Hiring employees can be more expensive than hiring contractors due to the cost of training, benefit packages, and expectation of raises and bonuses. But employees are better equipped to take on additional responsibilities and have more flexibility to help your business succeed. Contractors are typically paid by the hour or project and do not require these other costs. However, they do require more independence. Depending on your business needs and other factors like taxes, benefits, and worker supervision, one option may make more sense than the other. Learn how to evaluate these variables and determine whether you should hire an employee or a contractor.
What’s the Difference Between Contractors and Employees?
Employees are typically full-time, permanent, and awarded benefits offered by the company, while contractors are often part-time, temporary, or project-based and receive limited to no benefits. Both are given tasks to complete for the business, but employees are typically assigned more diverse tasks and managerial responsibilities, while contractors tend to focus on duties that can be handled independently.
Work Supervision
Business owners have more control over where, when, and how their employees perform tasks. Contractors receive less direction regarding how tasks are completed. If you desire more worker supervision and project oversight, hire employees. Contractors can fill your business needs for more flexible, low-supervision projects.
Benefits
Employees are often offered benefits by their employers, such as health insurance, retirement plans, paid vacation time, and sick days; contractors are not. Employees are also incentivized to perform well with raises, commissions, or bonuses. Contractors can be offered incentives as well, but it’s not expected.
Relationship
A contractor is often hired for a specific project, and businesses can decide to continue or terminate the relationship after the project has been completed. Employees are hired on a more permanent basis and typically have longer, more stable relationships. Independent contractors work for themselves while providing you a service or product, while employees work for you on your terms.
Payment Expectations
Employees are compensated on an hourly or salaried basis and are paid on a fixed recurring pay period. Contractors are paid by the hour or project according to prearranged terms. Accounts payable pays a contractor after receiving an invoice. The contract terms should dictate when payments are made, such as upon completion of a task or in periodic amounts.
Employee or Contractor: Which Is Right For You?
To decide who to hire, ask yourself some questions. Do you need control over how and when a job is performed? Can you provide tools and supplies for the task? Would you rather relinquish direction and save money or maintain control and spend more? Are you seeking to fill a temporary need or looking to fill a critical role in your business?
When Contractors Are Right for Your Business
Solid business-contractor partnerships are built on clearly defined expectations, good documentation, and mutually beneficial goals. Stability for the contractor and risk management for the business allows both parties to work in harmony. As long as you deliver your end of the deal, partnering with a contractor can mean less red tape and cost-effective task completion.
When Employees Are Right for Your Business
Contractors are loyal to their own business goals first and may leave for a better offer if it comes along. If you value reliability, need more worker control, or hope to hand-off administrative and managerial duties that will require training, hiring an employee may be the better option.
A Best-of-Both Worlds Option
Some businesses choose to use full-time employees and contractors. How can you hire and manage both employees and contractors within a business? Delegate tasks and divide up work according to skill sets so that each group has something they can handle well. If you want to hire short-term help, decide on the best contractor for each project based on skill and expertise. If you want to hire employees, find individuals to fill a specific role, and decide what the position pays and how a person will perform their job.
The Bottom Line
Make sure you know exactly what you require from a worker and how much you can invest in them before hiring anyone. If you need a full-time worker to help run the business and are willing to spend the time and resources, hire an employee. Partner with a contractor if you can offer a competitive hourly rate and need flexibility but can’t offer benefits. Either way, clearly define expectations beforehand and treat both kinds of workers with the respect they deserve.
