Hiring staff – Should you employ permanent, casual or contract staff?
As a small business owner, making sure you have the right people in the right place will be one the biggest challenges standing between you and success. As the core of your business, your employees engage every facet of your operation, and as such, are a crucial part of it. Being such a large part of the business means they’re also one of your biggest associated costs. It’s important you make the right call when deciding to employ your people on a casual, contract or part-time or full-time basis.
Knowing the difference
Key to choosing the right kind of employment contract is understanding the difference between each and the situation in which it is intended to be applied.
Full-time employees are exactly what they sound like, employees that work on a regular basis for an average of 38 hours per week. The hours worked may vary, and are negotiated between employer and employee. Full-time employees are also awarded the full range of entitlements and employee rights, with leave including:
- Annual, personal, sick and carer’s
- Bereavement and compassionate
- Long service
- Public holiday (should it fall on a day they would normally work)
- Notice period and redundancy payment (outside of probation period)
Part time employees typically work less than 38 hours per week, and will usually have regular hours. The receive the same wages and entitlements as a full-time employee, however proportionate to the hours they work. This kind of employee can also be subject to unfair dismissal laws if termination of contracts is not handled correctly.
Casual staff are generally employed for shift work that can vary depending on the businesses needs. They are paid an hourly rate and have:
- A higher hourly rate
- No expectation of ongoing work
- No obligation to accept offers of work
- A loading paid on top of their hourly rate
- No sick or annual leave pay
- No notice period, unless specified by an award, employment contract or registered agreement
Though generally not eligible, there are certain circumstances where casual employees may be entitled to long service and parental leave after being employed for 12 months.
Fixed-term and Contract Employees
Fixed-term and contract employees are employed for either an agreed length of time or to complete a specific job requirement, and do not have a permanent job within the organisation.
Fixed term employees can work as full-time or part-time staff, and are entitled to the same leave entitlements, however on a pro-rata basis. Contract staff are generally not entitled to paid leave.
Deciding between permanent, contract or casual staff
Impact on the bottom line
Staffing is always one of the biggest costs for a business, so it’s important that you hire not only legally, but by providing suitable staff to suit your business. Permanent staff can often be the overall most expensive type to employee, but can, on an hourly basis, be less expensive than casual rates or contract staff. They also can be significantly more reliable than casual staff but can also be much less flexible in their availability. If they are permanent they will also require regular work which means even through the slow times, you’ll need to pay them a salary.
You will need to fully examine the requirements for your hire to determine which kind of employment will have the best impact on your bottom line.
Inconsistent work/ seasonal demand
It makes a great deal of sense for seasonal traders to find employees and hire on a fixed-term contract or casual basis, and if the work requires no specific skillset and very little training, this can suit well. However, there are instances when a permanent contract can be a viable solution, especially during large growth periods or when trying to build the business. The loyalty, reliability and insurance of permanent staff you can trust can have greater benefits than the lower cost, irregular employees.
Payroll cash flow
Depending on the kind of business you run, cashflow may be a major issue. This can stem from a number of reasons including;
- you may have lengthy payment terms or frequently late debtors,
- you may need to float project costs,
- you may be a newly established business without an established customer base or regular clientele.
Whatever the reason, struggles with cash flow can dramatically affect the way in which you employ staff. There are solutions to this, especially if you are looking to make strong growth, through finance options from traditional lenders or through alternative finance options like invoice financing.
Another factor to consider is the difference in tax obligations different types of employees require. Full-time and casual staff have different tax requirements for you as a business owner than contract employees; the major difference being who is responsible for withholding tax payments. If you employ full-time or casual staff, and in some cases fixed-term employees, as an employer you’ll need to:
- Register for PAYG withholding (Pay As You Go withholding) with the Tax Office
- Calculate how much to withhold from each payment and report those calculations
- Pay the withheld amounts to the ATO
- Record the amounts in your quarterly business activity statement and annual tax return
You are, however, not responsible for this for contract employees who provide invoices to you to be paid.
As a general rule, full-time staff will be more loyal than part-time, casual or contract staff. That’s not to say that casual staff can’t be loyal, more just that those with a vested in the future of the business have more to gain from its success. Whilst they may not be the ideal way to hire at your present business stage, you need to decide if you want employees who will grow with you, or just those that can get a specific job done.
Training and re-training staff due to high staff turnover can have a detrimental impact on both your business and your customers. Sometimes this turnover can be unavoidable, but there are ways to lessen the impact it has on your business. Permanent employees will generally be required to give a notice period, allowing a grace period to find and train a replacement for a seamless transition, whereas fixed-term and contract have a nominated end-term and can be planned around.
No Human Resources Capability
You may not have reached the point where you have required a dedicated human resources team to strategically manage and optimise how the human element of your business works yet, and this can impact the most efficient way for you to hire. You may not be equipped to make the long-term investment in hiring and training a new full-time staff member and may just need an experienced professional to do the job quickly and efficiently. It’s worthwhile to speak to professionals and to consider outsourcing your HR requirements and that way you’ll receive professional assistance when you require it.
If you’d like to find out more about using invoice trading (funding) to bridge the gaps in your payroll and grow your business, contact us or call 1300 38 63 63.