Permanent vs Contract: Which path should you choose?
In the current boom job market, many tech workers are considering a move from traditional permanent employment to contract or temporary work. Contractors often make more money and have more flexibility than permanent employees, so it’s easy to see the initial appeal.
However, before you make the leap, it’s important to understand the differences between contract and permanent employees. For example, contractors have different tax obligations and aren’t covered by some employment laws, which could be an issue for some workers.
In this article, I’ll explain the key differences between permanent vs contract employment so you can decide which one is right for you at this stage in your life and in your career.
This info in this article is also summarised in our handy Contract vs Permanent – Key Differences guide, which is available for you to download.
This is the most common type of employee in the New Zealand tech sector. In fact, a recent search of IT jobs on Seek showed that 86% of advertised roles were seeking permanent employees, while only 13% were seeking contractors.
Permanent employees have the full set of employment rights and responsibilities. An employee is a person employed to do any work for hire or reward under a contract of services (commonly called an employment agreement). The hire or reward is almost always a wage or salary.
Employees have all minimum employment rights under employment laws (e.g. the Employment Relations Act 2000, Minimum Wage Act 1983 and the Holidays Act 2003), such as:
- at least the minimum wage,
- holiday and leave entitlements, and
- a written employment agreement.
Employees also have extra rights, like the right to take a personal grievance. The employer must keep employee records such as their employees’ employment agreement, and wage, time, and holidays and leave records.
Self-employed people are sometimes referred to as contractors, or independent contractors; these terms mean the same thing. A contractor is engaged by a principal (the other party) to perform services under a contract for services (commonly called an independent contractor agreement).
Contractors are self-employed and earn income by invoicing the principal for their services. A contractor pays their own tax and ACC levies.
Contractors aren’t covered by most employment-related laws. This means they don’t get things like annual leave or sick leave, they can’t bring personal grievances, they have to pay their own tax, and general civil law determines most of their rights and responsibilities. Businesses don’t have to hold contractor records.
Permanent vs Contract: Which One is Right for You?
It’s important to look at your lifestyle and career aspirations to see which employment type best aligns with your goals. Here are some key areas to consider.
Job Stability: Many people choose permanent employment for its stability. Contract employment is generally considered less stable since work can come and go in waves. In a boom economy like we’re experiencing now, there may be plenty of contracts to go around. But if things go quiet, you could go months without an income.
Many permanent employees also enjoy having a defined career path at their place of employment vs short stints at different companies.
Company Benefits: Permanent employees receive company benefits like insurance or stock options, which are typically not offered to contractors. Permanent employees also get holiday pay and sick pay. If these perks are important to you, permanent employment may be best.
Freedom and Flexibility: Contractors have a lot of freedom to choose work they find interesting and when/how to work.
And as a contractor, you are your own boss! So if you want to take a month-long holiday between contracts, go for it! Just remember – contractors do not get paid holidays.
Money: When comparing apples to apples, contractors generally make more money than their permanently employed counterparts. However, contractors also have some financial obligations that a permanent employer would normally take care of, such as paying income tax and ACC levies (explained in detail below). It pays to do the maths and take these extra obligations into account before agreeing to a contract rate.
Key Differences: Permanent vs Contract
These key areas are just some of the things to consider when deciding between permanent and contract employment. The charts below have more detailed info so you can make an informed decision.
And as always, give me a call at Techspace if you need advice about whether contract or permanent employment is right for you. I can find a job that meets your individual needs, skills and goals.