Contractors vs Permanent Hires - What Works Best?

One of the eternal (or at least burning) questions for hiring managers is, 'Should I hire permanent employees or contractors?' It's an important question to ask before you begin recruiting, but it also helps to know the pros and cons of each. 

Budget, surprisingly, should not be your only consideration. To make the right decision about the role type, you must weigh up all the other influencing factors, such as scope, the state of the market and the rate of growth your business is experiencing or gunning for. 

In some situations, permanent hires can save you money, and in others, contractors are by far the best option. As economist Thomas Sowell once said, "There are no solutions, only trade-offs", and the same could be said for determining your job types. 

Let's take a closer look at the reasons for hiring permanent employees and contractors -  and how to make the best call for your business every time.

Reasons to Hire Permanent Employees 

If you're aiming to build long-term stability and hopefully some loyalty within your organisation, permanent employees are often the way to go. The further up the food chain you're recruiting for, the case for making the role permanent will be harder to ignore. 

Here are points to consider for permanent hires:

Building a Brains Trust

How much institutional knowledge does your organisation need to build or retain? Which areas of the business will benefit from having someone in place for a couple of years? When an organisation stabilises after a period of growth, it's sensible to shore up teams with permanent employees who will be your pillars. 

Skills development can also be more effective, as permanent employees are more likely to be motivated to upskill and put those new skills to use in your business. 

Loyalty and Engagement

With a stable, permanent team, there is less of a 'musical chairs' vibe within the organisation and more cohesion, which is an underlying factor in employee morale. 

Permanent employees have more reasons to invest in your company's goals and culture. If your organisation is focused on developing and moulding talent from within, it makes sense to hire people on a permanent basis.

Project Continuity and Risk Management

Sometimes, minimising compliance risk or avoiding disruptions are priorities that will rank higher than fast growth or other commercial metrics. Projects like cyber security overhauls, cloud migrations and ERP upgrades need additional layers of accountability and reliability. 

With permanent staff, there is less need to worry about mid-project disruptions due to a contractor reaching the end of their term. 

They can build long-term familiarity with your systems, tools and processes, which reduces risks for critical workstreams in the form of knowledge gaps or delays.

Why Hire Contractors?

On the flip side, contractors remain your best bet for overall agility, which is why the tech industry has used them for decades. To elaborate: 

Time of the Essence

Hiring tech, digital or IT contractors is the fastest way to access skills without training people. In many cases, there just isn't enough lead time to train a junior employee. Add in a sudden curveball like a resignation, and it's easy to start feeling desperate. When engaged through a reputable tech recruitment agency, contractors are pre-vetted, know their work inside out, and will hit the ground running.

Skills Gaps Need Plugging

On a related point, contractors are the perfect solution to skills shortages within a team. The reality is that some permanent roles can go unfilled for longer than expected. Instead of leaving a position unfilled and raising your stress levels through the roof, you could engage a contractor for 6-12 months while everyone else gets their bearings. 

Budgets Are Uncertain

In a weak market, headcount costs require careful handling. It might not be appropriate to give your permanent teams a number 2 buzzcut at the first sign of trouble, but staffing flexibility is vital for business survival. 

And, if you're a high-growth New Zealand tech business with a workforce that is partly offshore, you're likely to be feeling the sting of increased wage costs. Average global salaries have increased in most tech domains, including HealthTech (4.1%), IT Services & Support (2.3%) and FinTech (2.5%), so wage pressures are an ongoing challenge to manage. Hiring contractors is the sensible solution.

Hiring contractors allows you to classify their costs as operational expenditures (OPEX), improving your cash flow and potentially offering tax advantages. Without significant upfront hiring investments, your organisation can stay agile during a volatile period.  

Workloads Are Fluctuating

When your most immediate concern is a one-off project with a relatively short timeline, or you just don't have the workload to justify a permanent hire in a particular area, contractors can help you meet deadlines without over-committing.

Factors to Weigh Up Before Making Your Decision

Making the call between permanent and contract hires isn't always black and white. Here are some key considerations to guide you:

1. Scope of the Role

   Does the job require ongoing oversight, or is it tied to a specific deliverable?

2. Market Conditions 

   If your target area is experiencing a skills shortage, you might have more luck finding a contractor than a permanent hire.

3. Budget and Forecasting

   Contractors often cost more per hour, but they can save you money by reducing long-term obligations like leave entitlements and superannuation.

4. Growth Goals

   If you're scaling fast, you might need a mix of permanent staff for stability and contractors to meet fluctuating demands.

Why Not Both?

For most organisations, a mix of permanent employees and contractors is an approach that works. At the end of the day, the choice between permanent and contract hires will depend on your organisation's unique needs and challenges.

Find Dedicated Tech Recruitment Expertise 

Still trying to decide which way to go? Talk to a New Zealand recruitment agency that speaks the language of dev, product and data specialists. At Digital Garage, contractors are one of our core specialties - we've supported hundreds of organisations in finding skilled contractors who love their work. Drop us a message or give us a call to chat about your requirements and the best solution for your team.