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What’s the difference between a contractor and a permanent employee?

By 24 April 2015No Comments

For many of us, at some point throughout our working lives, we will be confronted with the option of a contract or permanent staff position. Many don’t understand the difference between these two types of employment, let alone have the ability to judge what is best for them.
As with all things, there are Pro’s and Con’s with both contracting & permanent employment, this will greatly depend on your career of choice as to which option may better suit you.
Most project based roles such as; qualified mechanical engineers, I.T. consultants, project managers, etc. usually run employees on a contract basis – so if your skills fall into these major project based roles, contracting could be a good option for you.
On the other hand, if you are an accountant, solicitor or qualified in a similar corporate profession, contract roles are rare in such professions – in this case permanent positions are usually more suited to you. Majority of the time your role (contract or permanent) will also depend on the employer and what they are looking for.
There are a variety of reasons why you may choose either option, but here we have collected a series of Pro’s and Con’s for each position, if you have any further questions, the team at Pendragon are always happy to help and discuss in further detail.contract-or-permanent
Contractor Pro’s
• Opportunity to work with various employers gaining skills/experience and adaptation skills quickly
• Flexibility: If you don’t like it you can leave (given that your contract allows it)
• Higher rates of pay compared to being an employee
• You have more choices: you can decide on your location and type of work
• Ability to travel nationally/internationally
• Opportunity to work with a company before commitment – “try before you buy”
• Keeps your options open if a new opportunity arises and you wish to leave a role quickly
• Opportunity to be your own boss – Pty Ltd (Tax benefits to contracting Pty Ltd)
• You’re knowingly employed with a certain set of skills, so you won’t be required to learn/use different software.
Contractor Con’s
• There are certain risks associated with contracting, i.e. finding a new contract may take some time.
• No job security – if the employer decides to terminate a contract role
• Contractors are typically not paid overtime / penalty rates, and are NOT entitled to any paid leave
• Very few contractors are offered training or rate reviews
• Contracts do not offer career progression and this is something you can get as a permanent employee
• If you are a Pty Ltd company your responsibilities will include:

  •  GST
  • Your own Public Liability insurance
  • Your own Superannuation
  • Your own Workers Compensation insurance
  • Your own Professional Indemnity Insurance
  • The ATO requires compliance to various regulations including the 80/20 rule and compulsory advertising


Employee Pro’s
• Job security & stability
• The ability to be considered part of an organisation, rather than being a “temporary fix” or “short term addition” to the team
• Permanent employees are more likely to be offered training and career development opportunities
• You know your monthly income, number of holidays, additional benefits, off sick pay and so on. Knowing this in advance can largely reduce stress
• Guaranteed salary week to week
• Permanent employees are entitled to redundancy or pay out on completion of a position
• Paid entitlements

  • Holiday and sick leave
  • Personal leave
  • Long service leave
  • Paid maternity leave etc.

Employee Con’s
• Employees are not paid at the same rate as contractors
• There is usually a low or no pay rise
• Employees are usually required to give at least 4 weeks’ notice to terminate their employment
• A permanent employee can still lose their position if the company makes changes, such as restructure etc.
• Change of technology: you may take on a permanent role while specialising in their technology, if the company then moves servers or software, you potentially lose your years of experience & are forced to get up to speed. You’re options are to accept or leave.


In conclusion, you can keep thinking of Pro’s & Con’s based on the topic, but in the end, this subject is complex and it largely depends on individual cases.

All information is sourced from the Fairwork Australia & Connect Websites

Purnima Kabra