The differences between contract vs permanent work

By Indeed Editorial Team

Updated 24 November 2022

Published 9 May 2022

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.

There are several ways in which an organisation can hire an employee, as it all depends on how much work they have available compared to what the employee desires. Permanent employees are typically full-time, salaried positions. For shorter projects, an employer may decide to hire extra employees on a fixed contract to speed things along, which benefits the employee as they can explore other work-related opportunities, while the employer saves money. In this article, we explain the main differences between contract and permanent work and their benefits, both for employees and organisations.

Contract vs permanent work

There are distinct differences to note when comparing contract vs permanent work. Depending on the structure of the organisation, it may be able to offer either to an employee. Although some employees may decide that they prefer to work in one organisation for a set period, others might prefer the security of a long-term role. Regardless of the type, each also comes with its own set of benefits.

What is contract work?

Contract work for employees depends on a series of contingencies. This means that the organisation hiring them can fire them if they aren't performing as per the contract. For example, they may be consistently late or refuse to do the work that they're asked to do. Each contract differs according to the organisation offering it and the job type, meaning that a secretary and an HR officer working at the same firm receive a different contract. Standard contracts also contain employee benefits, such as how many holiday days or leave days they receive. There are a few different contracts that an organisation can offer potential employees:

Related: What is an employee contract? (Plus types and benefits)

Fixed-term contracts

One example of a contract typically offered by an organisation is a fixed-term contract. This gives fixed-term employees the same rights and benefits (with the same pay) that other employees in that same field receive, including protection against unfair dismissal. It differs only in employment length.

A fixed-term contract lasts for a couple of months, which is always specified within the contract, and usually involves an individual offering their services to assist with a project, though this isn't always the case. Fixed-term contracts are especially popular at Christmas or during other seasonal projects.

Related: Frequently asked questions about fixed-term contracts

Zero-hours contract

A zero-hours contract is the most casual contract offered by organisations. This is because it means that an employee is on call to work as and when the organisation requires them to, though they're not required to give them work if there isn't much available. A zero-hours contract means that an employee can choose whether to accept any shifts offered. Often a zero-hours employee juggles this work with employment at another organisation. Employers, by law, are now forbidden from preventing this. It's a common misconception that zero-hours employees don't receive the benefits that other employees usually receive. A zero-hours employee can still receive a certain amount of statutory annual leave per year.

They can also receive the national minimum wage, which increases by 6.6% to £9.50 from April 2022, as other types of employees are. Zero-hours employees may have the same health and safety protection as other types of contracted employees. Managers at the organisation handle these benefit packages on a case-by-case basis.

Related: The Pros and Cons of a Zero-Hour Contract

Agency contracts

Another type of contract that an organisation can offer employees goes through an agency. This typically means that the organisation pays the agency a fee for that employee's services, which includes the cost of the employee's National Insurance and statutory sick pay contributions. The agency becomes responsible for ensuring that their employee receives their rights according to working time regulations. The employer is still responsible for the health and safety of that employee though, as they work within their organisation. There's no fixed term for an agency contract, meaning that they can extend for as long as necessary.

Sometimes, an agency employee works within an organisation for 12 weeks continuously. For example, it's common for schools to replace teachers on their statutory maternity leave with an agency substitute teacher. When this happens, the organisation is legally required to offer them the same terms and conditions that permanent employees at that organisation receive. This means that they receive the same amount of pay, they work the same hours, they receive the same rest periods, breaks and the same amount of annual leave. The agency is normally required to ensure that their employee is receiving equal treatment.

Related: Guide: how do recruitment agencies work? (Plus benefits)

Freelance contracts

Freelance contracts also apply to external consultants and contractors. The organisation hiring these professionals becomes responsible for creating a working environment that fulfils the relevant health and safety criteria. These types of professionals (regardless of whether they're self-employed or part of an external organisation) handle their own tax and National Insurance contributions. Because of their differing contract, they may not have some employee rights, such as the right to earn the national minimum wage.

Related: Freelance Work: Everything You Need to Know About Freelancing

Benefits of contracted work

There are many benefits for employees working under a contract. For example:

  • Flexibility: As contracted work doesn't involve a permanent position within an organisation, it allows an employee to make time for other commitments, such as additional work somewhere else.

  • Experience: As contracted employees can sample other jobs, they're able to gain varied experience. Internships are the most common type of this work, meaning that an employee has a source of income to fall back on.

  • Pay: Depending on the role undertaken and the organisation offering contracted employment, you can earn equivalent or even better pay.

Benefits of contracted work for organisations

There are also a series of benefits to contracting work for organisations. For example:

  • Less management: When hiring experienced professionals on a temporary contract, an organisation doesn't provide as much management during onboarding, saving training costs.

  • Trial period: If an organisation hires an employee on a fixed-term contract, and the person doesn't perform, they can also fire them at the end of the pre-agreed period.

  • Path to permanence: If an employee excels within their role, an organisation can offer them a permanent role.

What is permanent work?

Permanent work differs from contracted work as it refers to a full-time (meaning that an employee works for a minimum of 35 hours per week), salaried position. It's one of the most popular employment types, as it provides a level of security both for the organisation offering this contact and the employee receiving it. This is because it ensures that the employee is on track to receive the minimum amount of statutory sick and holiday pay, that they're working in a safe environment, that they're entitled to maternity/paternity/adoption pay and that they get the minimum break.

Permanent work involves an employee working within an organisation long-term, so an organisation may subsequently change their business's premises if, for example, they have a disabled employee, so that reduced obstacles are limiting their performance. An employer is also required to ensure that employees aren't exceeding the maximum limit for legal working hours, as this is much easier to do in a permanent role. Depending on the organisation, there are opportunities to work overtime.

Related: What Is a Contract Employee? (With Benefits and Disadvantages)

Benefits of permanent work for employees

There are several benefits to an employee working permanently. For example:

  • Financial stability: Permanent jobs offer employees a fixed stream of income, meaning that there's a reduced sense of worry about when their pay is coming next. At Christmas, some employers may offer permanent employees a bonus.

  • Job satisfaction: Permanent roles also provide employees with greater job satisfaction, and they can build relationships with colleagues. They may also get the opportunity to work on different projects and improve their skills.

  • Benefits: Depending on the organisation, there may be money-saving benefits options that only permanent employees can sign up for.

Benefits of permanent work for organisations

There are also several benefits of permanent work for organisations. They include:

  • Easier to anticipate workloads: Permanent contracts help managers to understand employee productivity levels. This helps them to estimate deadlines.

  • Creating an impression of loyalty: An organisation that offers permanent contracts to employees is building an impression of loyalty. When an employer attempts to build a long-term relationship with employees, it can help reduce turnover rates.

  • Better scalability: Permanent positions allow employees to grow and improve themselves. By providing this opportunity, an employer can reap the benefits by scaling their business up to take on more diverse work from clients.

Related: What Is Strategic Management and Why Is It Important?

Please note that none of the companies, institutions or organisations mentioned in this article are affiliated with Indeed. Salary figures reflect data listed on Indeed Salaries at time of writing. Salaries‌ ‌may‌ vary‌‌ ‌depending‌ ‌on‌ ‌the‌ ‌hiring‌ ‌organisation‌ ‌and‌ ‌a‌ ‌candidate's‌‌ experience,‌ ‌academic‌ background‌ ‌and‌ ‌location.‌

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