Contractor vs employee: what your business needs to know before hiring

Contractor vs employee: what your business needs to know before hiring

If you are in the midst of expanding your workforce, it can be an exciting opportunity for your business. However, it’s also important to ensure that the right decisions around recruitment are made during this process. After all, the hiring choices you make now can have far-reaching implications for your business.

Some employers may choose to go down the path of employing a full-time employee for stability and availability, whilst others may choose an independent contractor due to flexibility and speciality.

If you’re not sure about which is the ideal option for you, this article takes an overview look into the contractor vs employee dilemma. Some of the pros and cons may apply to your current situation to help you make a more informed decision about these recruitment options for your business.

Contractor

The job market is currently changing with an increasing number of people leaving their jobs to become their own boss. With this rising interest in contact work, many businesses now have the option to choose contractors over full-time employees due to the advantages they present. However, there are important factors to deliberate when temporarily recruiting a professional contractor.

Advantages

There are some distinct advantages to hiring a contractor:

It can save you money – You may end up paying slightly more per hour for a contractor vs employee, however you are also less-likely to spend as much in an overall sense. Unlike full-time employment, the fee of a contractor will not include employee insurance, holiday pay, sick leave, equipment, office space or employee benefits.

You can enjoy greater flexibility – One key reason business managers choose a contractor vs employee is because of flexibility. If your company is experiencing a busy period, you can temporarily recruit contractors to help on new projects or relieve the burden currently on full-time staff duties. Alternatively, you can reduce the support you need during slower months, so you only outsource for what you need.

Requires less management – Once a professional contractor has been given a briefing (or SOW) and a deadline, they will generally be able to get on with the task at hand. This mean less time that you will need to dedicate on staff training and management, so you can focus on other key tasks and demands of the business.

Disadvantages

Whilst there are numerous advantages of hiring a contractor, there are some disadvantages to consider:

You may have less company loyalty – Because contractors are flexible and may work with multiple businesses at any one time, they may not be required to prioritise your company objectives or apply the same level of loyalty and dedication towards your business compared to an employee.

You have less authority over contractors – Although you can set guidelines, requirements, and deadlines, contractors are more autonomous, and often advise on how they can best carry out the task which you have hired them for. This could mean they work outside of normal office hours or they can be more challenging to maintain open communication with.

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Employee

Whether you’re an established business or just starting up, your first thought may be to hire a dedicated, full-time employee due to the company culture and long term commitment. Whilst this might be the right route for you, make sure you are aware of the pros and cons.

Advantages

Here are some of the advantages of recruiting an employee:

You can build a stable team – When you hire a full-time employee, it’s much easier to create a strong and loyal team that works well together. You can also provide much more direction and staff are more likely to be invested in the business and its overall success.

Help is readily available – If for any reason, you find yourself with a gap in your business (for example if someone’s on holiday or off sick), you have a team of staff who can pull together to help keep the lights turned on.

Your staff know how things are done – Over time, your employees get to know you, the business, its processes, and the work that needs to be carried out. This is an often-underlying factor that can help ensure that your business will run smoothly and effectively, something that managers need to remember.

Everything is in-house – Whilst there are many advantages to finding a contractor, some managers may prefer to hire an employee, simply because it keeps everything in-house. This makes it easier to manage workloads, lead staff and keep any private information secure.

Disadvantages

Don’t forget to take into consideration some of the challenges of hiring an employee:

You must invest in your staff – Investment can be a costly burden to your business, both in terms of time and money. As well as paying their salary, insurance and for equipment, you need to also include the monetary and non-monetary costs for an ongoing mentoring program, training, performance reviews and much more.

You may hire someone that is a bad fit – If you hire an employee who isn’t a good fit for your business, this can end up being a big drain on your business resources and may become a longer issue to deal with.

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Contractor vs employee – how to choose?

What may work for other businesses may not necessarily work for yours. So, when deciding on a contractor vs employee, it comes down to setting clear objectives and KPIs. Do you need someone that has specialist expertise, or can fit across a broader spectrum of tasks? Do you have enough work to warrant hiring a full-time employee, or do you only have need for someone who is more flexible? Are you prepared to make a long-term investment into the training of a new staff member, or do you require an experienced professional who will just get the job done?

These are all important questions you will need to answer to help you decide which route is best for your business. However, don’t forget to also think about the long-term, as what is right for you now, may change six months to a year down the line.

Are you planning to hire a contractor vs employee? Or is an employee a better fit for your business? Let us know what key factors influenced your decision by leaving a comment in the box below.

This blog was originally featured as "Contractor vs employee: what your business needs to know before hiring" on the Robert Half Australia Blog.

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