Fixed term contracts or day rates – which option is better for your business?
I’ve been recruiting into the interim and contract market for well over eleven years now (man and boy) and things have changed over that time. The interim market has changed even more since then, the day rate interim is becoming a rare breed with more organisations wanting to take on hires on a fixed term contract basis (FTC). The FTC route is often assumed to be the easier option for organisations, it’s seen as cheaper, you can guarantee a filled job for a certain time, and you’ll get an equivalent candidate for the time you need them and you can use the same hiring techniques as you do for a permanent hire.
However, when you really examine the realities of cost and output it may not be more cost effective to hire a fixed term contract. Let’s look at the arguments in detail.
Myth 1: Fixed term contractors are cheaper than a day rate interim/temp
You might think that paying someone £50,000 for 12 months’ work is cheaper than paying someone £250 per day for the year? One of things people forget are the hidden costs associated with a salaried role; car, bonus, holiday pay, sick days (did you know that an average Britain takes off 7 days a year in sick leave!), employer’s national insurance, office costs, pensions, training days, the list goes on and on. Taking these costs into account an average employee costs about double the actual salary so £100K + the recruitment costs. A day rate employee on the other hand works about £70,000 per year if you include the agency costs.
You also only pay the days the day rate employee actually works as opposed to effectively paying for your fixed term contract a year in advance.
Myth 2: A day rate temp may not stay for the full length of the contract
We all have the impression that candidates who work day rate are mercenaries and will move elsewhere if they find something that pays more. I agree that does happen but you can build in guarantees by paying a completion bonus if someone adequately completes the full length of the contract.
I think the fickle interim argument is a little defunct nowadays, most senior interims are professionals who know that their work is their reputation, and have chosen to be career interims as opposed to working as temps until they secure a permanent position. If they agree to a contract they usually see it to the end otherwise they will pick up a reputation they don’t need.
Myth 3: It’s easier to recruit fixed term contractors (I can use the same methods as permanent recruitment)
Yes, you can use the same process as recruiting a permanent person but I think you have to ask yourself who actually wants to work a fixed term contract? The nature of an FTC means that you will get professionals who are in between permanent jobs, cannot get a permanent job or are on a working holiday visa. You cannot offer them the security and neither can they to your organisation.
Employing someone on a day rate allows you access to a completely different market, interims aren’t candidates who can’t get permanent job but it is a lifestyle choice for most. This is a market who have taken a conscious decision to work on an interim basis, whether it’s a lifestyle choice, professional integrity, the variety or a number of different reasons.
Interims are a flexible resource to use them as you see fit whether it is to up-skill a team, take on projects, take the pressure off yourself or any other reasons. They are used to working in an environment where a job spec is not always present and their role is not clearly defined. You can usually expect an interim to hit the ground running and even perhaps help you define a future permanent role or skills gap in your team.
Myth 4: Interims are too expensive
A marketing interim will not help you do your finances, but you do not pay for an interim straight away. The agency will bill you on their invoice cycle and so you get the interim to do a job which you do not pay for straight away. When you take on a candidate who is a contractor you pay the agency the fee upfront, you don’t know how good they are until they start working for you. If they don’t work out or leave before their contract is up you’ve already paid for this person. You will need to pay for someone new if the role needs to be completed.
With an interim you pay after the interim has done that day’s work so you are paying for performance to a certain degree. Most of the time you will pay for the temp a month after they have worked. For a small business this is a great way to spread the cost of an employee, it is effectively getting interest free credit for employing someone.
Making the right choice for your business or team
From my experience of the interim market and speaking to clients and candidates alike I would say that there are few scenarios where an FTC is better than an interim. A good benchmark is to ask yourself if the contract is going to be longer than 12 months in length, if the answer is no or it is uncertain, then a day rate interim would be the best choice
Interims can bring a huge amount of experience into a business who would normally may not be able to support someone at that level. These interims can sometimes be a shot in the arm for business and their presence can still be felt long after they leave.
There are occasions where businesses do not consider the use of interims because of the disruption to the team and clients, but the cost of not having someone in that position maybe even greater. With these things considered why would an interim not be a viable option?
I’d love to hear thoughts from employers or professionals about this topic and if you have more questions do call me to have a chat.
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