3.1.3 Type of Employment Contracts

There are many different types of contracts and a business will decide which one to use based on its needs and may even take into account the wants of the employee if they are a good fit for the company. The business will consider the flexibility, efficiency and costs associated with each type of contract.

Types of Employment Contracts:

When considering contracts, businesses need to decide on two things:

  • Length of the contract
  • Amount of hours worked

Contract Top Trumps

Remember that with any thing in business, IT DEPENDS ON THE BUSINESS. The scores below have been given as a fun illustration. For example, a seasonal business may find it cheaper to hire temporary workers, whereas a non-seasonal business may find permanent staff more cost efficient. Or a business that rarely uses freelance staff may actually find it cheaper than hiring someone full time to do a one off job, like painting a room the business may not need a full time painter. Remember to contextualise your answers in the exam and coursework to the business case study.

Permanent & Temporary (contract length)

*trump ratings not specific to any industry

*trump ratings not specific to any industry
Permanent staff will be hired with no end date on a long term, permanent on-going basis. Temporary contracts are used when the business is unsure of a start or end date.
Flexibility 0
Permanent staff can be very hard to make redundant. Businesses must be able to prove wrong-doing to ‘fire’ permanent staff or face paying high redundancy payments.
Flexibility 5
Temporary staff have the benefit of only being on a flexible basis. Temporary contracts are usually used when the end date or duration is unknown so have that added benefit of not being specific so the business can usually terminate the contract before any end date like with fixed term.
Efficiency 10
Permanent staff can be seen as very efficient as they would have worked for the company for an ongoing basis, therefore would not need inductions and would know how the business operates.
Efficiency 5
If a business is hiring temporary staff they are likely to see a greater staff turnover than with permanent, therefore the efficiency is reduced as there will be more training required for new starters.

Costs 1
Permanent staff are an ongoing cost to the business and can often account for up-to 80% of business costs, so therefore have been ranked low. However, permanent staff can also work out cheaper than hiring freelance staff who could demand higher wages so have been given a ranking of 1.
Costs 5
Temporary contracts are slightly more cost effective than permanent as they have the benefit that the business can easily end or alter the contract as needed, such as during quieter trading times for seasonal businesses. Temporary contracts allow businesses to employ staff relatively cheaply to deal with short increases in demand for goods. Royal Mail take on more staff for the Christmas period.

Freelance & Fixed Term (contract length)

*trump ratings not specific to any industry

*trump ratings not specific to any industry
An agreement over one job between a company and self-employed worker.Fixed term are for a specific time period with a set start and end date.
Flexibility 10
Freelance are extremely flexible as jobs are usually considered one at a time. For example, hiring a gardener to put up a fence. The worker usually is not employed by the business and stays self-employed.
Flexibility 4
Fixed term are more flexible than permanent as there is a set end, however less flexible than temporary as the contract must be honoured until the end date.
Efficiency 4
Freelance workers are usually paid by project, therefore it is in their interest to get it completed as quickly as possible so they can move onto the next. However, the employees may be new and need induction to the business beforehand. Additionally, freelance workers usually don’t have a contract of employment meaning they could be harder to manage.
Efficiency 5
Fixed term contracts are efficient as they allow a business to create a short-term task that exceeds their current capability. However, productivity and efficiency is reduced as new employees are hired for each task.

Costs 7
Freelance are relatively low cost if used rarely, however it can work out an expensive way to hire staff long-term. If a business find it is using freelance staff often to do the same job, it may be cheaper to hire them on a permanent basis.
Costs 5
The business does not have to hire a permanent staff so there is no ongoing cost. However, fixed term contracts could work out more expensive with the loss of productivity and induction, hiring and recruitment of new staff.

Full-Time & Part-Time (hours worked)

*trump ratings not specific to any industry

*trump ratings not specific to any industry
Full time is when an employee works 35+ hours per week.Part time is when an employee works less than 35 hours per week, e.g. 3 days a week.
Flexibility 3
Full time employees will work 35 hours or more over the course of a week, this makes them less flexible as most employees will work this over 5 days. Typical hours are between 9 am and 5 pm.
Flexibility 5
Part time employees allow a business to fill a capacity gap without hiring and paying for a full time employee, such as hiring weekend staff. It also gives the business potential to offer extra hours or overtime to workers if they need.
Efficiency 10
Full time workers should contribute towards the company ethos as they are at the company every day. They will also know the policies and procedures of the company so should not need induction training.
Efficiency 8
Part-time employees are effective at work in that they allow the business to hire staff without committing to full hours. Employees are also less likely to suffer from burnout as they have more days off. However, employees that don’t spend as much time at work are likely to be less committed to the business and culture.
Costs 1
Full time employees has a high long-term cost as the business is committed to paying full wages, holiday and national insurance contributions. Depending on whether the employee is permanent, they will
Costs 5
Part-time employees are more affordable as the business don’t have to pay for full time employees, meaning less wages, national insurance contributions and less holiday entitlement.

Zero Hour (hours worked)

*trump ratings not specific to any industry
Zero hour is working for an employer with no agreed hours, called flexible hours.
Flexibility 9
Very flexible. The business only hires staff on the days they need, however less flexible than freelance as the employees will still have a contract.
Costs 10
Zero hours is very cost effective as the business doesn’t have to pay staff when they are not needed as they contractually will not work on those days.


Make a copy of this Google Doc, rank each contract type specifically for Royal Mail (seasonal business) and then again for PureGym (less seasonal if you ignore Jan with new years resolutions).

Did you get different trump ratings to the ones above? You should have as each business will have their own advantages and disadvantages regarding flexibility, efficiency and cost depending on the case study! This is where you can earn AO2 Application marks in the exam and coursework as long as you back up your point.