Benefits of hiring Permanent vs Contract Employees

Building a good team is cited as one of the most challenging aspects of managing an organisation. Most businesses’ success hinges greatly on a highly productive and diverse workforce that can communicate, cooperate, and innovate in an atmosphere of mutual trust and respect. To do so, companies must first understand the difference between the most basic hiring options – Permanent and Contract Employment.

Permanent employees are typically in charge of core business functions and thus, are long-term investments for the organisations. On the flip side, temporary employees, are able to support short-term projects and serve as a flexible solution for fluctuation in manpower needs.

By understanding the advantages of the two most common employment types and the situation that calls for it, companies are able to make better strategic manpower planning that can not only maximise the organisation’s resources but also bring the company to greater heights.

Are you an employee deciding between a permanent and contract role? Find out more from the perspective of an employee here.

Definition – Permanent and Contract Employment

Permanent Employment

A permanent employee refers to a worker who is hired under an employment contract that does not have a predetermined end date. Employees hired under such contracts are entitled to the full range of statutory employment rights, and the contract will be ongoing until terminated by either the employer or employee. Such employees typically receive a monthly salary and work a standard day – for example, Monday to Friday from 9 am to 5 pm.

Contract Employment

Contract employees, also known as Temporary Employees, are hired for a predetermined period. In certain situations, the contract may not include an exact time-frame, but will instead end when a specific project has been completed or fulfilled. Such employees are usually paid an hourly rate and do not work a standard day or week.

*Contract employment here does not refer to an independent contractor.

For more information on the types of employment options in Singapore, click here.

Advantage of hiring Permanent vs Contract Employee

1. Level of commitment

As permanent employees tend to stay in a company for at least 1 year or longer, most have the opportunity for career progression and promotions. Hence, they are more invested in their jobs and put more time and effort into what they do. This could possibly translate to a higher efficiency level and better work performance.

On the contrary, contract employees are less committed to a job since they are only looking to stay in a company for a short period of time. Some may even be juggling a few different jobs concurrently. It takes the management team more effort to foster a culture of commitment amongst such workers.

2. Better teamwork

On the same note, permanent employees tend to be able to build better rapport with the existing team as they spend more time working together in the office. A high functioning team is proven to be able to achieve incredible results, and it is not just incrementally but exponentially better than an average team where members lack camaraderie.

While contract employees may find it more challenging to develop friendships with members of the existing team as they spend lesser time working together. The lack of teamwork might cause a slight reduction in their productivity level but with proper onboarding process and the conscious effort from all workers, rapport can still be developed with time.

Advantage of hiring Contract vs Permanent Employee

1. Cost

Permanent employees are always more expensive to hire than contract employees in absolute values. This is only natural as permanent employees have longer working hours and they are entitled to more welfare and benefits such as training, medical, and travel allowance.

On the other hand, since contract employees only work for an agreed period of time, which in most cases, is less than the usual 44hrs/week of a permanent employee, their remunerations are relatively lower. Companies are also not obligated to provide benefits beyond the basic requirement for contract employees. Therefore, the cost of hiring these workers is lower.

2. Short term shortages in manpower needs

It is common for businesses to experience seasonal demands or a sudden spike in manpower needs due to the successful signing of a huge project. In such cases, organizations rely on contract employees as a solution to manpower shortages. Since such employees do not require as much time and resources to hire compared to permanent employees, they serve as a flexible and cost-effective option. This allows companies to hire on-demand and manage their resources more effectively.

3. Hedge against bad hires

Having to deal with the fallout from a bad hire is one of the most challenging and detested tasks. Bad hires are not only costly but also creates tension and dent team morale. As such, hiring managers maximize their chances of avoiding such pitfalls with the Contract-To-Hire employment option. This is a type of contract employment where companies hire an employee on a temporary basis, with the possibility of being brought on as a permanent employee at the end of the contract. Such an arrangement allows companies to test out candidates’ capabilities and culture fit before making a permanent employment offer.

In comparison, the permanent employment option is a huge and long-term investment. Due to the contractual terms, it does not offer such flexibility. Therefore, many companies are switching to contract employment as a testing ground before converting suitable candidates to permanent employees.

The best way to choose the right workforce combination is to first, understand the available options, and next, determine your company’s needs. Most businesses would employ a flexible workforce by adopting different combinations of types of employees. It is crucial to identify whether the work is project base with long or short-term possibility or it requires a stable and experienced employee to lead and grow the account. Such distinctions will help guide your decisions on the most strategic workforce combination that best suits your organization needs.