The Pros and Cons of Hiring Employees vs Hiring Contractors

So your small business is doing so well that you need to hire help. Congratulations!

Decisions to hire employees or contractors for available positions can be complex, based upon your needs. A look at the pros and cons of each may help you decide. Hiring either an employee or an independent contractor will require some paperwork. Employees need to complete IRS W-4 form for withholding, complete company benefits documents, and other such paperwork. Independent contractors require the creation of a freelancing contract.

Employees Buy Into Your Company and Its Culture

Your company offers a vision of security for employees' futures, so they're more likely to invest more of their own time and energy into furthering your company’s goals and participating in company projects. Those groups of grinning people wearing company T-shirts and frying up hot dogs for charity? They’re not contractors.

Employees Provide Dependable Expertise

If your business has a constant need for targeted skills expertise, hiring employees increases chances that you’ll always have the right person for the job at hand.

Employees Provide Continuity of Service

If you run a service business, you know the challenges of hiring and adequately training solid, reliable service staff, and the consequence of an inability to retain them. Customers rely on knowledge and consistency in meeting their needs, and you have things to do besides your staff's jobs for them every time a customer comes in with a question requiring just a smidge more than cashing them out.

No business operates well without someone faithfully -- and pridefully -- serving as a repository of industrial knowledge and operational procedures. If you don’t have such people whom you trust in this respect, it’s going to be you.

For all of these reasons and more, customers generally prefer to deal with people with whom they’re familiar, so customer-facing positions particularly should be reviewed and revered for their acumen. When you're lucky enough to onboard a salesperson with all of these qualities in abundance, your investment in their success will almost inevitably be compounded.

Hiring Contractors Provides Staffing Flexibility

If your small business is like most, it has busy periods followed by less busy periods. Freelancers can save you from having to carry staff during slower periods. Trusted contractors also provide the extra hands sometimes needed to take on projects which would normally be too much for regular staff to handle on top of their own responsibilities.

Contractors Provide Missing Expertise

You may find that you need someone to do perform specific tasks or launch projects which fall outside your regular employees' scopes of expertise. Hiring an employee on a fulltime basis to do the work wouldn't make sense -- your business won’t have a continued need for the expertise involved. A publisher, for instance, may need an illustrator for a particular project. Or a business may need to hire someone to train staff to use a new application.

Decreased Paperwork

Hiring contractors instead of employees can cut down on your administrative paperwork. In Canada, for example, if all the people working for you are contractors/freelancers rather than employees, your payroll procedure is greatly simplified because you won’t have to open a payroll account with the Canada Revenue Agency, fill out and remit related tax forms, and withhold various taxes. Similarly in Canada, utilizing a contractor-based workforce also reduces your need to fill out the reams of forms related to employment such as the Record of Employment (ROE).

Contractors May Cost Less

Salaries being equal, the cost of employing a contractor rather than an employee to fill a full-time position may be cheaper. Contractors aren't offered benefits packages: Medical, dental, pensions, contributions to Employment Insurance – these are all costs that contractors bear themselves. You may be able to contract out specific projects for less than an in-house employee would make to do it. Some types of work, such as programming, mobile development, writing, marketing, and design are rife with freelancers – freelancers who are easier to find than ever thanks to websites such as UpWork and Freelancer.

So Do You Need a Contractor or an Employee?

Deciding whether you hire a contractor or an employee depends greatly upon what positions need to be filled, and how and whether you see those positions evolving. For short-term positions not requiring expertise you need to have on tap at all times, hiring a freelancer can be a great alternative for your small business.