IR35 caused a shift in how employers structure their workforce. Day rate contractors became less prevalent and FTC contractors took up the slack. It was logical at the time, but are there now benefits to converting FTCs to permanent employees?

Is this better for longer-term talent retention? Is it better for the bottom line? How does the psychological contract with the employee change when they are permanent?

There are also plenty of reasons why this may not be such a great idea. Employers should always be considering the options. Hopefully this blog may offer some insight.

Pros of converting contractors to permanent roles

Retention of expertise: When you take on a contractor permanently, you not only retain their experience, but you allow those around them to learn from them.

Lower long-term costs: While the day-rate might be higher for contractors, permanent employees often cost less in the long term when you consider recruitment costs.

Greater commitment: Permanent employees might have a higher level of commitment, as they strive for career progression that an FTC will never have. Implicitly employers will have more control over their activity.

Consistency and continuity: Permanent employees provide a consistent presence, which is healthier for team dynamics and more predictable for future business performance.

Cons of converting contractors to permanent roles

Less flexibility: It is not quite as easy to flex your workforce if you are relying in permanent headcount. Contractors can be brought in or let go as required.

Legal and HR implications: Converting contractors to employees might involve complex legal and HR issues. It is a far simpler relationship with a contractor, for a fixed term.

Increased admin: More paperwork and administrative responsibilities come with managing permanent employees.

Risk of redundancy: If business needs change, making contractors permanent could result in overstaffing, risking the need for redundancies if for example there’s an economic downturn.

Different leaders run their departments in certain ways and there are certainly functions that lend themselves more to contractors than others.

Be clear about intent: the FTC was brought in for a certain purpose. Has that need been fulfilled? Are the contractor’s skills suited to the new permanent role they are being considered for, or is it just convenient because they are already known to the business and the culture fit is good.

Hopefully this blog has laid out some of the most common considerations. What is your preference for your business? We are having lots of conversations with our clients in this area, so give us a call (+44 (0) 203 285 7000), or get in touch with David Howell if you would welcome an impartial perspective.