There's been a noticeable shift in how businesses build their tech teams over the past decade. What used to be a straightforward choice—advertise a role, hire someone permanent—has evolved into something far more nuanced. Contractors now make up a significant portion of the IT workforce, and for good reason.
But is contracting right for your business? Let's cut through the noise and look at what actually matters.
The Fundamental Difference
When you hire a permanent employee, you're making a long-term bet. You're investing in someone who'll grow with your organisation, absorb your culture, and hopefully stick around long enough to justify the recruitment costs, training time, and the months it takes before they're fully productive.
Contractors operate differently. They're typically specialists who hit the ground running on specific projects or challenges. You're not paying for potential—you're paying for immediate capability. The relationship is transactional in the best sense: clear deliverables, defined timescales, and a clean exit when the work's done.
Neither approach is inherently better. They serve different purposes.
When Contractors Make Genuine Sense
Project-based work with a clear end date. If you're migrating to a new cloud platform, implementing a specific system, or building out a product feature, contractors can deliver without leaving you with headcount you don't need six months later.
Specialist skills you can't justify permanently. Need a Kubernetes expert for three months? A security architect to assess your infrastructure? These roles often don't warrant a permanent hire, but the work still needs doing properly.
Speed matters. Good contractors are available now. They don't need three months' notice. When a critical project is stalling because you're short-staffed, waiting to find and onboard a permanent hire isn't always viable.
Testing the waters. Some companies use contract arrangements to evaluate talent before committing to permanent offers. It's not the cheapest way to recruit, but it significantly reduces the risk of a bad hire.
Covering gaps. Parental leave, unexpected departures, or sudden project demands—contractors provide flexibility that permanent teams simply can't offer.
The Real Benefits
The cost argument is often misunderstood. Yes, contractors typically charge higher day rates than the equivalent permanent salary broken down. But you're not paying employer's National Insurance (in most cases), pension contributions, sick pay, holiday pay, training budgets, or the various other costs that push the true expense of a permanent employee well beyond their base salary.
More importantly, you're buying flexibility. You can scale up when projects demand it and scale back when they don't, without restructuring costs or difficult conversations.
There's also something to be said for the fresh perspective contractors bring. They've seen how other organisations tackle similar problems. They're not wedded to "how things are done here" and can often spot inefficiencies that internal teams have become blind to.
Who Should Think Twice
Contracting isn't a universal solution. If you need someone embedded in your team for years, building institutional knowledge and mentoring junior staff, a permanent hire makes more sense. The continuity matters.
Startups with limited runway might struggle with contractor rates, even if they need senior expertise. And some roles—particularly those requiring deep integration with business strategy—benefit from the commitment that permanent employment represents.
The Regulatory Landscape: IR35 and Beyond
If you're engaging contractors in the UK, IR35 is unavoidable. The legislation exists to prevent "disguised employment"—situations where someone works as an employee in everything but name, purely to gain tax advantages.
Since April 2021, medium and large businesses in the private sector have been responsible for determining whether IR35 applies to their contractors. Get it wrong, and the tax liability falls on you, not the contractor. HMRC isn't particularly forgiving on this.
The key factors HMRC considers include: Does the contractor have to do the work personally, or can they send a substitute? Do you control how, when, and where they work? Is there "mutuality of obligation"—an expectation that you'll provide work and they'll accept it? The more your arrangement resembles employment, the more likely it falls inside IR35.
Practically speaking, this means thinking carefully about how you structure contractor engagements. Genuine project-based work with clear deliverables, where the contractor has autonomy over how they complete the work, generally sits outside IR35. Having someone sit at a desk nine-to-five, attending all your meetings and reporting to a line manager, probably doesn't.
HMRC provides the Check Employment Status for Tax (CEST) tool to help determine whether a contract falls inside or outside IR35. While not perfect, it's the official starting point—and HMRC has stated they'll stand by determinations made using it, provided the information entered is accurate.
Beyond IR35, there are other considerations. Agency Workers Regulations give contractors engaged through agencies certain rights after 12 weeks. The Criminal Finances Act creates potential liability if contractors are involved in tax evasion. And depending on your sector, there may be specific compliance requirements around security clearances or professional certifications.
None of this should put you off using contractors—it's just part of doing it properly.
Making It Work
The companies that get the most from contractors treat them as part of the team while respecting the nature of the relationship. Clear briefs matter. Good onboarding matters (yes, even for contractors). Regular communication matters.
Set expectations upfront about deliverables, timelines, and how success will be measured. Document the arrangement properly, particularly around IR35 status. And don't cheap out on rates—the best contractors command premium prices for a reason.
Final Thoughts
The permanent versus contractor debate isn't really a debate at all. Smart businesses use both, depending on what they need. The IT market has evolved to support this flexibility, and there's no shortage of talented professionals who prefer the contractor lifestyle.
The question isn't whether contractors are "better"—it's whether they're right for what you're trying to achieve right now. Sometimes the answer is yes. Sometimes it isn't. Understanding the difference is what separates strategic workforce planning from simply filling seats.
Looking to engage IT contractors or build out your permanent tech team? We can help you navigate both options and find the right talent for your specific needs.