Permanent or contracting?

These days, the age-old notion of a ‘job for life’ is arguably no longer applicable.

UK professionals are increasingly likely to switch roles after a few years, in an attempt to further their careers. While some are happy with moving from permanent job to permanent job, others seek to take more control of their lives and turn to contracting via an umbrella company instead – and who can blame them?

But what’s the difference between these employment options? This article breaks down the differences, equipping you with the information you need to make an informed decision.

What is permanent work?

Permanent work can be defined as an employment relationship between the worker and the employer – and one which doesn’t have a specified end date.

Advantages of permanent work

There are several advantages to permanent work, or permanent employment, as it’s known.

Guaranteed income

Permanent employees can rely on income from their employer. This is in contrast to self-employment, where there’s no guarantee of work.

Job security

Closely tied to this is job security, which is considered a significant benefit of permanent employment.
Defined career path

Opportunities to climb the career ladder, earn promotions and more money are also attractive.

Benefits and perks

Permanent employees receive statutory employment benefits such as; paid holiday, paid sick leave, paid maternity and paternity leave and a workplace pension.

You may also receive specific company perks – whether that’s access to private healthcare or a company car.

Training and development

Many companies see it in their interests to help employees develop and offer training and development opportunities, paying for you to upskill and gain qualifications.

Disadvantages of permanent work

On the flip side, there are some disadvantages of permanent work.

Lower pay

In many cases, employees’ earnings are reviewed only once a year by the employer and, even then, may be restricted by bands and overall company performance.

Less flexibility

For a whole host of reasons, flexible working is being adopted by more and more businesses. Even so, your employer ultimately dictates the working relationship – from where the work must be performed to how and even when.

What is contracting?

Contracting is a form of self-employment. Typically, contractors operate via their own limited company or through an umbrella company, providing their services to clients on a freelance and temporary basis.

What does it mean to contract through an umbrella company?

Many contractors provide their services on a freelance basis to clients through an umbrella company rather than their own limited company. Under this arrangement, umbrella workers are taxed PAYE (with the umbrella company taking care of all your tax obligations) and receive statutory employment rights such as sick pay and maternity/paternity pay.

We’ll now outline a handful of the benefits of contracting through an umbrella company.

Benefits of contracting through an umbrella company

Freedom and flexibility

You’ll enjoy the same freedom and independence that comes with self-employment, but with the simplicity of employment. You can choose which projects you work on and, depending on the nature of the assignment, from where, when and in a way that suits you.

Set your own working hours

Tied closely to flexibility is the ability to set your hours. As an umbrella company contractor, you have total freedom to take on work that meets your requirements – whether that’s full or part-time or even flexi hours.

Higher pay

In lots of cases, umbrella company contractors receive higher rates than, say, a permanent employee. This can be for many reasons – from contractors providing in-demand and specialist skills to not coming with many of the associated costs attached to permanent employment.

Variety of work

Working on short or even longer-term contracts means that umbrella company contractors enjoy various work in different sectors, industries and at companies small and large.

Disadvantages of contracting through an umbrella company

While we wouldn’t necessarily describe the following as disadvantages, there are, of course, one or two things any umbrella company contractor should bear in mind before working this way.

Job security

Demand for umbrella company contractors is soaring, but even so, operating on temporary contracts doesn’t offer you the same level of job security as permanent employment does.

Admin and paperwork

To get paid by your umbrella company, you’ll need to regularly complete a timesheet and file any business-related expenses incurred when providing your services. Although, this is a simple and relatively hassle-free job.

Should I work through an umbrella company or as a permanent employee?

When weighing up one or the other, consider what matters more to you – freedom or job security? The possibility of earning more or a guaranteed monthly income? You may also find the table below helpful in comparing these two forms of employment.

	Traditional employee	Umbrella employee
Wealth of new opportunities	Yes	Yes
Employment rights and benefits	Yes	Yes
Claim legitimate business costs and expenses	No	Yes
Work for lots of different clients	No	Yes
Enhanced work life balance	No	Yes
Further your career to become self-employed	No	Yes