Contract Vs. Permanent

by Dennis Hartman; Updated September 26, 2017

Businesses can use different types of employees to meet their labor needs at a reasonable cost. Besides part-time and full-time positions, one of the major differences between types of employees are those who perform contract work and those who hold permanent positions. Each type of employment has its own benefits and drawbacks, both for employers and workers.


The key difference between contract work and permanent employment is the expected duration of the relationship between worker and employer. Contract work usually involves a set time frame, with the employer only agreeing to hire a worker for the duration of a project. Permanent employment is open-ended, with no formal or implied end date. Many businesses use permanent employees to form the core of their workforce and contract workers to fill in gaps or help complete special projects as needed.


The hiring process for contract workers and permanent employees is different out of necessity. When a business hires a contract worker it is more concerned with the worker's specific skills and ability to perform a task. With permanent workers, issues about growth potential and the ability to integrate into a team play a larger role. Contract workers draw their designation from the fact they they must generally sign a contract of employment that specifies the terms, including wages, and duration of the job. Permanent employees may also sign employment contracts, including contracts with set durations, but they do so with the expectation that strong performance will result in a contract renewal or ongoing employment without a contract.

Benefits for Businesses

Businesses can save money and employ a flexible workforce by combining types of employees. This reduces the number of idle employees when there is less work to do. It also lets an employer bring in an expert to complete a specific task without keeping that person on staff. For example, a construction business may contract with an electrician only when it takes on a job involving major electrical work or during the portion of a construction project that requires electrical wiring. This saves a business money since contract workers don't earn benefits or require the employer to pay payroll taxes, including unemployment insurance contributions.

Effects on Workers

Working as a contract worker is very different from serving as a permanent employee. Contract workers need to supply their own health insurance, retirement savings plans and savings for time off or periods of unemployment. However, contract workers are also free to work for many different employers in quick succession. Their special skills may allow them to earn higher wages than permanent employees, who enjoy greater stability but cost their employers more in terms of benefits, training and recruitment.

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