I have written about Interim v Management Consultants before. But today the rare but no less significant issue of fixed term contracts (FTCs) came up. So I’d thought I’d quickly explore the pro’s and con’s and see what you think.
What is a fixed term contract?
A fixed term contract is a full time, PAYE job, which comes with the benefits and protections of same, but for a fixed term. It can be used as an alternative to a contractor or interim. And is seen by some hiring clients as cheaper and therefore more attractive.
Why does it look good to an employer?
Certainly the pro rata’d salary of the full time equivalent is less than the cumulative day rates of an interim. A quick glance at a spreadsheet will tell you that and so it’s a no-brainer right?
Well, hold on there – here are some things to consider.
Why looks can be deceiving
No permanent candidate is going to resign from their current job to take on (sub-1 year) fixed term contracts. Certainly we would not advise them to.
No day rate contractor wants to take on a substantially lower paid fixed term contract. That really is a no-brainer.
This can make the candidate pool very small and devoid of serious choice.
Risky types of candidate
Sure, the ‘out of work permanent’ candidate pool may contain some that are prepared to do a fixed term contract. Until the right job comes along. However, when that permanent job does come along, they are likely to take it. And if that is before the fixed term contract is concluded, then that’s a risk the fixed term contract client will have to bear. If the contract was to complete a project of some type, as they often are, then disrupting the project may be very costly. Especially if the contractor was a senior hire.
Even riskier types of candidate
The ‘still out of work contractor’ may also take it. But you have to ask yourself, why the contractor can’t get work. And again, what’s the risk that a contractor who took it just because it was offered, won’t leave mid-contract. When they get the pay rate they were really after.
In neither scenario was there much choice of candidate and nor was the quality likely to be the highest (perm candidates who are in-between jobs or contractors who are edging towards financial desperation?!). These less visible costs, along with unpriced risks at the time of hiring almost always exceed the differential between the cumulative day rates and the pro rata’d salary of fixed term contracts.
They are just harder to articulate on a spreadsheet.
Total costs – not just the ones you can see easily
It’s why the total cost of hire is a more accurate way to inform hiring decisions – I wonder how many times that total cost is understood, never mind considered?
I’d be interested to hear the (well articulated please) case for fixed term contracts.
Otherwise it’s back to the day job for me.