Permanent vs Contracting Within Engineering: Which Suits me Best?

The blog is going to be more aimed at the UK job market. As my career has only involved working within the UK, I can’t speak for other countries but if you have any specific questions please leave them below or in the forum and I will do my best to research and give you my opinions.

The UK job market, particularly within the engineering sector, has 2 types of contracts available. The most common is a permanent contract which is an indefinite contract where a company aims to fill the available role permanently, usually a lengthy time period. With this type of contract comes various benefits which I will analyse in further detail within this blog but include pensions, private medical insurance, union representation and potentially fitness / childcare / discounted priced items. The other type of contract is known as a contract position. This type of role generally is to fill a position for a set time period or until the job at hand is complete. On the face of it, you don’t have any rights, your contract can be terminated with a much shorter notice period than a permanent role and you don’t get the available benefits that come with permanent roles. So it seems quite a simple decision to make, however there are many other factors which we will discuss in detail.

Source: ContractingWISE Jobs

The current UK economy is booming, or so it seems and we are currently in a very strange position. It was only a few years ago the whole world was bankrupted due to greedy bankers … How did we get out of such a great depression in a short period of time? Well there are many different factors. Although the market seems to be booming, it is being held afloat through the continuous printing and loaning of money between governments and large banks so in reality we are in just as vulnerable position as we were when the economy crashed nearly 10 years ago. Mortgages are being handed out to anyone and everyone for nearly any amount, finance deals are available for just about everything; cellphones, cars, luxury items and even pets. The reality is the stock market could crash tomorrow and nearly every company in the country could go bankrupt. Large companies, particularly engineering companies know this, which is why there is such a high demand for engineering contract roles currently. This allows employees to effectively be permanent but as soon as the ship begins to sink, companies can reduce their wage bills significantly by letting go of these highly skilled professionals.

But what incentives an engineer to go down the contracting route? Well, to understand this we need to really break down the employee benefits of both permanent and contractors. Let's start with permanent … the pensions that people so heavily rely on is not banked cash but highly risky investments that the banks are making. You are able to control (on a rough scale) where this money goes but in essence, it is still quite risky. In return, companies will often match the amount an employee puts into their pension making this even more of an incentive but again, will that pot of money really be there in 20 - 50 years time. We have seen in recent times that companies have lost their employee pensions through going bankrupt and the employees money being stolen right beneath their feet. I don’t want to go into too much detail as everyone will have their own opinion on this. Secondly is the additional benefits you may receive such as a company vehicle, discounted vouchers for childcare, automobiles or fitness centres but you really have to weigh up whether these are really worth it. The biggest incentive for being a permanent employee is the job security and ease of payment. Looking at the first point - job security, you may be on a much longer notice period than a contractor but until you reach 2 years with your company you have next to no rights. You cannot take a dispute to a tribunal within those first 2 years and most union representatives will wash their hands and walk away if there are any disagreements. Of course, this is entirely different if you have been with the company for many years. The second point is ease of payment. You will be on a base salary and all your taxes and insurances will be taken out without any hassle. This also applies to pensions which are a tax free benefit. Each week or month a lump sum will be paid into your bank account and no additional processing is required.

Now let's look at contract roles. These roles tend to be for the more experienced engineers in the industry. This is because they are able to gain many different experiences and work with many problems that are faced within the engineering industry. They also tend to favour experienced professionals as they will be considered industry “experts” in their field so when they are brought in to do a job, they are often able to achieve this quite easily.

Source: LinkedIn

Now comes the more interesting aspects of comparison. Contractors are paid at much higher rates that permanent employees purely down to the job security and benefits that permanent employees receive. This can often be nearly or greater than double the salary of that of a permanent employee. In return a contractor will generally need to deal with all the taxes that are associated with their wages. Even more interestingly, there are many tax benefits a contractor can receive through working under a private limited company. These include pensions (not contributed by the employer), cars and mileage, company expenses (laptops, furniture and any type of monitor including a television). All in all a contractor will pay far less tax than what a permanent employee will. This does come with a price however, often a contractor will have to hire an accountant to run the accountants and make sure that they are legally paying the necessary taxes when required. Contractors will also be required to obtain the appropriate insurance such as public liability and personal indemnity but these can be obtained for very good monthly rates depending on what exactly the job role is. On the positive side, a contractor is not involved with the politics of a company, if this is something you don’t enjoy being involved in and can jump between companies whenever they want, as long as they have completed their notice period. This allows them to follow the leading companies of the industry and continue their learning progression. One of the clear downsides of being a contract employee is that we really are in an unstable economy that could crash at any minute. If this were to happen, contractor role availability would completely diminish and leave these industry leaders without a job or secure income.

All in all, I believe it is down to the individual to make the decision. Coming out of university, you probably won’t be in a position to obtain a contract role and a permanent role will allow you to learn about the industry and what it really takes to become a competent and robust engineer. If you are highly skilled in a particular area of engineering such as analysis or design of a particular product then yes, contracting may well be the way to go. In my personal opinion, right now is the time to find contract work and bank in on your skills. The market may well seem unsteady but the banks are continually bailing out large companies and demanding highly skilled employees to fill roles.

If you require any additional advice, please don’t hesitate to contact us. We have experience in both permanent and contract roles and are happy to look into each individuals scenario. We also recommend joining our member forum to discuss possible opportunities that are available or experiences you may have had.

Either way, whichever route you decide to take, never stop learning, never stop progressing and continue to engineer to the best of your capabilities.

Luke T Seal Engineering