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Navigating the Shifting Workforce Landscape: Contract vs. Permanent Employment for Your Business

Posted on January 30th, 2024 Read time: 4 minutes

White puzzle with a piece missing that says Temporary revealing a red space below that says Permanent

In 2024, discerning the nuances between contract workers and your permanent, direct workforce will transcend mere compliance — it will be a pivotal element in strategic budgeting and planning.

For leaders navigating the evolving employment landscape, it’s essential to stay abreast of the transformational trends that are reshaping the way we approach workforce management. This period of change brings with it a spectrum of challenges and opportunities, underscoring the importance of informed decision-making in employment practices.


Emerging Employment Trends for 2024: Implications for Workforce Choices

Several employment trends are emerging in 2024 that could influence the choice between contingent and full-time workers:

Continued Popularity of Remote Work: The continued normalization of remote work is reshaping the workforce. Companies may lean toward contingent workers for specific tasks that can be effectively managed remotely and utilize permanent employees for roles requiring more direct oversight and company culture integration.

Technological Advancements in Recruitment: With AI and natural language processing becoming more prevalent in recruitment, businesses can more efficiently identify the right type of talent — whether contingent or full time — based on project needs and skill requirements.

Focus on Flexibility and Adaptability: The increasing demand for workplace flexibility might push companies to consider contingent workers who can be engaged on an as-needed basis, offering agility to respond to market changes.

Data-Driven Decision-Making: As data analytics plays a larger role in hiring, companies can make more informed decisions about the mix of contingent and permanent staff needed to meet their strategic goals.

Talent Shortages: In sectors experiencing talent shortages, contingent workers can be a valuable resource to fill gaps quickly without the long-term commitment associated with hiring permanent staff.

Generational Shifts: The influx of Gen Z, with their unique work preferences and expectations, may lead businesses to reevaluate their employment strategies, potentially increasing the demand for flexible, project-based contingent roles.

Compliance Concerns: Due to the continually evolving legislative landscape, forward-thinking businesses and HR departments will likely dedicate more attention to adhering to compliance regulations this year.

Hiring From Emerging Markets: Upwork and other online platforms that permit employers to connect with talent from anywhere in the world will continue to expand the global contingent workforce, opening up emerging markets to new opportunities.

Upskilling Employees: The introduction of generative AI and other technologies into the workplace has required employers to provide workers with the training needed to effectively utilize them.

Skills-Based Hiring: This new skills gap will make skills-based hiring more attractive to employers, most of whom already believe that this approach is superior to sifting through résumés.

With these trends set to define the upcoming year, it will be important for organizations to understand the difference between contract and full-time employment.

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Contract vs. Full-Time Employment

The legal and administrative aspects of employment types are critical components in your strategic and budgetary planning. From a legal aspect, a company owns the employment compliance and liability for its direct workforce. This can include compliance with wage and hour laws, workers’ compensation, taxes, employee protections, mandated leaves and benefits, etc. However, if it outsources the employment of its contract workforce to a third party, the third-party vendor owns the compliance and liability for this group of workers, mitigating risk and liability for the company.

Navigating these legal waters requires a keen understanding of the implications of each type of employment — and when each type is appropriate or necessary as part of a company’s overall strategic plan.

From a financial and administrative perspective, there are specific differences between contract and permanent employment.

Contract employment can present a lower financial burden for things such as benefits and employment costs. And if the employment of the contract workforce is outsourced, this could provide additional cost and time savings on the administrative oversight of employer responsibilities for a fluctuating workforce.

In contrast, a company’s permanent direct employee base comes with a continuous relationship that includes the full employer responsibilities for the financial cost of employment (taxes, benefits, paid time off, etc.), along with the complete administrative oversight and responsibility of payroll, tax withholdings and management, benefits administration, and more.

Understanding the financial and administrative implications of these different types of workers and how they can benefit or hinder a company’s bottom line is a critical component of strategic workforce planning.


Pros and Cons of Contracting vs. Permanent Employment

The pros and cons of contracting vs. permanent employment are varied. While contract workers offer unparalleled flexibility and bring specialized skills ideal for addressing short-term project needs, they tend to have less “stickiness” and loyalty to the company.

Conversely, permanent employees can provide long-term stability and cultural integration within an organization. Their consistent presence and commitment to the company’s goals contribute significantly to sustainable growth and development. However, there is less flexibility to “ramp up” or “ramp down” in your permanent employees’ workload for urgent projects or unforeseen business fluctuations. Understanding these operational dynamics is essential for businesses to make informed decisions that align with their strategic objectives, especially as they relate to budget planning.


Balancing Contract and Permanent Employees for Optimal Strategic Planning

Strategic workforce management will always be crucial. The decision between contract and permanent employment is no longer just a matter of preference — it’s a strategic choice that can impact how and when a company meets its business objectives.

At Innovative Employment Solutions (IES), we are dedicated to helping you make these decisions with confidence, providing the expertise and support you need to adapt and innovate in this dynamic environment. Contact us today to learn how we can help address your contingent workforce needs, or download our Contingent Workforce Road Map to learn more.

Written by: Sara Jensen, Senior Vice President of Growth & Strategy at IES

Sara Jensen is the senior vice president of growth & strategy at Innovative Employee Solutions (IES), a leading provider of remote and contingent workforce solutions specializing in global Employer of Record, Agent of Record, and Independent Contractor compliance services in the U.S. and 150+ countries. Founded in 1974, IES is a woman-owned business, certified by the WBENC, and partners with companies to provide compliant employment solutions that empower people’s lives.

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