Contractual vs Permanent Employees : Which suits your business needs?

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Contractual vs Permanent Employees : Which suits your business needs?


Hiring has always been a critical decision that involves determining between cost-efficiency, and business needs from hiring such person.  This hiring decision has become even more critical in current situation where the Covid-19 pandemic has taken a toll on businesses.  For most companies, business expansion plans have been replaced by business continuity plans.  While retrenchment is common, some companies are taking the current downtime to consider what are the talents needed for now, and in the longer term.  These include reassessing roles that might be filled by contractual employees, and prioritizing only hiring for most critical roles.


There is no doubt an increased in demand for contractual employees.  Whilst the benefits for hiring one can be great, companies must find a way to successfully manage the contractual employees.  When the number increases, it will become more difficult to manage.  Here are a few things that companies need to consider before hiring contractual employees.


Are there any positions or departments that are better suited with contractual employees?

With the current downtime, it is perhaps a good timing for business owners and HR to look at the company’s overall workforce and identify the positions and departments that could be better suited for contractual employees or even outsourcing partners.

Perhaps there is a sudden fluctuation in market demands, where contractual employees can be hired to meet the surge in volume of work.  This allows the company to continue business as usual without any external disruption.  However, there is always a time and knowledge gap for contractual employees before they can be fully functional and integrated into the company just like any permanent employees.  Training is required to be repeated for every new contractual employee that is hired.  This can perhaps be mitigated with better planning by hiring the same contractual staff each time, especially for meeting cyclical demands.

There could also be situation where there is a need for specific expertise or skills for special projects or to meet any one-time off specific requirements.  Hiring contractual employees allow the company to have access to experts or specialists in their field to fill the talent gap and tackle an area that the company is not able to manage in-house.  This also provides some flexibility on payroll budget as the contractual employee will only last a certain amount of time, and the company no longer needs to pay the person once the project is over or when work has slowed down.


How would the permanent and/or contractual employees fit into the overall business growth and strategy?

Knowing what both the permanent and contractual employees are capable of will no doubt help the company to save money and delegate tasks, and prevent excess or redundancies among the workforce.  But contractual employees are self-employed to certain extent, and are only working for the company for a fixed period of time (3 months, 6 months or 12 months).  They will typically have their own working methods combined from other companies or projects they have recently worked on.  This is different from permanent employees who will generally have enough time to be immersed in the company’s brand, working methods and culture to be able to deliver on-brand message internally and externally.

If the company is not sure whether a position is suitable for contractual role, or whether the contractual employee is good at their job, a contract to hire may offer an ideal and cost-effective method to assess it.  This means the contractual employee is provided with an option of a potential full-time position at end of the contract, based on performance and business needs.  This provides sufficient time for the company to assess and decide whether ultimately the contractual employee will be a good fit for the company and its overall strategy.

Further, there is always a need for the company to invest in training and mentoring new employees, whether it is a permanent or contractual employee.  Hence, permanent employee’s learning curve will serve as a long-term investment to retain and grow talents.  In turn, permanent employees will be looking at mapping out their future with a clear career progression plan to take on future leadership positions and play a key part in business growth.  Overtime, they provide stability to the company to implement long term plans and strategies.  This is as opposed to those who come and go as contractual employees, whom are far less likely to have enough time to fully immerse themselves in the company to feel connected.


Does the company have the capability to manage an increased number of contractual employees?

Once the company has identified the need of contractual employees and how it fits in its overall business strategy, the company needs to assess whether it is has the capacity and/or system to manage an increased number of contractual employees alongside with its existing pool of permanent employees.  The different pay rates, contract period and pay period will become more complex as the team of contractual employees grow.  There might be a need to hire a special HR personnel or invest in a system to help the company better organise its human capital, from onboarding and offboarding, distinguishing between permanent and contractual employees, as well as tracking performance and cost metrics.



Regardless of the decision to hire permanent or contractual employees, it is important for business owners and HR to start approaching the two hiring solutions with a new perception, and not to stereotype contractual employees as people who are unreliable or lack ambitions.  The reality is that both contractual hiring and permanent hiring each has its own benefits.  It is thus important for business owners and HR to learn and adapt in creating a hybrid workforce consisting of permanent and contractual employees to successfully manage and meet the company’s needs and overall strategy.

Bell Ward is a multiple award-winning specialist recruitment firm based in Kuala Lumpur, focusing primarily on mid to senior level positions within Finance & Accounting, Human Resources, Information Technology, Procurement & Supply Chain, Sales & Marketing and Shared Services.  Contact us to discuss more on your hiring needs.