business basics article has everything you need to know, or download our FREE compliance pack below.

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