Contract vs permanent: Which option is best for your business?

Hiring the right person is about more than just finding someone with the right skills. As a hiring manager or employer, one of the first decisions you’ll face is whether the role should be filled on a contract basis or as a permanent position.

Each approach brings its own advantages and challenges. Your decision will depend on a range of factors including budget, timelines, business plans, and how permanent the need truly is. 

If you’re considering hiring on a freelance or fixed-term basis, our freelance and contract recruitment guide offers practical advice on everything from compliance to onboarding.

In this blog, we will help you weigh up those options clearly and make the choice that fits your current needs and your future goals.

Understanding the difference between contract and permanent hires

Before you decide which route to take, it’s important to understand what we mean by contract and permanent hiring in the context of internal recruitment. These terms are often used interchangeably with freelancers or external consultants, but they’re not the same.

We’re focusing here on employed contract hires (those brought on via fixed-term agreements) and permanent hires who join your business for the long haul.

What is a contract hire?

A contract hire is someone brought into your business on a fixed-term basis. This might be for a specific project, to cover a temporary gap, or to meet a short-term business need. Contract lengths can vary, but they’re commonly between three and twelve months.

These hires are usually paid via PAYE or through an umbrella company. They're integrated into your team and treated as employees during their contract, but without the long-term commitment that comes with permanent employment.

Contract hires are not freelancers or consultants working independently. They’re typically working full-time hours, embedded in your processes and systems, but with a clear end date in sight.

What is a permanent hire?

A permanent hire is someone who joins your team with no predefined end date. They receive a full employment package including salary, holiday pay, pension contributions, and any other benefits you offer.

These employees are often brought in to support long-term business needs. You might be growing a department, backfilling a departure, or planning ahead for future workload. Permanent hires are more likely to stay with your business for several years and contribute to its culture and development.

This route is usually best when you want to invest in training, development, and retention.

When a contract hire makes the most sense

Contract hiring can be a smart option for businesses looking for flexibility or a short-term solution. It’s not about finding a stopgap, but rather about meeting a need with a defined scope. Whether you’re delivering a project, covering leave, or responding to a spike in demand, contract hires can offer a fast and practical way to bring the right skills in when you need them.

Let’s explore a few common scenarios where a contract hire is the better fit.

Short-term or defined projects

If the role has a clear start and end point, a contract hire can help you move quickly. This is often the case for system rollouts, internal transformation projects, or times when you need someone to step in during a defined absence such as maternity leave.

Because contract hires typically join with experience in similar roles, they often settle in fast. They can start contributing with minimal training and are focused on delivering outcomes within a set timeframe.

This model works well when timelines are tight and the business can’t afford delays in delivery. If you'd like to explore how contract hiring works in more detail, including onboarding advice and compliance considerations, take a look at our freelance and contract recruitment guide.

Tight budgets or temporary headcount approval

Some businesses don’t have the budget or internal sign-off to commit to a permanent hire. A contract role can allow you to get the support you need without the longer-term financial commitment.

This can be especially useful in departments that are under pressure to deliver with limited resources. You can bring in someone to take on urgent work without stretching your team or risking burnout.

Contract hiring can also help with forecasting. You know exactly how long the cost will be on your books, which makes it easier to manage budgets and plan for the future.

Hiring with flexibility or uncertainty

There are times when you know you need extra support, but you're not quite sure how the business will evolve. This might be because you're trialling a new product, entering a new market, or adjusting to external changes.

Hiring someone on a fixed-term basis gives you more control. If the need continues, you might decide to extend or convert the contract to a permanent role. If the project ends or priorities change, you can wrap up the arrangement without the complexities that come with redundancy.

At Digital Waffle, we often help businesses use contract hiring as a way to test new roles, functions, or team setups with less risk.

When a permanent hire is the stronger choice

While contract hires offer flexibility, there are times when the better option is to bring someone on permanently. If you're thinking long-term, want to build internal capability, or need someone who will grow with the business, a permanent hire gives you the stability and consistency to do just that.

