There seems to be a lot of confusion in the market on the differences between hourly rate and fixed term contract and what the better option is between the two. Before we break it down, lets understand the differences between the two.
Let me give it to you straight – comparing the cost side by side hourly rate contracts are more expensive than a fixed term contract. So why would you choose this option? I hear you ask - isn’t a contract just a contract? In short, no.
The key difference between the two is F-L-E-X-I-B-I-L-I-T-Y.
Fixed Term Contract
In a fixed term contract, you pay an initial upfront fee and the contractor sits on your payroll. In this situation, you hold all the “risk”. Should the contractor finish up sooner than expected for any reason, this fee is non-refundable and you would wear the cost. Not ideal.
Yes, there are benefits, being that the contractor tends to be more loyal to the business given that they are accruing leave and for all intents and purposes are a member of the team. This is generally a great option for 9-12-month contracts, such as a maternity leave cover.
Hourly Rate Contracts
Hourly rate contracts on the other hand are fully flexible. You only pay for the hours that the contractor works, therefore you don’t have to cover public holidays or sick days and they don’t accrue leave. Due to this, the hourly rate is slightly higher and therefore it isn’t always like for like in terms of salary for a full-time employee. This is a fully flexible option, which is great if you aren’t sure exactly how long the person will be required in the business or for short-term contract roles, between four weeks and six months. Examples of hourly rate contracts are extended annual leave, short-term projects, and handover management between a permanent employee and a recruit joining the business.
More recently, I’ve seen employers bring on candidates in an hourly rate contract during the probation period (4 – 12 weeks) and then transition them into a long-term fixed contract or permanent placement. It is a good opportunity for everyone to see if the fit is right before committing on a long-term basis.
In the last 12 months I have seen an uplift in the number of companies seeing the value of bringing contractors into their team. The great thing about contracting talent, no matter the method you choose to take, is that they can help you to manage an immediate need within the team to ensure productivity is maintained and goals are met.