The Pros and Cons of Hiring Contractors vs. Employees
When you’re ready to expand your business and grow your team, you generally have two options for increasing your workforce: hiring employees or engaging independent contractors.
Both options have pros and cons, and determining which is right for your business comes down to your individual needs and preferences. Keep in mind, the U.S. Department of Labor (DOL) draws strict distinctions between these two groups, and you could be heavily fined for misclassifying your contractors.
Once you’ve weighed your responsibilities as an employer and business owner, it’s time to consider the pros and cons.
Overall, hiring an employee provides greater control, flexibility, and a long-term relationship, but it also means greater costs and responsibility. Consider the following:
Pros of Hiring Employees
- Immersion in company culture and mission: Employees who understand the company’s mission and culture are typically more engaged and invested in the performance of the company and will become advocates for you in the marketplace.
- Valuable long-term investment: The more your employees learn and grow with you, the greater the assets they become to your organization. They can advance to managerial roles, be repositioned to serve new needs, assist with training new employees, and provide perspective on growth and evolution of the company based on their experiences growing with you.
- Greater flexibility: Employees can be trained up and reassigned as needed to suit your company’s needs.
- More consistency: Employees are dependable team members with consistent schedules you can adjust to align with the company’s core hours and needs. You always know if and when they are available to help you with your next project.
Cons of Hiring Employees
- Increased overhead costs: Hiring employees goes beyond salary. You must consider the costs of benefits, payroll taxes and worker’s compensation, as well as physical costs such as technology and workspace.
- Responsibility for growth: Employees are a commitment and should be treated as such. Continuing education for your employees and upskilling them so they do not stagnate in your company is your responsibility.
- Strict labor laws: There are no shortage of labor laws you must follow with employees, ranging from overtime to accommodations to family and medical leave.
- Potential for bad hires: Searching for, interviewing and hiring employees takes time, energy and money. If you make a bad hire, it can be challenging to let the employee go, and it can be costly to start the process over.
Overall, hiring a contractor is less commitment and lower cost, but you don’t get the company loyalty or consistent availability.
Pros of Hiring Contractors
- Access to advanced skillsets: Contractors can provide access to an advanced skillset you need for a special project or for a long-term commitment but possibly cannot afford to hire for at the time.
- Flexible, short-term commitment: Short-term commitments can be good for special projects when you don’t need a contractor’s skills on a permanent basis, and they also release you of some of the legal burden of letting an employee go. Contractor agreements are generally at-will, allowing you to move on if someone is not a good fit.
- Less supervision: Less energy and time is needed on your part because the contractor works independently and on his or her schedule.
- Low-cost asset: While you will have to pay a fee or wage, you do not have to provide the benefits, employment taxes or other associated costs you would with an employee. However, contractors may come with an initial sticker shock as you will need to pay them more than you would pay an employee, keeping in mind they are responsible for paying their own employment and income taxes.
Cons of Hiring Contractors
- Lack of brand loyalty: Contractors are less likely to buy in to your culture or garner any brand loyalty. Additionally, they likely work with multiple companies and set their own priorities on whose work comes first.
- Limited internal knowledge: Since contractors are not working within your business, they may have limited knowledge of your internal workings, preferences or products. This can require more time spent editing their work.
- Inconsistent schedule: Contractors operate on their own schedules. They often have the right to deny work based on their preferences or time commitments.
- No control: Contractors are free to complete the work in a manner that suits their skills and schedule. You do not have control over their schedule or process.
Determining which route is right for your business is personal. There is no one-size-fits-all answer for each business or even each industry. Your rate of growth, risk tolerance and organization structure all play parts in determining whether hiring employees or contractors is right for you. Contact Goering & Granatino for assistance with this decision.
Frank Granatino, CPA, of Goering & Granatino is a graduate of Missouri State and a CPA, but, moreover, he is a problem solver who uses his deep knowledge and understanding of the industry to find ways to do things faster and more efficiently for his clients. From creating customized reporting templates to spending time with his clients to educate them on how best to organize their businesses, Frank helps companies perform at their best. Often, we have clients comment that Frank feels like a member of their teams. He gets in there, rolls up his sleeves and makes things happen.