Below are a few common situations where permanent employment is the better fit.

You’re building a long-term team

Permanent roles make sense when you're investing in the future of a department or function. This could be expanding a marketing team, hiring for business-critical operations, or backfilling a role that supports day-to-day continuity.

In these cases, having someone who is fully embedded in the business helps maintain quality, momentum, and internal knowledge over time. They’re also more likely to take ownership of processes and contribute to long-term planning.

Permanent hires are not just filling a gap. They're part of the company’s future.

You want deeper cultural alignment

Company culture doesn’t happen by chance. It’s shaped by the people you bring in and how invested they are in your values, mission, and ways of working.

Permanent employees tend to contribute more to culture because they’re involved in the day-to-day rhythms of your business. They build stronger relationships, help onboard others, and are more likely to contribute to your long-term goals.

This is especially important for leadership roles or positions that work closely with clients or external stakeholders. You want someone who represents your brand and your values consistently over time.

You’re planning for internal development

Permanent roles are the best fit when you want someone who can grow with the business. That might mean taking on more responsibility, moving into management, or developing specialist knowledge that becomes key to your operation.

It also means you can invest in training with confidence, knowing there's time for that investment to pay off.

Succession planning becomes more effective too. With permanent team members, you can plan ahead and shape your workforce in a way that supports the business as it evolves.

How to decide what’s best for your business

The decision between contract and permanent hiring should always come back to the role itself and what your business needs both now and in the future. There’s no universal answer, which is why it’s important to ask the right questions before making a commitment.

Below are some practical ways to work through the decision.

What’s the business goal of the role?

Start by asking why this role exists in the first place. If the purpose is to deliver a one-off project, cover a temporary gap, or solve a short-term problem, a contract hire is likely to meet the need.

If you're looking to build something more permanent into the business, such as growing a team, improving a core function, or adding leadership capacity, then a permanent hire will give you more consistency.

Matching the goal of the role to the type of hire helps avoid misalignment later on.

How long will you need this person?

This is one of the simplest ways to guide your decision. If the work has a fixed end point or is expected to last less than a year, contract hiring keeps things lean and focused.

If the role will still be needed in 12 months or more, or is part of an ongoing function like finance, marketing or sales, a permanent hire makes more sense. Long-term needs are usually better served by long-term people.

Clarity on timeframes is key, especially when you're planning resourcing or building out a new capability.

What’s your budget now and over time?

Cost matters, but it’s not always about who is cheaper on paper. Contract hires often have a higher daily rate, but they do not come with benefits like pension, paid leave, or bonuses. This can make them more affordable in the short term.

Permanent employees are an investment. Their total cost includes salary, benefits, and potentially training. But over time, they can deliver greater value as they become more integrated and productive.

Look at both short-term affordability and long-term value before deciding.

How important is cultural fit and continuity?

For roles that shape your culture, influence how teams work together, or interact directly with customers, cultural fit really matters. These are often better suited to permanent hires, who have time to build relationships and influence how things are done.

Contract hires may bring strong skills and focus, but they are typically there to deliver outcomes, not shape long-term ways of working.

If the person will be central to your team or business identity, you may benefit more from hiring them permanently.

There’s no one-size-fits-all approach when it comes to hiring. Some roles are best filled by permanent team members who can grow with your business. Others are more suited to contract hires who can step in quickly and deliver against a specific need.

The right decision depends on your goals, timelines, available budget, and how the role fits into the wider team. Getting that balance right can make a big difference, not just in how quickly the role is filled but in the value it delivers.

At Digital Waffle, we work closely with employers to help them make the right hiring choices. Whether you're considering a fixed-term contract or a long-term permanent role, we can support you from role scoping through to onboarding.

Looking for more detail on hiring freelancers or contractors? Read our ultimate guide to freelance and contract recruitment.