The Hiring Debate: Permanent vs Contract

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Hiring in COVID-19 has its own challenges, the last question you probably need to be weighing up would be the perm vs contract. You should be focusing on the best person for the role and ensuring the capabilities procured genuinely add the value your business requires at this time. This debate has been raging for years for employers. It’s a tough one, the risk versus reward, the headcount growth versus a tiny increment in workforce numbers, where on the P&L can we put them? OPEX vs CAPEX. A lot of these articles are written from the employee or contractor position, but today we’d like to explore the options you have as an employer and which method would suit you better. 

To start with we’d better define what you get out of each one:

Hiring permanent employees mean the person will:

  • Receive payment as wages or salary
  • Have their tax taken out by their employer
  • be based at your business, work at your home or are mobile
  • Have the capability to be full-time, part-time, apprentices, trainees or casual, and can be directed when, what and how to do a task.

A contractor or independent contractor usually:

  • Doesn’t receive wages, but invoices for their work
  • Runs their own businesses with an Australian Business Number (ABN)
  • Has their own insurance
  • Does a set task, performs a service and then leaves once the engagement is done. 
  • Can work for more than one customer
  • Can subcontract their work to others
  • Provides their own equipment, or works from their own base.

That makes the decision easy doesn’t it? No? OK let’s look a little further. 

Disclaimer: for the purposes of this article we will assume that the unemployment rate is not at a generational high and will work within a more “normal” market. 

The decision sometimes comes down to the reason as to why you need to hire. Is it a small surge in the workload? Is it due to a specialised skill requirement that you don’t have inhouse? Or, are you up lifting your workforce? Have you done some forward planning and seen the ongoing need for more resources?

Contractors have been seen for years as disposable resources, sure they cost a little more in the short term, but when the need disappears you can just thank them for coming and let them be on their way, no harm no foul. The redeployment of permanent staff can be a headache for businesses. 

Building on the cost motif, Contractors will be more expensive to your bottom line than a permanent staff member, the hourly/daily rates sometimes look exorbitant when compared to a salaried resource. But remember you are paying for the risk they are taking, they also need to assume all the insurance, payroll, superannuation and tax implications, they won’t be paid for sick leave, public holidays or even personal leave. You are paying a business not a person remember? If you’ve ever partnered with a Professional Services company you can feel and understand the economic pain of hiring another business. 

Bringing in a Contractor can be really important for a specialist skill. A solution to a problem that you just don’t have the capability to build yourself in the timeframe it is required. In/out, done. Thanks for coming. Hiring a permanent employee for this type of engagement does not do anyone any favours. Sure they could well be cheaper from a daily cost perspective, but what will you do with said person when this task is done or problem solved? Keeping someone on the books who is adding no value is a risk to business and the person’s sanity. 

It is also perceived as easier from a performance standpoint. One perception being if a contractor isn’t performing, all the rigmarole of replacing or removing is not as it is with a permanent hire. That is true enough, unless you are still within a probation period of a permanent hire (can be upto 6 months in Australia) then you can remove said person without having to give a reason. 

You can save the investment in the Contractor option. You don’t need to train or upskill these resources (they can even help train and upskill your current staff). This is good and bad. I believe you want your organisation to continue to improve and grow. By investing in permanent staff, in their training, in their career advancement you are by default improving your business. It will increase the loyalty to your business and employee experience of your people, uplifting your employer brand in the process. 

In uncertain times the ability to engender stability for an organisation is important. This is tough to authenticate with the comings and goings of a transient contractor workforce. The ability to hire permanent staff, give a level of stability to your business and your people. If there was ever a year that required stability, 2020 is it. 

A permanent workforce also allows your business to grow its intellectual property. People know how things are done, and (hopefully) why and share this knowledge with new people. IP walking out the door through the transient nature of contractors is a big risk in the business. If people know how things are done, the risk of continuity over leave periods, sickness or accident or absences means that the rest of the team can cover for a person and keep the wheels in motion while a solution is found. The risk of all the information being with the one person is huge, I know a lot of contractors who have traded off this very idea. Thinking by keeping the mystery as to how they do things will keep them as an essential worker and thus employed. This would be a risk I would not want to take with my own business. 

Another thing to consider as an employer is the option of a person “contracting” directly to your business, being a PAYE but being engaged for a certain period of time for a finite bit of work. This does add a level of complexity to the relationship with Fair Work Australia now allowing these people to claim for benefits normally the sole domain of a permanent employee. Things like leave, (sick and personal) or even redundancy pay. It is important to to consult Fair Work Australia to ensure you have all your facts right. 

Don’t be fooled, this is not an easy decision, and there is not a one size fits all answer. As detailed there is a fair bit to consider. There’s pros and cons with both, make the decision in line with your business plans and future vision of what you are going to achieve. 

But, make sure it is the right person, that is the key after all. 

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