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There are two main ways to hire someone to work for your organization: through permanent recruitment or under a fixed contract. It’s important to understand the differences as well as the pros and cons to make the right decision for each hire.
What Is Permanent Recruitment?
As the name suggests, permanent recruitment means a company hires a worker for the foreseeable future — there is no end date on the contract. This is the traditional way to hire employees and remains the standard today. It’s a logical option for many employers, as businesses always need workers to operate. Plus, workers often like the arrangement because it means they have stable employment.
In addition, permanent recruitment typically comes with benefits for employees. Some benefits may be required by law, whereas the company may decide to offer additional benefits (or better benefits than the minimum required) to make the position more attractive to candidates and retain employees. It may not be a requirement to provide contractors benefits — although this depends on the country.
Differences Between Permanent Recruitment and Contracts
- Set end date and duration. The length of a fixed contract may range anywhere from a couple of weeks to several months or even more than a year. Companies usually choose contracts over permanent recruitment when they need workers for projects rather than for ongoing operations.
- Compensation structures differ. In permanent recruitment, employers typically pay workers an annual salary. In contrast, contractors typically charge either an hourly or daily rate.
- The type of talent hired also varies. Permanent recruitment is suitable for all experience and skill levels. Employers consider candidates on the basis of a broad set of skills as well as other qualities they want in a hire. Contracts, however, are more common for experienced professionals in a specific field — employers put an emphasis on particular skills and qualifications.
- The employer-employee relationship is distinct. Whether an employee has a permanent position or a contract impacts their connection to the company. Permanent employees are more likely to want to grow in the company, whereas contractors are responsible for their own career development and often look for further opportunities outside the organization. Some contractors may have the opportunity to become permanent employees, but this depends on the type of work and the changing needs of the company.
The Past, Present, and Future of Permanent Recruitment
Until recently, most workers entering the job market expected to receive permanent contracts and to remain working under such a system for the entirety of their careers. However, changes in the world of work have meant that contractors are more suitable than permanent employees in many circumstances. Contractors fill a variety of short-term needs and skills gaps that don’t require full-time workers.
Although permanent recruitment is still the norm, contracting is becoming more important in business — and will likely play an even greater role in the future. An NPR/Marist poll found that 20% of workers are now contractors. Some of the reasons for this include:
- Companies are realizing they need to be agile — something that contract work gives them.
- Contracting may fill an immediate need for talent while the employer searches for a more permanent solution.
- Depending on the type of work the company needs, contracting may cost less than permanent recruitment. Plus, it may be more lucrative for workers.
However, the rise in contracting has led more countries to introduce regulations, both to protect workers and to ensure workers are paying appropriate taxes. Examples include IR35 in the UK, the Contract Work Hours and Safety Standard Acts (CWHSSA) in the U.S., and new restrictions in the Netherlands. These may diminish advantages of contracting (both for employers and for the workers themselves).
Advantages of Permanent Recruitment
There are numerous reasons why many employers still favor permanent recruitment for the majority (if not for all) of the positions at their companies.
Continuity
Permanent recruitment is ideal for ongoing activities at a company. It is particularly suitable when the employee’s goals align with those of the organization, as companies can prime employees for internal promotions.
Consistent Work
Having the same employees over an extended period also means you receive a consistent standard of work. This is important for brand image, quality control, and avoiding issues with productivity.
Loyal Employees
When you offer permanent positions, you gain interest from candidates who will want to stay at your company for the long term. This helps you build a team that understands the processes and goals of the company. Plus, employees will likely feel an affinity for the company, which will mean they are more motivated to help you achieve great results.
Cost Effective
Permanent recruitment is cost effective, provided the company does need continuous work from the employee. You’ll gain better returns from employee training (including if you decide to invest in upskilling) and see greater productivity due to employees knowing what you expect of them.
Company Culture
It’s easier to ensure you develop the company culture you want when your team remains the same over long periods of time. In contrast, company culture doesn’t have the chance to develop if there is regular turnover.
Innovation
The engaged employees you gain through permanent recruitment go beyond performing the duties in their job descriptions, helping the business grow. As they learn about the company — and the industry as whole — they may have ideas that could help you solve problems, enter new markets, or become a more powerful competitor.
Disadvantages of Permanent Recruitment
It’s equally important to consider the potential downsides of permanent recruitment to determine if a contractor would better suit your needs.
Employees Receive Benefits
Permanent employees are typically entitled to a number of benefits. Depending where they are based, these benefits may include:
- Paid time off
- Sick leave
- Health insurance
- A pension
- Parental leave
Contractors, on the other hand, may need to receive fewer or even no benefits.
More Legal Requirements
In addition to benefits, there are other legal requirements to meet. Of course, this applies to contract workers as well. However, like with benefits, the requirements tend to be stricter for permanent recruitment. For instance, there are laws around discrimination, probationary periods, and the circumstances when you may fire a worker.
Higher Recruitment Costs
Although permanent recruitment is often a cost-effective option, the recruitment costs will almost always be higher than contracting workers.
Longer Recruitment Process
It also takes longer to hire someone through permanent recruitment than to contract a worker — this is the main reason why recruitment costs much more than contracting. The company will need to assess applications to choose candidates to interview, after which there are often several rounds of interviews as well as background checks.
Such a time-consuming process may cause problems if you need to fill a position fast — but it’s also important not to rush the process because you don’t want to make the wrong decision. In contrast, it may take just days to contract a worker, especially if you choose talent that is pre-vetted by a staffing agency.
Mistakes Are Expensive
Even experienced hiring managers make mistakes. A candidate may look great on paper and interview well — but you may discover the hire is not the right fit for your company once the person starts working. If the permanent contract includes a probationary period (which is only possible if this is allowed where you’re hiring), you’ll have a short amount of time to come to a final decision. After the probationary period, though, firing an employee becomes expensive. You’ll likely need to pay severance and may face a lawsuit if the employee disagrees with your decision.
