As recruiters we’re regularly asked this question by our clients and hiring managers. And since the rules on IR35 changed April 2021, it’s a question which is raised more frequently as organisations look to create hiring solutions and remain compliant.
Before I go any further a brief description of what an FTC and day rate contract are, might be helpful.
- Fixed-Term Contract: effectively the same as hiring a permanent employee but on a temporary basis for a fixed duration. (Frequent examples are for maternity cover).
- Day Rate Contract: a temporary assignment or role filled by a technical or specialist candidate, who typically might be working through their own Limited Company (PSC) and is paid a ‘day rate’
There are advantages and disadvantages to both options and understanding the nuances is crucial for making an informed choice and ensuring you secure the best candidate for the role or assignment you’re trying to fill.
Fixed-Term Contract (FTC)
Although, on first glance, an FTC contract may seem more cost effective to an employer when compared to a day rate over the same term, the challenges of securing the best talent and lack of flexibility should always be considered.
The talent pool for a FTC is small. There are two reasons for this, on the one hand FTC’s aren’t very attractive to ‘career day rate contractors who would typically have their own limited companies and be seeking day rate assignments. On the other hand, permanent candidates very rarely leave permanent employment for FTC opportunities (this is understandable as they will likely find themselves with no employment at the end of the FTC).
As a result, when recruiting FTC roles, we are left searching within a pool of immediately available permanent candidates or those desperate to leave their current employer. This isn’t conducive to securing the best talent in the market.
In the following section I’ll further explore the pros and cons of day rate contracts and fixed-term contracts (FTC’s), shedding light on the considerations that can help organisations navigate this decision effectively.
Day Rate Contracts:
Day rate contracts offer a high degree of flexibility for both employers and employees. Contractors can be engaged for specific projects or periods of high demand, allowing employers to scale their workforce up or down as needed.
In addition, although day rate contracts can appear more expensive at first sight, they can actually be more cost-effective for organisations, especially when the workload is variable or uncertain. Employers only pay for the actual days worked, avoiding fixed costs associated with salaries, benefits, and entitlements of FTC’s.
Finally, day rate contracts often attract highly specialised technical experts who prefer the flexibility of project-based work. Companies can tap into these niche skillsets for short-term needs, benefiting from their expertise without committing to a long-term employment.
Of course, there is the risk with this option that there is an overreliance on contractors which can lead to a lack of continuity and organisational knowledge. Regular turnover of staff may hinder collaboration and stifle the technical skill growth in-house.
In summary, when deciding between fixed-term contracts and day rate contracts, companies should carefully consider their specific needs, what’s happening in the industry, and the type of role they are trying to fill.
While fixed-term contracts can provide stability and compliance it is very difficult to attract the top talent. Day rate contracts offer much more flexibility and therefore cost control. Day rate contractors also open up a wider talent pool and array of technical skills that can be mobilised quickly.
Striking the right balance between all these factors is crucial for making the right hiring decisions and achieving business objectives.
At Irwin and Colton, we offer a full suite of solutions for temporary assignments, whether that be – fixed-term contract, daily or hourly rate, inside or outside IR35. We can find you the right candidate and offer the best payroll solution to meet your requirements quickly and efficiently, get in touch with our team here.