Teams often default to permanent because it is what they know, or to contract because the headcount approval is easier. Neither is a good reason.
The question that actually decides it
Is the work ongoing, and does the person need to accumulate knowledge about your business?
If yes, hire permanent. If no, contract is probably better.
Everything else follows from that.
When permanent is right
The work has no end date. If the role will still exist in two years, employing someone is simpler and usually cheaper than a rolling series of contracts.
Institutional knowledge matters. Some roles get substantially better as the person learns your systems, your customers, and your history. A contractor who leaves after nine months takes all of that with them.
You need investment in outcomes beyond the immediate task. Permanent employees have a stake in where the business goes. That shows up in the decisions they make when nobody is watching.
The role involves managing people. Teams need continuity in a manager. Short-tenure leadership is disruptive out of proportion to its duration.
When contract is right
The work has a defined end. A migration, an implementation, a product launch, a backlog to clear. Employing someone permanently for finite work means a redundancy conversation later.
You need someone now. Contract hires move faster. The notice periods are shorter, the decision is lower-stakes, and the process can be compressed.
You need a specialist you cannot justify full-time. Many businesses need deep expertise for three months and nothing afterwards. Hiring that permanently is expensive and the person will be bored within a year.
The headcount is uncertain. If you are not sure the role is permanent, a contract gives you a genuine answer rather than a guess, without the cost of getting it wrong.
You are covering an absence. Parental leave, long-term sick, a sabbatical. The role exists and the person is coming back.
Contract-to-permanent
Worth considering when the role is probably permanent but you are not certain about the person, or about the headcount. The person works on contract for an agreed period and converts if both sides want to.
Two things to agree up front: the conversion terms, including any fee, and the trigger. A vague intention to convert is worse than no intention at all, because the contractor is making their own plans while you are deciding.
The costs that get mis-compared
A contractor's day rate looks expensive against an equivalent salary. It is usually not a like-for-like comparison.
The rate includes employment costs that a salary does not show — tax, insurance, statutory benefits, and the agency's margin. It also carries no notice obligation, no severance, no benefits administration, and no cost when the work ends.
Permanent employment has costs that the salary does not show either: recruitment, onboarding, benefits, pension contributions, and the cost of ending the relationship if it does not work.
Compare total cost over the actual duration of the work, not the headline numbers.
A mistake worth avoiding
Hiring contractors to do ongoing work because headcount approval is difficult. This happens constantly and it costs more than doing it properly. You pay a premium rate indefinitely, you lose knowledge every time someone rotates out, and in several jurisdictions a long-running contractor doing core work starts to look like an employee to a tax authority, regardless of the contract.
If the work is permanent, make the case for a permanent hire.
Where to start
Be honest about whether the work ends. Most of the mistakes in this decision come from answering that question the way the approval process makes easiest, rather than the way the work actually is.
Sizanid places both. If you want help working out which the role genuinely needs, [tell us about it](/find-talent).
