3 Basic Differences between Permanent and Contract Employments

     Companies can use different types of employment to meet various labor needs. In general, there are permanent and contract employments.

     There are several differences between permanent and contract positions. It is better for you to have a basic understanding of these two types of employment.

     Permanent employees work for an employer and are paid directly by that employer. Permanent employees do not have a predetermined end date to employment. In addition to their wages, they often receive benefits like subsidized health care, paid vacations, holidays, or contributions to a retirement plan.

     Contract employees are individuals who works with the employer under a contract. The employees are paid directly by the employer. They work for a specific job and a fixed period of time.

     After knowing the definition of each type of employment, here are three fundamental differences between permanent and contract employments:

1. Employment agreement

     The work agreement must be held by employers and employees so that each of them know their rights and obligations. With the employment agreement, the relationship between the company and employees is more focused and clearer.

     Contract employees should hold a letter of agreement, namely a temporary work agreement (Perjanjian Kerja Waktu Tertentu - PKWT). It will include the employee's tenure. As for permanent employees, the work agreement letter is called a fixed-term employment contract (Perjanjian Kerja Waktu Tidak Tertentu - PKWTT). In the PKWTT agreement, the employee’s work length is not stated 

2. Type of work

      The next difference lies in the type of work. Usually, contract employees are recruited to do seasonal work that can be completed within a few months. While for permanent employees usually is a periodic job.

3. Entitlements given

   Broadly speaking, the benefits obtained by permanent employees will be more than contract employees. Employees still have the opportunity to get a salary increase as an appreciation for satisfactory work. They also get benefits outside of salary such as health benefits, work safety, parking subscription, etc. This is inversely proportional to contract employees who only get a basic salary every month.

     On the other hand, when the company lays off the employees, permanent employees still get benefits because they will receive severance pay (Uang Pesangon – UP), compensation rights pay (Uang Pengganti Hak – UPH), and long service pay (Uang Penghargaan Masa Kerja – UPMK) for the employees who used to work for a minimum three years at the company.

    On the other hand, contract employees will not enjoy the benefits as above. Some companies impose a penalty system if a contract employee resigns while the contract period is still running.

      As you can see, permanent employees have more advantages than the contract ones, whether it is seen from the period of work and the benefits obtained. Therefore, most people prefer to apply a job that will give them a better chance of obtaining a permanent contract.

    If you are a recruiter, you should choose a system that suits your company's condition. While doing so, you have to comply with government regulations, so your company doesn't get involved in problems.