The reason you would want to do a mercenary contract currently, is that you can do it at Clan Level 1, compared to needing Clan Level 2 to be a vassal.
It allows you to begin doing stuff like raiding farms while still under a particular kingdoms protection. Granted, there should be no penalties of leaving as a mercenary.
You can upgrade from Mercenary to Vassal by talking to the ruler of the Kingdom when you are at least Clan Level 2.