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As a small business owner, you want to make sure that you’re bringing on the right people to help your business succeed. But you also have to take your budget into account and consider how much you can afford to allocate toward staffing expenses.
But how do you go about making this decision during the recruiting process? What is a contractor job, and what are the differences between an independent contractor and an employee? In this article, we’ll cover everything you need to know about employees vs. contractors so that you can confidently and strategically assemble your dream team.
Employee vs. contractor: What’s the difference?
Before we can identify which type of staff member you need to bring onto your team, we first need to establish exactly what each term means. So, what exactly are the characteristics that qualify someone as an employee vs. contractor?
Simply put, an employee is someone you bring into your company as a long-term investment into both the future of your business and that individual’s professional development. That is, you’re bringing them on because of their unique skill set and intend to help them grow their skills in the interest of benefiting your company. There is no set duration for their employment.
As their employer, you must ensure these individuals receive the full range of benefits and protections afforded to them under both state and federal laws. This includes wages, working conditions, and compensation for overtime. An employer must also ensure that they’re appropriately abiding by payroll tax regulations, paying the required portion of FICA taxes, and paying for unemployment and worker’s compensation taxes in order to appropriately protect the employee in the event they are laid off or unable to work for any reason.
A contract worker, on the other hand, is someone that is brought on to complete a specific task or project. There may or may not be some longevity to this work, but either way, they aren’t intended to become part of the company or workplace culture in the same way as an employee. Since they’re not integrated in the same way, you’re not required to cover costs for the same range of benefits and protections as you are for an employee.
Unlike the long-term investment you make with an employee, a contractor typically only works for a limited window of time. Once the work you’ve brought them on to do is complete, or the period of time you’ve contracted them for comes to an end, you no longer work together. It’s also possible to work with a contractor on an ongoing basis with the understanding that the relationship is not permanent.
The pros and cons of hiring employees vs. contractors
Although there are additional financial and legal layers to this kind of professional relationship, the benefits of bringing on an employee are many. These benefits include having the right to determine and direct their work while they’re employed with your business and being able to train them as you see fit so that they complete their tasks to your standards. Since you have more control over their workload, you’re able to adjust their role and responsibilities within certain parameters should your company undergo a sudden or unexpected change.
You can also negotiate their title and contract if you decide their skill has grown in such a way as to require a shift in the role or responsibilities they hold within your business. Hiring someone as an employee is best for small business owners looking for a long-term professional investment. By hiring a new employee, you’re bringing someone in to help build your culture and brand. You ensure that person will become a key player in the future of your company—you’re investing in their development so that your business can also benefit.
If you’re not sure whether the workload warrants a full-time team member and are instead looking for support on a specific, one-off project, an employee might not be the right choice for you.
When you hire an independent contractor, you’re bringing on a highly skilled professional who can jump right into the task at hand with minimal guidance or training. They’ll take control of the project and work with you to make sure it’s done to your specifications. Once their work is done, their contract with you will end.
As a business owner, you have far less responsibility for a contractor. You are required to pay them the wages you’ve agreed to, but otherwise have far fewer responsibilities in terms of fostering their professional development, providing benefits, contributing to their retirement funds, or supporting them in the event they’re unable to work for any period of time.
However, because they’re just coming in to complete a specific task or project, you may struggle to get a contractor invested in your brand or the culture of your company. The fact that they do not have the brand knowledge or experience of an employee could cause friction or delays in their work.
Choosing between a contract worker vs. an employee
Both contractors and employees serve important roles—there is no right or wrong approach to building out your team. At the end of the day, you just need to weigh your business’s specific needs and circumstances:
- Are you looking for a long-term collaborator to help evolve the culture of your business? Or are you looking for someone to complete a task or project that will help your business advance to the next level?
- Do you have the time, money, and resources to invest in another long-term employee? Or would a shorter commitment better suit the needs of your business at this time?
- Is the work you need to do enough to sustain a long-term position? Or could it be completed by a qualified person in a shorter period of time?
Regardless of where you wind up in the employee vs. contractor debate during a particular round of hiring, you can always rest easy knowing you have both options available to you as a small business owner.