How to choose the most suitable type of employment contract

Are you hiring a new employee? There are different types of contracts: temporary, permanent, and flexible. Follow these steps to help you decide which type of contract best suits your situation.

The employment contract that you enter into with your employee establishes your rights and obligations. A KVK entrepreneur adviser explains how to choose the right employment contract and how to evaluate it after a certain time has elapsed.

Step 1: temporary or permanent?

The first step is choosing whether to employ someone or to temporarily hire someone. Think about why you want to employ someone. Take a step back and look at your business, your vision for the future, market, and competition. For example, do you want to bring in more sales or knowledge? Or do you want to grow and open an online shop in addition to your store? Compare your reason for hiring with the market and your competitors, so you can see where opportunities and threats lie. But take care not to get caught up in details.

Temporary hire

Do you need extra hands, but do not want or cannot hire permanent staff yourself? Then hiring a temp through a temp agency (uitzendbureau) or secondment agency or bringing in a self-employed professional can be a solution. Risks such as sick leave are then borne by the external party.

Be aware though that if you hire an employee through an external party, you will pay (in Dutch), on average, twice the normal gross salary. Employer's expenses, such as holiday pay, tax, and health insurance contributions are included in this hourly rate.

Permanent employment

Employing staff helps your business grow. Permanent employees are more familiar with the work and the clients. In the longer term, this helps you maintain quality and expertise.

If you want to hire permanent staff, though, you need to think about the following issues:

• Can you afford the costs? These include salary, holiday pay, and contributions for employee insurance. You also have additional secondary or tertiary terms of employment. For example,  a thirteenth month, bonus, or lease car. You must pay all these costs. You can calculate the wage costs using, for example, an online tool. (in Dutch).
• Can you handle the extra work, such as recruitment and selection, administration, organisation, and management? If you hire someone yourself, you will need time for these tasks.
• Can you cover the risks? When you employ staff yourself, all risks are your responsibility. This includes, for example, sick leave. You can cover these risks with absenteeism insurance. Calculate via insurance companies’ online tools of what such insurance costs for your situation.

Are you willing and able to hire permanent employees yourself? Continue reading step 2 below.

Step 2: temporary or long-term employment?

Determine whether you need personnel for a temporary or long-term period.

Long-term work

The longer someone works for you, the better they know the company and the work. Do you expect the work the employee will do to continue for the next few years? Then a permanent contract for an indefinite period  might be appropriate. In this situation, you enter into a long-term working relationship and you can test during the probationary period whether someone fits in your company and performs the job well.

A long-term contract suits several situations, for example:

• You are replacing a long-term employee who is leaving.
• You are looking for an employee to fill a new position for the next few years.
• You expect a lot of work in the future.

During the coronavirus lockdown, our adviser regularly spoke to hospitality entrepreneurs who were already anticipating the job market after the lockdown. "The hospitality industry was experiencing staff surpluses during the lockdowns. Restaurants were then buying up good cooks from other restaurants at the time, so that when they reopened they could distinguish themselves with high-quality food. So don't just look at this moment, look to the future."

Temporary work

Sometimes temporary staff is the best solution, such as in the following situations:

• You are dealing with seasonal peaks and you are looking for staff for a certain period of time. Then a temporary contract of, say, 6 months is sufficient.

• You want to hire someone for a specific job, such as building a house. Then the duration of the work is the deciding factor.
• You can also hire an expert temporarily to gain knowledge about a particular subject.

Do you want to opt for a temporary staff member? Then continue reading step 3 below.

Step 3: on-call hours or fixed hours?

You have already come a long way in determining which employment contract suits you best. The final step focuses on the number of working hours. Now that you know whether to hire someone temporarily or permanently, look at the actual number of work hours you can offer.

On-call worker

Do you need someone who can be flexibly employed? Then hire someone on an on-call contract. This is a good choice in these situations, for example:

• If you have some work every week, but not full-time.
• If you do not always have work, but can determine in advance when you need extra hands.

Fixed working hours

Do you want customers to recognise your staff and therefore trust your company more? In several situations, a full-time contract works best:

• If you have enough work each week.
• If you are looking for someone with expertise to grow your business in terms of knowledge. For example, additional knowledge often provides more efficiency or higher quality, which in turn can lead to more sales.

You can choose to offer a temporary contract, possibly with a chance of a permanent contract.

Evaluate and update

Whatever contract you choose, evaluate it after some time. If necessary, convert the contract. For instance, turn a high-performing employee's temporary contract into a permanent contract. Or change an on-call contract to a temporary one if the workload stabilises.

A few tips:

• Before an employment contract expires or leading up to performance reviews, evaluate whether the type of contract is still appropriate.
• Check that what is in the contract is actually being performed. Are your staff working the number of hours in the contract, for example? Legally, the work your staff actually does outweighs what is in the contract.
• Check the entire personnel file. Have a complete personnel file including contract type and date, so you know if and where you can scale up and down as needed. Is there cohesion between positions, are you missing certain expertise or are employees leaving? Take this into account when choosing an employment contract.

You now know what employment contracts there are, including the pros and cons. If you are hiring staff for the first time, check what else you need to arrange. And watch the video below, in which three novice bosses explain which type of contract they chose.