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Contractors vs. Employees in tech: which to hire?

08/03/21 Laura Preston - CertRP Manager, Contract & Interim

Hiring the right team and having the requisite skills to execute the business plan is key to success. The job market has changed beyond recognition in the past decade, and especially in the last year during the pandemic. 

The high-tech industry has always been a large user of contract professionals and has recently become even more focused on the benefits of contract, project-based, or work package assignments. With pending changes to off-payroll working (IR35) assessment literally around the corner, it is this appropriate use of contract labour that will truly make a difference to many status determinations businesses will be making. 

Thus, choosing between contractors and permanent employees can a difficult decision. Hiring permanent staff may not always be the most suitable solution. Laura Preston, Manager, Contract & Interim at Redline Group outlines the pros and cons when it comes to tech industry hiring. Read on to find out more.

Contractors Pros and Cons

Pros

Short-term, on-demand skills

Contractors and consultancies work on short-term assignments, you can onboard them very fast. They will hit the ground running and deliver the expert skills desired when you need them – and be gone just as quickly when you don’t. With industry in flux during the pandemic, this is more important than ever.

Diverse work experience and specialised skills
Professional contractors and consultancies tend to be the go-to for specialised work, they’re usually hired for a specific skillset. Whatever niche assignment you need to complete, they spend many years undertaking it for client after client, giving them a wealth of knowledge and experience, meaning they can usually jump on the project immediately, with minimal training required, and execute. This is particularly useful in the high-tech and engineering sector, where technology moves at a rapid pace, and that up-to-date insight on industry trends and new applications is invaluable.

Cost-effective solution
Contractors cost more per hour or day than permanent employees, but potentially less overall. You don’t have to pay for their holiday leave, sick days, pension plan, insurance, training, and other employees’ program – and you don’t have to pay for them to sit around doing busywork when they’re not needed or whilst going through a learning curve. Recent studies have demonstrated you could save between 20- 30% by hiring a contractor to complete specific projects or assignments.

Available skills without cultural issues

For many businesses, culture fit is a powerful driver of business success. It is key to employee engagement, performance, and productivity. Employees who match the values, beliefs, and attitudes upheld in their organisation are identified as a priority at the hiring stage. Though contractors must get along with everyone in the team and business, they’re usually hired for a specific project and timescale so long-term cultural matches become less of an issue. 

Cons

They can’t be paid on salary and be expected to undertake discretionary activity.

Contractors take great pride in executing a project but are not usually expected to buy into the company’s long-term goals and values or work late evenings without being paid for the extra hours. Outsourced talent is likely to be less passionate about the company than an employee.

Availability
Want that great contractor back who worked on your last project? Unlikely – they’re probably executing another assignment with another client. But this is not different to a notice period for a permanent member of staff.

Higher initial cost
While hiring a contractor “pays for itself” eventually, there is no getting around the fact that you’ll be paying more upfront.

Maybe too specialised.
If you’re looking for a flexible jack of all trades (a broad mix of hardware and software skills, for example), you’re may better off seeking a permanent employee who you can train and develop in the long-term.

Permanent Employees’ Pros and Cons

Pros

Grow with your business.

If you want to grow your business, you need a core team of permanent employees who understand the technology road map with a deep knowledge of the products, applications, and organisational structure. However, this is a big investment of time, resources, and money, and there are no guarantee employees won’t take the knowledge gained elsewhere.

Vested interest

For permanent employees, your business is their career, and your success is their success. That means they are more likely to buy into an existing system, arrangement, company values and become team players.

Reliable
Because of this vested interest in the business, your permanent employees are more likely to step up and take on extra responsibilities in a crisis. We have seen heroic examples of this during the pandemic.

Cons

Training costs

Your employees won’t just grow all by themselves. You need to invest heavily in their training and development, especially for new hires, and it can be a long time before you start to reap the rewards. If you need expertise for a particular project, it can be cheaper to bring in a contractor than to train up an employee.

May be more expensive overall.
When you’re thinking about hiring a permanent employee, especially for a project, consider the hidden costs: recruitment, holiday leave, employee national insurance, pension contributions, etc., and paying for them to potentially sit around even when they’re not needed. A contractor or consultancy can be cheaper.

Risk of mismatches and the cost of hire
Finding the right employee is always difficult, even with the slickest recruitment process, using the best competency-based interview techniques and you may not get an accurate impression of a future employee (especially not over Zoom!) That means your expensive permanent hiring process could cost you a lot more than you expect. A report from the Recruitment & Employment Confederation (REC) found that although more than a third of companies believe hiring mistakes cost their business nothing, a poor hire at mid-manager level with a salary of £42,000 can cost a business more than £132,000 due to the accumulation of costs relating to training, lost productivity and more.

Low morale
Often not highlighted is the cost of a poor hire in non-monetary terms. Onboarding someone into your company who isn’t the right fit – due to their temperament, technical ability, etc. can have a severe impact on a team’s performance and the day-to-day function of the business. This could result in a fall in morale and higher staff turnover.


Conclusion

The perceived cost should not be the deciding factor between a contractor and permanent employee; what’s more important is whether the need is long-term or short-term, especially as each situation is unique.

If you’re hiring for a short or medium-term project (or a long-term assignment project you’re not quite ready to commit to), a contractor or consultancy may be the most cost-effective solution. For long-term needs, you might prefer a permanent employee, but a contractor can fill in while you’re looking for the right individual and they may even train the new hire when found.

For too long, many businesses have seen contractors as an easy replacement for permanent skills they cannot find. If you need a permanent employee and you are struggling you need to partner with better recruiters or be prepared to train, do not use contractors it’s expensive.

In conclusion, there is not a single right answer. Especially during the pandemic, every engineering and high-tech company generally needs a healthy mix of skilled, flexible contractors and dedicated permanent employees.

Hiring the best talent is key for any business to stay competitive whilst nurturing existing skills and developing new ones. Hiring permanent staff may not always be the most sensible solution to achieving those objectives.

To find out more about Contract and Interim solutions and how our Insurance Backed IR35 Assessment Tool can help your business, please contact Laura Preston on 01582 878823 or email LPreston@RedlineGroup.com