Contractual Employee vs. Permanent Employee

Are you an employer or employee trying to determine whether it’s better to hire permanent or contractual employees? Every type of work comes with its own set of perks and drawbacks that you should consider. In this blog post, we’ll be exploring the key differences between these two types of workers so that you can decide which one is right for you.

In this day and age wherein Filipinos are almost desperate to find any job, some are offered a contractual job offer. Some Filipinos tend to view contractual job positions as having no benefits, workers having no rights, and don’t carry any promise of long-term job security. It is far from the truth. Although there are a few instances where loopholes in the Philippine system have led to abuses of the welfare of contractual employees, these are few and exceptional. A contractual employee carries the exact terms of employment and benefits as a permanent employee. Also, some contractual jobs can lead to permanent positions if the employee performs well.

What is a Contractual Employee?

Contractual employees are a type of employee that receives a fixed fee to work on a specific project or for a specified timeframe. An example of a contractual employee is an independent contractor. Other examples are contract workers, freelancers, and work-for-hire staffers. Companies hire contractual employees for their expertise in a particular area, such as sales and marketing, desk reception, illustration, or writing, to name a few. Contractual employees are paid similarly to permanent workers, whether weekly, bi-weekly, or monthly.

Many companies use contractual employees as alternatives to hiring full-time and long-term employees with the same expertise. In some industries, this is called outsourcing.

What is a Permanent Employee?

A permanent employee is an individual who has been “regularized” into a company by the employers and receives regular payment from them. The employee continues to work for the company until they retire, resigns, are terminated by the company, or lay them off. Compared to a contractual employee, a permanent employee works 35 hours per week full-time.

Similarities and Differences Between Contractual Employee and Permanent Employee

Benefits

Based on Philippine labor laws, both permanent and contractual employees are eligible for the same benefits in terms of health insurance or PhilHealth, SSS, and Pag-Ibig. Paid leaves, such as sick leaves, often are on a case-to-case basis, especially with private companies. Typically, contractual employees are only eligible for retirement benefits if their employment is on a limited timeframe.

Company Resources

Both permanent and contractual employees work side by side in the environmental settings of their work or company. Most recently, because of the pandemic and the downsizing of companies and their offices, most contractual employees tend to work from home and provide their equipment, such as computers. But like permanent employees, all resources available from the company are also at the disposal of contractual employees.

Work hours

Depending on the company, permanent and contractual employees work the same hours with a set workday schedule. The only difference is that contractual employees are employed on a limited timeframe. In some instances, especially in work-from-home situations, contractual employees may receive pay based on the number of hours rendered daily or the work they produce.

What Basic Rights Does Contractual Employee Have?

Safe working conditions

Whether the work is physical labor or sitting in front of a computer, a contractual employee has the right to safe and healthy work conditions. Employers cannot force contractual employees to work under compromising or unsafe conditions because they are non-permanent workers.

Service benefits

Contractual employees, like their permanent counterparts, should be given a fair wage or salary, overtime pay, holiday pay, 13th-month pay, separation pay, and rest days. Although service incentive leaves like sick and vacation leave are stipulated under the law, this is more on a case-to-case basis for the company and depends more on the contractual employees’ work timeframe.

Social Security and welfare benefits

Employers must grant contractual employees SSS, PhilHealth, and Pag-Ibig benefits, the same with permanent employees.

Self-organization and peaceful collective bargaining and action

Under the law, contractual employees can be members or form employee unions and join collective bargaining agreements. Employers cannot terminate the employment of contractual employees because they joined a union or hold peaceful protests because of a labor injustice.

Security of tenure

Under the employment contract, contractual employees must be ensured secure employment as stipulated in writing. If the employer plans to extend or renew the agreement, the employee must be informed long before the contract expires so the employee will not search for other work.

Types of Contractual Employee

Companies may hire contractual employees based on workflow needs, projects, and budgets. Here are the standard classifications:

Part-time employees

Type of contractual employee works less than the required 35 hours per week. Most companies put part-time employees on the payroll but no longer withhold taxes because of the new TRAIN Law.

Seasonal employees

The best term used, an example of the contractual employee, is hired for busy or peak times, such as the Christmas holidays. The positions filled are temporary, but the work may have full-time roles, such as in retail sales and hotel kitchens.

Temporary employees

Some companies hire temporary employees in non-permanent positions for other reasons beyond peak seasons. It is usually common with construction projects and government public works.

Contingent workers

These are contractual employees that meet a specialized but temporary need. These include:

Independent contractors – They provide services for government projects and businesses geared for the public but bear their own financial risk and performance.
Freelancers – are usually self-employed individuals who work in creative professions such as web development, photography, video editing, and content writing.
Consultants – They perform research and studies for a client and provide strategic project advice. They are more often independent employees under a paid wage for an employer that assigns projects.

Leased employees

It is common practice for the professional workforce or staffing companies to hire leased employees and lend them to other companies. The leased employees perform work for other companies on a full-time or part-time basis. The leasing company handles the payroll and other benefits of the hired employees.

Interns

Interns are sometimes called OJTs (On-the-Job-Training). Depending on the need, a company may classify an OJT as part-time or full-time based on the number of hours required for them to work. Internships remain unpaid since they fulfill requirements for the final semester of the internship before graduating, but must meet all criteria regarding apprenticeship and internship under the Department of Labor.

Common contractual employee positions

App or web design and development
Construction worker
Data entry
Gardening and landscaping
Graphic designer
Hotel or restaurant concierge or receptionist
Hotel or restaurant kitchen services
Legal consultant
Physical or online sales and marketing
Online teaching
Photography
Public relations
Researcher
Search engine optimization
Social media marketing and management
Transcription
Video game design and development
Virtual Assistant
Utility and janitorial services

Conclusion

It can be said that contractual job positions should not get a bad rap. Contracting is a stable and secure employment wherein the worker carries the same terms as permanent employees and may eventually gain long-term security if the job is well executed. Therefore, Filipinos should look at contractual offers with an open mind and aim to maximize any opportunity. After all, who knows? The perfect career path may start from something as simple as a springboard for employment – namely, a contractual job position. Get out there and make your mark!

Employment Ultimate Guide

TAXGURO