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Contracting vs Permanent Work - Which Is Best For You?

11 Feb 09:00 by Jamie Silman

Contract vs Permanent Work - Which Is Best For You? Header Image on Entech Technical Solutions Blog

Contract work is often the goal for many skilled industry professionals - and with good reason.

If a contractor and permanent employee are both paid around £40k per year, then a contract employee working through a limited company would take home around £5k more each year.

But the choice between contract and permanent work isn’t as clear cut.

Let’s take a look at the differences between contract and permanent work, the pros and cons of each type of work, and a few often-forgotten considerations to see which is the best choice for you.

Contract Work

What Is Contract Work?

Contract work, or contracting, often refers to project-based or time-sensitive jobs that are carried out by professionals for a fixed period of time - usually 3, 6 or 12 months.

In many cases, contract workers are brought in because they have the specialist skills needed for a project, to cover seasonal periods and maternity leave, or to fill skills gaps or transfer knowledge to a team.

Pros Of Contract Work

Better Pay

Because contractors are constantly moving to new companies, they have more opportunities to improve their skillset. This can help them to improve their pay scale much more quickly than someone following a traditional permanent career path.

Be Your Own Boss

When you’re a contract worker, you are your own boss.

You get to make the decision whether or not you take on a contract position, so if a role isn’t exciting enough for you then you can wait for something else to come along.

You’re also only employed for as long as the contract is running, so if you want to go away for 6 weeks in the summer when your contract is finished, then the world’s your oyster!

Job Variety

You’ll always be moving to new companies, meeting and working with new people, experiencing new office cultures, and working on a number of different challenges; so, if you’re the type of person that becomes uninspired after 6 months in a job then contracting could be perfect for you.

Build A Network

Working as a contractor will inevitably lead to you building a solid network of connections across a variety of different disciplines.

This network can be invaluable if you’re looking for recommendations or work at short notice, and can enable you to bring even more value to any contract positions you’re working.

International Work

If you’d like to see the world while you work, contract work can give you the flexibility of taking on international positions (provided you’re eligible to work abroad, of course).

Permanent employment rarely offers the opportunity to travel abroad, but you could pick up contract work around the world and travel from contract to contract across the globe.

Cons Of Contract Work

Job Security

Job security is one of the biggest drawbacks to contract work, and is enough to put a lot of people off of contract work altogether.

Whether it’s a project being cancelled, a shift in demand for your skills, or an economic downturn, your job is never guaranteed.

It’s important to keep your skills up to date and be at the top of your game to try and avoid this.

Administration

As a contractor, you’re ultimately responsible for all of the administrative duties that come with being self-employed or running a business.

You’ll also need to stay up to date with new laws and regulations to make sure your company is staying compliant.

Applying For Jobs

When your contract comes to an end, you’ll have to begin the application process all over again.

This can be incredibly time consuming, and ultimately any time that you’re not working means you’re not earning money.

This is where keeping your skills and CV up to date can really make a difference.

Holiday And Sick Pay

If you’re a contractor working under a limited company, you won’t receive the same holiday and sick pay entitlements as a regular employee, so you’ll have to take this into account when making the decision between contract and permanent work.

Bonuses And Benefits

Limited company contractors aren’t eligible for bonus schemes or employee perks like gym memberships, and paying into a pension will be your own responsibility, so make sure you factor this into your calculations too.

Skills And Training

You may receive some training as part of a contract position, but if you need to gain any industry qualifications or develop professional skills then you’ll have to pay for this yourself.

Not paying for training courses and personal development could cost you more in the long run if it’s something employers are looking for.

Permanent Work

What Is Permanent Work?

A permanent job is a full-time, salaried position where you’re employed to work a set number of hours per week, normally 36 or above, on a permanent contract.

Permanent positions offer a fixed salary with all tax and deductions handled through your employers’ payroll.

Pros Of Permanent Work

Job Security

A permanent work contract means that you’ll be paid your salary for the duration of your employment, which essentially runs indefinitely, until you either decide to leave the position, receive a promotion, or your employer makes your position redundant or terminates your employment.

This is typically seen as the most stable form of employment as you receive a guaranteed monthly income, even if you’re on holiday or off sick.

Part Of A Team

As a permanent employee, you’ll become part of a team that you’ll spend time with every day, and will experience the company culture and office politics of the environment you work within.

