Contract vs Permanent – Which is Better for You?

2 days ago by Jonathan Ellerbeck
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In my experience, choosing to work on a contract basis or in a permanent role can be a crossroads for many professionals. It’s a big decision that can shape your career, with both options offering unique advantages and compromises.

In general, permanent positions can offer more stability, career growth, and a chance to build niche expertise, while contracting can provide flexibility, diversification of experience, and provide higher earning potential. The right choice depends on your career goals, financial needs, and lifestyle preferences...and as we all know these can change over time too.

So the good news is there’s no right or wrong answer - just the option that works best for you.

Understanding contract roles

Historically, within technology, the predominant reason for moving into Contract has always been the earning potential. Learn your skills early in your career – and when you reach a point that you become a “highly skilled commodity” you make the leap of faith into the contract world.

Contract roles can range from a few months to multiple years, depending on the employer’s needs and offer a chance to take on exciting projects, flexibility and a chance to diversify experience. There are several types of contract roles:

Standard Limited Company / or via an Umbrella Company

This is the traditional contract model, normally engaged on a 3- or 6-month initial contract. A business will hire you on an hourly or daily basis. Again, historically, you benefit from an increase in gross earnings - £70-85,000 to £350-600 per day, when working in tech, based on working 45 weeks – that’s £135,000 p.a. – and the positive kicker...paying less tax.

However, the needle has now changed on this with some of the more recent tax changes, namely tax allowances that are claimable and the increased tax rise upon dividend payments.

Project or deliverable based contracts / Statement of Work

These contracts remove any ‘time and materials’ elements from a contract. You will be paid to deliver a project. If it takes you 2 weeks or 2 months, you get paid upon completion. Once the project is complete, the contract ends unless a new project or scope of work is agreed upon. This type of contract has becoming increasingly common in IT, especially since the introduction of IR35 where projects are structured around deliverables rather than fixed timelines.

However, if you're considering contract work in the UK, it's essential to understand IR35 regulations. These rules determine whether you’re classified as a true contractor or essentially an employee for tax purposes, impacting how you’re taxed and whether you can operate as a Ltd company. Getting IR35 status right is crucial to avoid unexpected tax liabilities and ensuring you maximise the benefits of contracting.

Fixed-term contracts

You may hear about Fixed Term Contracts – which in is simplest form is a much more closely linked to permanent employment i.e. under a PAYE system– and paid directly by the client. But often without any associated benefits. These contracts have a definite start and end date, meaning you’re hired for a set period (e.g. six months, and can sometimes be extended up to two years for the right roles). Employers typically use these contracts to cover maternity leave, seasonal work, or specific projects with strict timelines but with tighter budget constraints.

Employers typically use these contracts to cover:

Maternity/paternity leave coverage

Seasonal business peaks

Specific projects with defined timelines

Temporary skill gaps during restructuring

Once the contract expires, you may be offered an extension, a permanent role, or need to look for a new opportunity. Fixed Term Contracts tend to be more common when working in a UK public sector role.

Benefits of contract roles

Contract roles have a range of advantages, making them a great option for professionals looking for flexibility, higher earnings, and career growth. Here’s just a few reasons why contracting might be the right career move for you:

Higher earning potential

Contractors often earn more than permanent employees who could perform the same tasks because companies pay a premium for specialist skills, experience and short-term commitment. Plus, if you are contracted by a limited company, there may be tax efficiencies that increase your salary per month according to Umbrella Companies.

Flexibility & work-life balance

Want to take a break between contracts? Need to work around personal commitments like childcare? Contracting allows you to choose assignments that fit your personal schedule, giving you significantly greater control over your work-life balance:

Choose which projects to accept

Take extended breaks for travel or personal projects

Work intensively for periods followed by downtime

Arrange work around family or other commitments

Try different industries without long-term commitment

Fast-tracked learning & development

Moving between different companies and industries allows you to gain new skills quickly, and exposes you to new technologies, processes, and challenges at a much faster rate than in a permanent role. However, some contracts could be to fix problems with old systems and older technologies. It is really important, that as a contractor, you keep your skills up to date. Often the more cutting-edge experience you have - such as AI or new programming languages – the more choice of contract and reward.

