Posted on March 2017 By Speller International
We’ve noticed something in the SAP industry of late, particularly in SAP Change & Training. In the last three months, more and more clients are talking to us about offering candidates a fixed-term contract, as opposed to a daily-rate contracted role. Something that has also been part of a distinct trend over the last 12-18 months across SAP IT.
Why? Well, it seems that clients are increasingly looking to leverage the flexibility of contractors, while enjoying the cost-minimisation, protections and other benefits that fixed-terms contracts offer them as employers. After speaking to many candidates who have raised this subject with us, we thought it timely to give an overview as to the rationale behind why a growing number of organisations are taking this path.
Contracts for clients – pros and cons
Let’s take a closer look at the pros and cons from a client perspective between contracts and fixed term contracts. We’ll begin by looking at the advantages and disadvantages of contracts from the client perspective.
For one thing, there’s less commitment required with your standard contract. It’s easier to let a contractor go should their services no longer be required, with a much shorter notice period (generally 1-2 weeks). There’s less administration too, as all payroll, WC and admin costs are typically covered a recruitment agency such as Speller International, or a third-party.
Onboarding tends to be quicker, too. This is one reason why many clients prefer candidates they’re bringing in to be highly skilled and/or experienced. The more any contractor already knows, the less time is needed to bring them up to speed and the greater the value that can be extracted from them. There’s utility in such contracts too, as such candidates can be brought in to cover known busy periods or projects that are clearly short-term.
And finally, there is zero requirement to pay any sort of entitlements. Clients are not required for instance to pay contractors any of the benefits permanent employees have factored into their award, meaning savings are made on holiday pay, sick leave pay, union protection and so forth.
The downside of such contracts for clients though are fairly well defined. Highly-skilled contractors are in considerable demand, and are able to charge a high daily rate. They can also be a potential ‘flight-risk’, particularly as the end of their contract draws near and they begin to start actively seeking out other projects.
The ups and down of fixed term contracts for clients
Meanwhile, fixed term contracts offer a slightly different calculus for the clients to consider. Among the positives, companies are able to pay a predominately lower rate for the same resource – in this instance, the contractor’s time and labour.
There’s also the likelihood that, due to the nature of fixed term, the contractor’s presence during the length of the contract would not affect the organisation’s headcount. Finally, it is considerably more straightforward to remove a resource – i.e., a contractor – when you are not required to consider redundancy, or any form of review or performance management.
Essentially, the only downside that presents for clients when it comes to fixed-term contracts is that the contractors may not feel as valued in the role. This in turn could result in a limited sense of dedication, introducing the risk that they could leave the fixed-term contract toward the end of the commitment, or even before. The consequence may even prove more expensive than daily rate contracts, as the client may be potentially forced into backfilling the role, resulting in the time-consuming process of bringing the next employee up to speed mid-stream.
For clients, less is more
This rise in fixed-term contracts is also part of a distinct trend over the last 12-18 months across SAP IT, and as suggested above it seems largely driven by cost. After all, hiring someone under a fixed term contract and paying them salary is certainly less expensive than hiring the candidate at a daily rate.
Clients also avoid having to commit to someone permanently with a fixed-term contract, since there is still a clearly defined end to the engagement as with any other contractor arrangement. One further benefit from the client perspective is that they can exert more control over their future movements, with them more flexibility to scale their workforce and budget around workload demand.
It’s not just candidates that all this impacts, but recruiters also.
This enables clients to liaise less frequently with recruiters, and negate having to pay the full recruitment fee applied at 12 months and more of sustained candidate employment. For instance, the majority of clients will pay a pro-rata fee, meaning if the offer is a 6-month contract, they’re only required to pay half the recruitment fee. The fee percentages are more often than not less for fixed term contracts too, whereas contractor rates work out higher. Significantly, it also means they effectively get a full candidate search done at less cost.
The wider consequences of this shift and what it all means are outside the scope of this article, but given the increasing number of questions we get from our candidates on this matter, we thought it was important we attempt to shed a little more light on the matter.
One thing is for certain however. Fixed-term contracts, it seems, are here to stay.
What is the current trend with your company hiring preferences? Are you finding a move towards fixed-term contracts or does your company prefer the standard daily-rated contract roles?