Progression

Permanent employment gives you the ability to map out your future with a progression plan.

You’ll have opportunities to impress your employer and go for promotions, which will help you move up the corporate ladder.

Bonuses And Benefits

Some permanent roles offer bonus schemes that allow you to earn a significant reward for hitting targets, or reaching milestones, as an incentive to increase company performance.

Permanent employees are also eligible for pension schemes, car allowances and various other perks and benefits that contract workers may not get access to.

Training And Development

Employers will want staff to stay up to date with industry developments and schemes, so many permanent employees are given training and access to personal development schemes that a contract worker wouldn’t get access to.

Cons Of Permanent Work

Lower Pay

Take home pay for permanent work is often lower than an equivalent contractor, but other perks and benefits can sometimes make up for this difference.

Limitations

If you have a particularly specialist skill set, you can often be limited by the systems and technology your current employers are using. This can result in you falling behind on industry standards, meaning you end up being trapped in a position because you don’t have the relevant experience to move elsewhere.

Less Experience

Permanent employees tend to experience the same problems and difficulties as the nature of work means they’re doing the same thing, the same way, repeatedly.

Contractors can gain experience across a variety of areas within their specialism, giving them more experience to take on to the next role.

Lack Of Flexibility

Unless you’re lucky enough to work somewhere that offers flexible working, you’ll often be expected to work the same hours, from the same location, day in, day out.

This can be inconvenient if you have a long commute, or young children that you need to take to school. Because contractors are bringing a specific skill set to the business, they often have more flexibility than permanent employees.

Job Variation

Unless your company is experiencing rapid growth, or is going through a significant change, it’s unlikely there’ll be much variation in your job.

This can lead to frustration at a lack of challenges or change, and can lead to employees looking for employment elsewhere.

Other Considerations

It seems that both contract work and permanent employment have advantages and disadvantages that will make it difficult to decide which option is best for you.

If you’re leaning towards a contract position instead of a permanent role, there are some more things to consider before you make the leap.

Limited Or Umbrella?

The first decision to make when you’re considering a contract position is whether you’re going to join an umbrella company or set up your own limited company.

Both have their own advantages and disadvantages, so it’s best to consult a professional accountant to discuss which will be the best option for you.

Marketing Yourself

As a contractor you’ll be relying on finding yourself new contracts every few months, so it’s important to market yourself appropriately to make sure you keep finding work.

For contractors in high-demand sectors this can be as simple as building a relationship with a specialist recruitment agency who will put you forward for new contracts, but in more competitive areas you may need to create yourself a website to showcase your work and show testimonials from previous clients.

It can also help to build a personal brand within your sector to help potential clients see you as an expert in your field, and build familiarity with your business; and platforms like Twitter and LinkedIn have made it easier than ever to build a professional network.

Don’t Forget Soft Skills

While it’s typically your hard skills that will land you a contract role, your soft skills are an important part of outshining other applicants.

Soft skills will not only help in showing you’re capable of bringing that little bit extra to the role, but they will also help you with things like selling yourself to potential clients, and negotiating pay rates.

Making The Transition

When you’re making the transition from permanent employee to contract worker, it’s important not to rush the process.

You’ll need to make sure you give your employer the right amount of notice, and ensure that you’re not going to be breaching any clauses within your contract that prevent you from working in a particular sector.

Unless you’ve got some money saved up, don’t be impulsive and quit before finding your first contract as this could end in disaster.

Review Each Contracts IR35 Status

IR35 was introduced to prevent company having ‘disguised employees.’

If your contract work is subject to IR35 then the benefits of running as a limited company are reduced, and you may need to be registered under an umbrella company instead.

IR35 is a complex issue, so it’s best to seek professional advice to make sure your contracting career is compliant with all of the HMRC directives.

Conclusion

As you can see, there are a lot of things to consider before you can decide whether contracting or permanent work is best for you.

While contractors can earn more money for the same work, there’s also a lot more admin and paperwork that goes into working for yourself.

Despite the financial benefits, many people aren’t willing to give up employee benefits like bonuses, pensions and overall stability that a permanent position provide.

What side of the fence do you sit on?

 


 

If you’re an engineer looking for either contract or permanent positions then get in touch with one of our recruiters today - they’ll be able to help find the perfect job for you!