Test different work environments

Unsure what workplace suits you best? Contract roles are a great path to experience different company cultures, industries, and team dynamics without long-term commitment to help you refine your career path.

Again – more and more businesses are now looking for your technical skills to be combined with industry or SME knowledge. So, keeping to your niche SME/industry usually makes you a more preferred candidate in a hiring process.

Networking opportunities

Working with multiple companies and teams means you’ll build networking connections across different industries. A high percentage of contractors have found that they have increased chances of landing future contracts through networking or even securing a great permanent role if you decide to switch. At Gravitas we host numerous networking events to bring together our tech communities.

Challenges of contract work

Lack of employment benefits

Unlike permanent roles, contractors don’t receive employment benefits like health insurance, pensions, or paid leave. You’ll need to arrange these yourself, which will incur additional costs.

Contractors don't receive the extensive benefits package that permanent employees enjoy. These missing elements typically include:

Paid annual leave

Employer pension contributions

Annual bonus

Company share scheme

Health insurance

Sick pay or even Furlough

Training allowances

Company perks and discounts

These benefits typically add 20-40% to a permanent employee's total compensation, costs that you'll need to cover yourself as a contractor.

Tax implications

Managing your own taxes can be complex, especially with IR35 regulations in the UK. Many contractors set up as a limited company or work through an umbrella company to handle tax obligations, but this requires careful planning.

Less access to training and development

Employers often invest in training for permanent staff, but contractors are expected to hit the ground running. If you want to learn new skills, it’s likely that you’ll have to fund your own training programmes or look for financial support. The UK has many bursaries and one-off grants available for professionals to take training courses in specialist industries as it will help to enhance the sector overall. Take advantage of resources like Turn2Us that provide listings of currently available grants.

Gaps between contracts

Unlike permanent roles, contracts don’t always fit back-to-back, and you may find yourself with gaps of unpaid downtime. Your fluctuating income can be a major source of stress and can often leave contractors feeling anxious, particularly if you have financial commitments.

Administrative responsibilities

Contractors often handle their own invoicing, taxes, and contract negotiations, which can be time-consuming compared to a permanent employee.

Job security considerations

Contractors do not have the same job security as permanent employees due to the nature of contract work. Contracts can be terminated at any time by any party without the contractor receiving a severance package. To protect themselves, some professionals agree upon 2-4 week notice periods with their employer and write these notices into their contract.

Higher expectations for performance

Companies hire contractors for their expertise, meaning there’s less room for mistakes. As a contractor you’re expected to deliver results quickly, often with minimal onboarding or support. Some clients can even be demanding, and they may expect you to work long hours or meet unrealistic deadlines.

As a contractor, you're expected to:

Deliver value from day one

Require minimal onboarding

Bring specialised expertise

Solve problems quickly

Work independently

Adapt rapidly to new environments

Difficulty returning to permanent work

While contracting builds experience, too many short-term roles may make it harder to transition back into permanent work (if that’s what you plan to do in the future) as some employers prefer candidates with long-term employment history. According to Forbes, frequent job changes and “job hopping” can raise red flags for some Hiring Managers. However, some employers may see the diversity of your experience as a huge benefit, so it really depends on the employer, and communicating your motivations for changing work type.

Understanding permanent roles

A permanent role is a long-term employment position hired directly by a company with no set end date. Unlike contract roles, permanent jobs offer stability, often including a consistent monthly salary, benefits like paid time off, health insurance, and retirement plans. In my experience, some industries naturally lean towards permanent positions such as healthcare, education, and government roles.

From a tax perspective, permanent employees have income tax and national insurance automatically deducted from their pay cheque, simplifying financial planning in comparison to contractors who must manage their own taxes. If you’re looking for long-term stability and growth, a permanent role could be the perfect fit!

Benefits of permanent roles

Job security and consistent pay

Unlike contract roles, permanent positions offer steady employment, stable and predictable income, and legal protections against sudden job loss. This stability makes it easier to plan for the future, whether it’s buying a home or saving for retirement. Being in permanent employment is a big consideration by Lenders when you plan to apply for a mortgage!

