Job search · 6 min read
Contract vs permanent jobs: which is right for you?
Contract vs permanent work compared: day rates against salary, security, benefits, tax status in the UK and US, and a simple way to compare the two.
The short answer
Permanent jobs trade lower headline pay for security, paid leave, pension or 401(k) contributions, sick pay and employment rights. Contract jobs usually pay more per day or hour but come with gaps between contracts, no paid leave and fewer rights, and you may have to handle your own tax. A useful rule of thumb is that a contract rate needs to be roughly 1.3 to 1.5 times the equivalent salary, worked out per day, to match a permanent job once leave, benefits and gaps are counted. Contracts suit people with in-demand skills and savings; permanent roles suit people who need predictability.
Key takeaways
- Contracts pay more per day but carry gaps, no paid leave and fewer benefits.
- Compare like for like: convert salary to a day rate and add the value of benefits.
- Tax status matters: UK contractors may fall under IR35; US contractors pay self-employment tax.
- Contracts can be a bridge into a new field or a permanent role.
On this pageThe main differences
The main differences
| Contract | Permanent | |
|---|---|---|
| Pay | Higher day or hourly rate | Lower salary, steady |
| Security | Ends on a set date or with short notice | Ongoing, with notice and dismissal rights |
| Paid leave and sick pay | Often none if self-employed | Included |
| Pension or 401(k) | You fund it yourself | Employer contributes |
| Tax admin | Often yours | Handled through payroll |
| Variety | High: new teams and projects | Lower, but deeper ownership |
How to compare the money
Divide a salary by about 220 working days to get a rough day rate, then add the value of benefits. Then knock contract income down for the weeks you won't work. Illustrative example: a £55,000 salary is about £250 a day. With a 10% pension contribution, 28 days' paid leave and sick pay, the permanent package is worth closer to £300 to £320 a day. A contract at £400 a day for 44 weeks a year pays £88,000 before tax and costs, so it comes out ahead, but only if the gaps stay short.
Who contracts suit
- People with in-demand skills such as software, data, finance change or project delivery.
- Those with savings that cover gaps between contracts.
- People who enjoy variety and learning new environments quickly.
- Career changers testing a new sector before committing.
Who permanent roles suit
- People who need predictable income, for a mortgage application or a family.
- Those who value benefits such as parental leave and pension contributions.
- People who want to build long-term relationships and progress internally.
Questions to ask before accepting a contract
- How long is the contract, and how often are contracts like this extended?
- How will I be engaged: through an agency, an umbrella company, my own company or directly?
- What is the notice period on both sides?
- In the UK, what is the IR35 status determination, and who made it?
- Are there any benefits, such as holiday pay through an agency?
- Is there a realistic route to a permanent role if both sides want it?
Get the answers in writing. The rate is only half the deal; the terms decide how much of it you actually keep and how secure it is.
What happens to the gaps
Applying shows you what employers want that you can't show yet: a must-have your CV doesn't mention, or a question you couldn't answer well. Hand the job from OffLadder CV to Laddie, our AI coach, and it turns each one into three steps:
- Learn the skill: a short lesson on what the post asks for, starting from the basics.
- Try the work: a 15-minute task taken from the job itself, so you have a real example to talk about.
- Practise the interview: a five-question mock interview for that role, weighted to the parts you're least sure of.
The conversation stays in your OffLadder account. Once you've done the work, add it to your CV in your own words, and the next post you tailor for can point to it.
Questions people ask
- Is contract work more risky?
- Yes, mainly because income stops between contracts and contracts can end early, often with a week's notice or less. Contractors manage that risk with savings of three to six months' costs, a strong network and starting the search for the next contract well before the current one ends.
- Can a contract job become permanent?
- Often. Many employers use contracts as a trial, and "contract to hire" roles are designed for it. If you want that outcome, say so early and ask how often contractors in the team have been converted.
- What is IR35?
- IR35 is a set of UK tax rules for contractors working through their own limited company. If the work looks like employment in practice, the contractor must pay tax broadly like an employee. For medium and large clients, the client decides the status. Check the status determination before you accept a contract.
- Are contractors entitled to holiday pay?
- It depends on employment status. In the UK, agency workers and many fixed-term employees get paid holiday, while genuinely self-employed contractors don't. In the US, independent contractors aren't covered by most employee benefits. Check how you'll be engaged, not just the job title.
- Do contractors find it harder to get a mortgage or loan?
- It can be harder, because lenders like steady payslips. Many lenders will accept contractors with a track record, often 12 months or more of contracting, and some assess an annualised day rate. A specialist broker helps, and keeping clean records of contracts and income makes the process far easier.
Exercises are practice, not evidence of career fit or a qualification. How to read our guides and report a correction.
Sources
- Independent contractor (self-employed) or employee? · Internal Revenue Service
- Working for yourself · GOV.UK
How this page is written
Sources support the factual background, not a guarantee that an exercise predicts career fit. Fictional practice material is labelled. Dates record content updates; no independent expert review is implied. More about OffLadder.