Contractors vs Permanent Employees – Pros and Cons

Contractors vs Permanent Employees – Pros and Cons


Firstly, let’s define an employee

An employee is defined as someone who works part time or full time under a contract of employment for someone for a salary or wage on an ongoing basis.

A contractor is defined as

Independent contractors run their own business and contract out their services to other organisations at an hourly or daily rate and within a set time frame. 

Now that we’ve defined each, lets look at what some of the advantageous of each are bearing in mind I am specifically talking about working inside Australia.

Benefits of being an employee

  • Guaranteed superannuation contributions by your employer

  • Will have ongoing expectation of work

  • Minimal financial risk (this is the responsibility of the employer)

  • Leave entitlements – in Australia this is set at a minimum of 20 business days, 10 sick days, circa 10 public holidays however this will depend what state you live in

  • Feeling of being ‘part of the team’ – you are on the employers payroll after all

  • Additional benefits – Many companies offer additional benefits and incentives for employees. These can range from an annual bonus to other perks

  • Tax – has income tax deducted by employer

  • Work hours – Generally you will work set hours every week

Benefits of being a contractor

  • High degree of control over how the work is completed

  • More flexible hours

  • Earn more money – As a rule of thumb, contractors will get paid 20% more than employees

  • Test out a company – Being a contractor means you have the flexibility to pick and chose your companies

  • Be your own boss – Again, it all comes down to flexibility

  • Gain additional skills quicker – You will have access to a wider variety of projects therefore you will accelerate how quickly you build your skills

Now that we’ve taken a look at some of the key benefits for both employees and contractors, lets take a look at some of the downsides.

Disadvantageous of being an employee

  • Daily commute – Especially if you don’t live close to your office

  • Only having a set amount of holidays / leave to take per year

  • Company politics – this usually applies to larger or enterprise companies

  • Job stress – You’re under pressure regularly by your boss and other employees in the business

  • Scope of work – Often employees are limited to their job descriptions and have little room to branch outside of this scope

 Disadvantageous of being a contractor

  • Tax Liability – You have to keep records of all business expenses, as well as pay PAYG, company tax, payroll tax and any other applicable taxes. This is very time consuming

  • You only get paid when you work – This can be tough for people over downtime periods such as Christmas / New years. Make sure you have a nest egg for those slow periods.

  • No leave entitlements – This means unlike your employee counterparts, you will not get 4 weeks paid leave per year as well as sick days and public holidays.

  • No employee benefits – This can range from an annual bonus to other specific perks designed for employees only.

  • Credit – Although not impossible, It’s going to be hard to apply for a mortgage when you’re current contract is due to expire in 3 months. Take this into account when deciding if contracting is for you.

If we take into account all the above information, it’s really not as black and white as most people believe it to be. Sure as a contractor you will make more money (roughly 20% more), however this quickly becomes redundant if you’re out of work or between contract roles for an extended period of time.

In summary, there is no right or wrong and I strongly urge you to asses your own personal situation to decide what is best for you. You may want to seek professional financial advice before making the final decision.