Employee benefits (paid holidays, pensions, healthcare)

Permanent employees receive paid holidays, sick leave, pensions, healthcare, and other perks that contractors don’t. These company benefits can significantly improve work-life balance and financial well-being, making permanent roles more attractive to employees in the long run.

UK permanent employees receive a comprehensive benefits package including:

Minimum 28 days paid leave annually (inclusive of Bank Holidays)

Employer pension contributions (at least 3%)

Statutory sick pay

Parental leave entitlements

Often additional benefits like healthcare, life insurance, and wellness programmes

These benefits form a significant portion of total compensation but are rarely visible in base salary figures.

Career progression and promotional opportunities

Companies invest in their permanent staff, offering clear promotion paths, salary increases, and long-term career development to reduce turnover. If long-term career growth is important to you, a permanent role provides more opportunities to grow professionally within an organisation.

Structured work environment (set hours, performance reviews)

Permanent roles have set hours, clear expectations, and regular performance reviews, providing a streamlined framework for professional growth. This structure can help you develop skills, work consistency, and long-term expertise in your field more quickly than you would in a contract role.

Belonging to a team

Being part of a team and a strong company culture encourages collaboration, engagement and professional relationships. Unlike short-term contractors, permanent employees often feel a stronger sense of connection and purpose within their workplace.

Training and development opportunities

Many companies offer on-the-job training, funded courses and mentorship programmes like Programme One to help permanent employees develop their skillset. This investment in professional development helps you stay ahead in your field and advance in your career journey.

Challenges of permanent work

Less flexibility in work schedule

Unlike contractors who can often choose their hours or take breaks between projects, permanent employees typically have a fixed schedule that they adhere to. This can make it harder to balance personal commitments or side projects.

Lower hourly pay compared to contractors

Permanent employees typically earn less per hour than contractors doing the same job. While they receive benefits like paid leave and pensions, they don’t have the higher day rates or tax advantages that contractors might enjoy.

In my experience, many contractors become more open to permanent opportunities when the base salary potential is above £110k.

Potential for less variety in projects

Permanent employees may work on similar tasks for years, which can feel repetitive and limit exposure to new projects and industries. Without regular change or diverse experiences, professionals in long-term roles may experience slower skill development and can lose motivation or feel trapped in a position that no longer excites them.

Making your decision

Choosing between a contract and a permanent role is about finding the best fit for your career, finance, and lifestyle goals. To sum it up, you should consider the key factors below:

Still unsure? Try asking yourself the following questions:

What are your long-term career objectives?

How important is job security to you?

Are you comfortable with uncertainty?

Do you prefer variety or stability?

What are your financial goals?

Does your industry favour contract or permanent work?

What are the current market trends and demands?

Your decision doesn't have to be permanent. Many professionals alternate between contract and permanent roles at different career stages, using each strategically to achieve specific goals. The pandemic has accelerated hybrid approaches including portfolio careers (combining part-time permanent work with contracts) and permanent roles with increased flexibility.

The right choice is simply the one that best supports your current priorities and long-term aspirations.

Legislation

The final thing to consider when planning you career path in the UK, are the changes in legislation to Employment ‘Day One’ Rights. The Government has made it clear that will not come into effect before Autumn 2026, so employers will have to provide protections and entitlements from the first day of employment, compared to the current two-year qualification.

While aimed at enhancing worker security, it may lead to an increase in hiring risks and costs for employers. Businesses are likely to adopt more rigorous recruitment processes to minimise potential legal risks.

This could lead to a slowing of job growth for permanent employees, and perhaps a rise in the use of contractors and particularly fixed-term contracts. We’ll be monitoring the market and will follow up with any conclusions once the impact of the legislation is clear.

Ready to find your next role?

Whether you’re looking for a contract role or a permanent position, Gravitas has a range of jobs to suit your skills and expertise.

Visit our live jobs page to explore the exciting Technology and Insurance opportunities available across the UK, and one of our specialist consultants will be in touch.

Alternatively, upload your CV today and we’ll handpick the latest jobs that best match your skills and expertise.