Difficulties Scaling
Permanent recruitment assumes the workload for the employee will remain consistent — but this isn’t always the case. Suddenly needing to scale up may mean workloads increase for your employees, resulting in them needing to work overtime more often (which comes with an added expense for you).
On the flip side, if you need to scale down, your options include downsizing or assigning employees less work (although you’ll still need to pay them their regular salaries).
Employee Turnover
Although it’s called permanent recruitment, this just means there is no set end date — a position is never truly permanent. When an employee moves on (whether this is due to a new opportunity your organization can’t compete with or retirement), you’ll need to fill the gap. If the employee has been at your company for many years, it will take time to bring someone else up to the same standard, as no amount of knowledge will compensate for the lack of firsthand knowledge working in the role.
Workers May Prefer Contracts
Whether workers consider permanent recruitment or contract work to be better often comes down to personal preferences. In particular, though, some highly-skilled workers may prefer to work on a contract basis, especially if it means they’ll earn more — which may be the case if they’re working on several projects at once. If you’re only looking for permanent recruitment, you’ll miss out on this talent.
Which Is Better: Permanent Recruitment or Fixed Contracts?
There are a large number of both pros and cons of permanent recruitment. This makes it difficult to say whether it is a better option than contracting workers. Ultimately, the right choice comes down to why you need the talent and your priorities — such as whether long-term loyalty and the development of a strong company culture matter more than flexibility and access to a specific set of skills.
How to Hire for Permanent Recruitment
To hire someone for a permanent position, you’ll either carry out the entire process in-house or go through a recruitment agency. Regardless, the steps are much the same — the difference if you use a recruitment agency is there will be less work for your staff.
1
Announce the Open Position
The position may be open because a current employee will be leaving or because your company has decided it needs to create a new role. Whatever the case, the first step will be to announce the open position and create a job posting. Your company may decide to list the position on its internal career site, on external job boards, or on social media.
2
Assess Candidates
After publishing the opening, your company should start receiving job applications from candidates. The hiring manager or recruiter will assess resumes to determine which applicants may be suitable for the job depending on their experience, qualifications, career goals, and values. Those who meet the criteria will move through a pre-screening process, which will create a shortlist of the most qualified candidates. These candidates will receive an invitation to an interview.
3
Interviews
Your recruiter will schedule the interviews for you (if you’re using one), but the hiring manager will be the one to carry out the interviews. There may need to be multiple rounds before the hiring manager is able to come to a decision.
4
Offering the Position
The hiring manager will offer the position to the candidate who seems to be the best fit. Before finalizing the offer, the candidate may want to negotiate the salary and benefits, which the candidate will do with either the hiring manager or the recruiter. If both parties arrive at an agreement, the candidate will sign a contract.
5
Onboarding
The hiring process continues into at least the first few days of employment through onboarding. This involves completing paperwork, being available to answer any questions the new employee has, and monitoring the employee’s progress.
Tips for Ensuring You Make the Right Choice of Hire
One of the biggest risks with permanent recruitment is picking a candidate who turns out to be unsuitable for the job. Even if you discover this during the probationary period, you will have wasted time and resources on onboarding and training the worker. Plus, you will have turned down other qualified candidates who may have been a better fit — and who may now be working for one of your competitors.
To ensure you make the right choice from the start, there are a few things to do.
Understand What Skills Candidates Need
Clearly define the role before you start searching for applicants. It’s important to spend time at this stage even when you’re replacing a current employee because the needs of your company may have changed since you made the previous hire.
Think about the employee’s regular responsibilities and what you hope to achieve in the long term to determine what qualifications and skills you need from a hire. Also consider what would be useful but is not essential. Make it clear what you are looking for in your job post.
Provide Detailed Application Forms
Avoid bringing applicants to the interview stage who would be a poor fit for the position by filtering them out in the application stage. Always ask for more than a resume — with a detailed application form, you can dig deeper into the applicant’s skills, achievements, and personal qualities.
Consider Company Culture
Go beyond considering qualifications and experience by thinking about how the applicant would fit in your team. Ask applicants about their motivation for applying for the job and their values to decide if a person matches your company culture.
Request References
Candidates may give perfect answers because they know what you’re looking for in an employee. However, it’s actions that matter, not words. Find out if a candidate will live up to your expectations by requesting references from past employers — and verify that the person has indeed worked for the employer.
Provide Tests
Another way to assess candidates’ skills is to provide them with tasks to complete. Depending on the role, this could be practical tests they do during the interview or an assignment they complete at home to present at a subsequent interview.
Involve Multiple Team Members
Having more than one person interviewing candidates reduces the risk you’ll make an inappropriate choice because you’ll have the input of other team members who also know what the company needs. Involve people who will be working directly with the new employee in different capacities to gain a range of viewpoints.
Hiring International Workers
Whether permanent recruitment is possible for workers based abroad will depend on the labor laws of the specific country. To make things as uncomplicated as possible, your best option is to use an employer of record (EOR) that operates in the country where you want to source talent.
The EOR will employ the worker on your behalf, handle any legal requirements (such as benefits and work permits), resolve any disputes between your company and the workers, and even provide HR services like payroll, onboarding, and performance management.
To build a team of workers around the world, you need an EOR with connections and experience in multiple countries. Look no further than Remote People.
We’ll help you develop a team of local, outsourced, or remote workers that suits your needs. Plus, we charge up to 40% less than a standard EOR.
Author: Susan Snipes
Susan is an experienced, certified HR and compliance professional who provides HR and compliance strategies to companies with global and US-based teams.