Hiring: Permanent, Fixed Term, Contractor or Temp?

Whether it’s a brand-new role or replacing an existing one, before you begin the recruitment process you need to decide what type of contract you’re going to offer. There are different types of employment contracts you can use depending on your needs, so let us make things easier for you by breaking down the four most common types and what they involve:

Permanent Employment:

This is a standard employment contract where the candidate becomes your legal employee until either party gives notice or the role is disestablished. All employees hired on a permanent basis are entitled to:

• A minimum of four weeks annual leave
• Ten days sick leave and three days bereavement leave
• Public holidays off, or receive compensation such as time and a half and a day in lieu if they are required to work those days
• 52 weeks parental leave
• Regular meal and rest breaks (rest breaks must be paid)

Of course, these are the minimum requirements, so you can negotiate additional entitlements if your organisation chooses to.

Fixed Term Employment:

Someone on a fixed term contract is your employee and receives many of the same benefits a permanent employee does. The only difference being that a fixed term employee’s role will end either on an agreed date, or when a specific event has occurred i.e the completion of a project.

Fixed term contracts are commonly used to fill a gap while someone is away for an extended period of time, like maternity leave or on secondment. They can be extended as long as both parties agree, but it’s important to note that an employer must have a genuine reason for offering a fixed term contract. It can’t be used as a trial period to test someone out in a role. To end a fixed term contract before the agreed date or event has occurred, you must follow the same process as a permanent employee and have legitimate grounds for early dismissal.

Contractor Employment:

This is someone who is technically self-employed and contracting their services to you. You do not have an obligation to provide annual, sick or public holiday leave, and many will have their own professional indemnity insurance. Contractors also pay their own tax and ACC levies rather than having it automatically deducted by the employer.

A Contractor will invoice the organisation for their time, with most operating on a 20th of the month payment arrangement. As they aren’t legally your employee, they’re not covered by most employment legislation, however health and safety regulations do apply regardless of employment status.

Due to the extra responsibility Contractors take on to cover their own levies, taxes and annual/sick leave, they typically charge a higher fee than a permanent employee equivalent. Though depending on your needs in the long run, a contractor may be a more cost-effective way of getting the work done. You can source a Contractor directly, or have an agency recruit them for you. Going through an agency typically means they’ll pay the Contractor on your behalf and on-charge those costs to your organisation plus a margin for the service.

Temporary Employment:

What we typically refer to as ‘temporary employees or temps’, technically falls under the fixed term employment category in the eyes of employment law, so the same rules apply. You must have a genuine reason for the position only being temporary, and the employee is still entitled to annual and sick leave. Though in this case they do have the option of either being paid out their annual leave as they go (calculated at 8% of their hourly rate) or accruing it like a permanent employee does. If their standard hours of work fall on a public holiday, they receive the same leave or payment entitlements as a permanent staff member.

The length of an assignment for Temps can vary; from one day to one week or more, and is commonly used to fill a gap in an organisation or cover a short-term need. Very often these people are sourced through a recruiter, where the agency is the one who holds the employment agreement with the Temp and pays them for their hours. The recruiter then on-charges these costs to the organisation where the Temp is working. If you are sourcing a Temp through an agency, expect to pay an additional margin on top of their hourly rate and holiday pay to the agency, which covers their admin and payroll time.

A Temp’s notice period should be covered in their contract, but typically they’re shorter than a permanent employee to account for the fluid job market that they work in. If either the Temp or the employer would like to end the assignment earlier, written notice should be given, with a genuine reason for wanting to do so.

No matter which type of contract you decide to use, it’s always important to ensure your employee agreements are comprehensive and cover all bases. If you haven’t done so already, engaging an employment lawyer or specialist to review your contracts is certainly a good idea. Feeling stuck? We are always here to help!

Good Luck,

Kirsty and Nikki