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Hiring an Employee vs. Hiring an Independent Contractor

The recruitment landscape in the Philippines is changing. There are more freelance and contract-based workers today offering employers more options when it comes to recruiting talent.

The difference between permanent and contractual employees 

Permanent employees are those who are hired with no fixed or agreed-on end of tenure. Their employment ends only if the employee resigns, retires, is made redundant, or is fired. Permanent employees include regular employees, probationary employees, and seasonal employees.

Contractors are independent persons or business entities that render services to aid, sustain, and improve the operations of other businesses. Their tenure is typically limited to a certain period, as defined by their contract. Their tenure may end either upon completion of the designated project or at the end of a fixed term.

How permanent and contractual employment terms impact your business
  1. Employee-employer relationship

Ideally, permanent employees who work full time are able to embrace the culture and become engaged and loyal to the company’s mission. Team members who are treated well gains a sense of pride in their role within the company, which motivates them to do all they can to help move it forward.

Contractors, on the other hand, function independently from the companies that hire them. You can expect them to deliver on their contractual obligations, but likely not much else. They are motivated by the goals of projects or tasks they are hired to work on. 

  1. Talent and productivity

Hire permanent employees if you want a stake in their longer-term potential. Investing in training and development, whether on the job or through specialized courses and seminars, allows you to expand an employee’s roles in the future. At the same time, training and development show the employee opportunities to grow and forge a career within the company.

Contractors are excellent options for short-term, quick-delivery, and high-impact projects. The best freelance talent offers great value through their expertise. Outside of familiarizing themselves with their employer’s core business functions and goals, they do not require additional training and supervision. 

  1. Salaries and benefits

Hiring contractors often means paying a premium on their talent. However, while they demand higher rates, they don’t receive the benefits regular employees enjoy. Contractual work is limited, allowing companies to stay within budget while fulfilling requisites.

Full-time employees, on the other hand, enjoy the guaranteed benefits mandated by the Philippine Labor Code. (Read more about these in this blog post). They are also spared the tedium of financial housekeeping – paying taxes and contributions to social security, health insurance, etc. – because the office does these tasks for them.

  1. Engagement 

Contractors work within the life of a project or a task. They are expected to complete their obligations within an agreed-upon period and may be subject to penalties for delays or non-completion. These conditions often work to the advantage of the employer because contractors are likely to be highly focused on their assigned responsibilities.

Unless otherwise specified, you are under no obligation to retain the services of contractors once their contract expires. You can opt to outsource the same job to another contractor on succeeding projects. This arrangement allows you the flexibility to bring in talent with specialized skills anytime you want.

Permanent employees, on the other hand, ensure the routine consistency your operation needs. They eliminate the need to onboard contractors for every project. Keeping in-house staff also allows for the development of a strong organizational culture.

  1. Virtual workspaces

Are office space and equipment limitations a concern for your company? Traditionally, this scenario would call for a workforce comprising independent professionals – those who do not require to physically report to your office to deliver on their obligations.

In today’s cloud-enabled work environment, however, telecommuting enables employers to mobilize permanent staff to perform their roles remotely.