Contract vs. Permanent Employees (Explaining the Difference)

By Indeed Editorial Team

Published 15 November 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Many companies may have different types of employees working for them, depending on their industry and scale. Some projects last a specific duration or require specific skill sets for which a company can hire people on temporary contracts for the duration of a project. In other instances, a vendor may supply staff that carries out routine support activities on the premises of a company. In this article, we explore contract versus permanent employees and the different types of contract employees a company has, with explanations to help you understand them when you're searching for jobs.

Differences between contract vs. permanent employees

Contract versus permanent positions usually have different employment features that are laid out in a contract or offer letter. Below are some of the differences between contract and permanent employees:

Perks and benefits

Permanent employees typically receive many benefits from their company, such as insurance coverage, retirement plans and stock compensation. Contract employees can receive benefits through a vendor that provides contract employees. If the contract is directly through a company, then there may be limited access to some of the benefits that a company can provide. In such instances, a different set of regulations and benefits may apply.

Access to company resources

A permanent employee typically has access to most company facilities, such as the cafeteria or recreational facilities. Permanent employees are also often provided internal career opportunities, training and development and reimbursement for business expenses. A contract employee is usually provided access to specific company resources relevant to their role or if it's mandated by law, such as access to essential facilities on the company's premises. They usually don't participate in company events and often work remotely without having access to a company's office.

Flexibility in the work schedule

Permanent employees typically have a set schedule and usually receive their schedule in the offer letter. This can allow them to create a routine and manage the time they spend at work. In some cases, they may have some flexibility, such as when working late hours. For working out of office hours, they usually receive compensation. Contract employees can have more flexibility in their schedule and may receive compensation strictly for the hours they work on a daily basis. They also have the option to customise their schedule if it also meets the needs of the project and the company.

Paid leave

Permanent employees can typically take paid time off for various reasons. Leave policies usually include annual leave, sick leave and maternity or paternity leave, in addition to statutory public holidays. Contract employees may either be given limited time-off days or none at all as they're billed for the hours that they work. They usually enjoy the minimum statutory leave amount and can receive compensation for those days.

Different types of contract employment

Here are some of the different types of contract employees that companies hire depending on the nature of the work or project:

Full-time contract employee

A full-time contract employee may work regular office hours, which can be the same or similar to that of a permanent employee. They can share some benefits of a permanent position, such as paid leave, access to office facilities and a long period of employment, or in some instances, an indefinite period of employment. They also often have flexibility in their work schedule and the possibility of converting to a permanent position. They usually receive compensation only for hours worked, unlike permanent positions that have a fixed salary that they receive on a monthly basis.

Part-time employee

A part-time employee works for only a fraction of the hours that a permanent employee typically works. Part-time employees receive compensation that matches the nature of the work and the number of hours that they work. Part-time employees are often compensated on an hourly basis, but some companies offer a weekly or monthly fixed salary if they have fixed hours. Depending on the company, a part-time employee may receive some perks and benefits other than statutory benefits, such as insurance or paid leave for specific purposes. Part-time employees can have more flexibility in their schedule depending on the nature of the work.

Temporary employee

A temporary employee is someone a company hires on the basis of a temporary requirement. Temporary employees typically work on a fixed schedule and the contract may last from a few days to several months, depending on the nature of work. Companies may hire a temporary employee to replace a full-time employee for a short duration or to provide seasonal opportunities normally not available during the rest of the year. Temporary employees can use this opportunity to understand a business and can choose to work for multiple businesses to explore their career options.

Freelancer

A freelancer is someone who provides their expertise and skill to fulfil a particular task, service or project. A company may hire a freelancer as a consultant for a specific project. For the company, this has the advantage of saving costs on hiring a permanent employee, as contract employees have fewer employment requirements. Freelancers can maintain a flexible schedule and can provide their services to multiple clients. Some freelancers work under agencies that can provide some benefits often provided for full-time employees.

Related: What Is Freelancing?

Intern

An intern is usually a recent graduate or often active students who're looking for industry exposure which can be a part of a course. Interns typically fulfil entry-level responsibilities within a company that gives them industry knowledge about a particular career path. A company may provide a fixed stipend that's usually paid monthly or at the end of the internship. Companies may convert interns to full-time or part-time positions, thereby saving costs instead of hiring a candidate with more experience. Interns work limited hours, as they usually balance their academic commitments with getting industry exposure.

Related: What Is an Internship and How to Get One Successfully

Advantages of contract vs. permanent employment

Below are the advantages of choosing to be a contract versus permanent employee:

Contract employment

Here are the advantages of being a contract employee:

  • Choice of work: Contract employees can usually pick the kind of work that matches their interests and skills. Some projects may require niche skills and knowledge where a contract employee may be more beneficial, especially for short-term projects.

  • Growing connections: Being a contractor can allow you to network and build many connections as you may work for multiple companies. You can leverage these connections in the future to find more opportunities either for contract or permanent positions.

  • Improve skills: As a contract employee, you can work on different projects on the basis of your expertise. Working with a variety of projects enables you to acquire diverse experience and improve your skills and knowledge that become valuable for future opportunities.

  • Choice of work environment: Contract employees can work in a variety of environments that suit their working style and the needs of the company. Contract employees often have more flexibility with many working remotely in the comfort of their home or even in a different country from their client.

  • Potentially convert to full-time: In some instances, depending on the quality of work and value of skill sets and knowledge, contract employees can convert to permanent positions if the company desires it. It usually takes time, effort and experience to potentially convert to a full-time or permanent position.

Related: Contract Employment: Definition, Benefits, Disadvantages and an Example Contract

Permanent employment

Here are the advantages of being a permanent employee:

  • Career advancement: Permanent employees can receive promotions or even change their role through internal opportunities. In addition, they also often have access to internal learning and development opportunities that add value to their role and their career aspirations.

  • Stable work schedule: Most permanent positions come with a stable and predictable schedule that can allow employees to create routines. Having a set schedule can allow you to manage work and key deliverables effectively while also enjoying your personal life.

  • Insurance: Companies usually provide insurance options to their permanent employees that may provide coverage for family members as well. In most cases, the employer shares the cost of the insurance premiums on behalf of the employee.

  • Paid leave: Permanent employees receive a certain number of days as paid leave that covers sickness, parental and personal leave. The company decides how much leave an employee gets and how much they can carry over if they don't use them in a given year.

  • Job security: As a permanent employee, there is no end date to your employment, which provides a sense of security. Receiving a monthly salary and bonuses on a timely basis also provides financial security.

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