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Do You Need a Full-Timer, Contractor or Outsourced Help?

Workers come in more varieties than ever. Use this advice to choose the best option for your business.
May 6, 2011
URL: http://www.entrepreneur.com/article/219591

When Stephanie Scott Harbour needed help at the New York office of Moms Corps, she went for a three-fer.

She hired one part-timer for recruiting, another for operations and a third for social media. "We were able to fill each functional task with an expert," says Harbour, a franchisee of the Atlanta-based staffing and search firm.

Her decision points to an important trend for business owners: It is no longer just about whom you hire, but how you structure the positions. Job candidates come in more varieties than ever before: staffers, independent contractors, flex-timers, freelancers, temps, consultants. The only real differentiator is control.

More small-business owners are facing this choice. U.S. companies with fewer than 50 employees added 84,000 jobs in April, according to the ADP Small Business Report, which is based on private-company payroll data. Small companies in the service sector in particular have had to answer the question as they, as a group, have steadily added jobs in each of the past 17 months, according to ADP.

Related: How to Hire Your First Employee

Business owners should seek a full-timer if they want to control the employee's hours, workflow and workplace, according to Dave McIntee, principal accountant at McIntee Fusaro & Associates PLLC, an accounting and financial advisory firm in Hillsborough, S.C., and Fairfield, N.J. "But if you want someone who works just when you need her, while maintaining her own business, websites, business cards and invoices, you're seeking a freelancer," he says.

Each way of hiring has its own advantages and disadvantages. Here are the pros and cons that business owners need to know when deciding how to hire the help they need.

Full-Time Employees
Pros: Small companies tend to reserve staff positions for individuals who generate revenue, hold leadership posts or require uncommon dedication. "You do better when a big part of someone's life revolves around the company," says Jason Mitchell, owner of social-media marketing agency Movement Strategy, based in Boulder, Colo., and with offices in New York City. "Breakthrough ideas don't come between 9 and 5, but at night, on the weekends and when minds are wandering."

Cons: The cost of the average full-time, W9 employee -- entitled to Social Security and Medicare tax payments and unemployment insurance -- can get pricey when factoring in health-care benefits.

A Tax Caveat
Whether you opt for full-time, flexible or outsourced help, classifying employees accurately is essential. The National Research Program of the Internal Revenue Service recently announced plans to examine a random sample of employer tax returns for 2008 to 2010 for mistakes. If the IRS cites your business, you may face the possibility of substantial fines. 

Classifying workers correctly is part of the cost of doing business. Don't put yourself in a position you'll regret years down the road. It will also help you sleep better at night.

Another downside of hiring full-time employees is that they may have unrealistic expectations about the terms of their employment. Employee disputes, for example, can lead to unpleasant consequences.

To avoid or at least minimize such problems, employers should create an employee manual -- clear, concise and friendly -- that every new hire must agree to, says Jason Boltax, founder of JHB Human Capital Management, a New York consulting firm. The handbook should outline policies, procedures and practices. "And workers absolutely need to sign it," he says. Every HR decision, right through the end of the employment relationship, should be fully documented.

Independents and Freelancers
Pros: Temporary help can be the solution for short-term assignments, quick turnarounds or tasks that demand uncommon expertise. A freelancer is often best when a project has a beginning and an end.

One big plus to hiring independent contractors or freelancers may be obvious: the short-term commitment when a longer-term outlook is uncertain.

"Business owners can't see a way out of [the recession], so they're gun-shy about committing to direct hires," says Roger Oliver, a director at the New York-based TemPositions, a division of the staffing company TemPostions Group of Companies.

Another advantage is the abundance of freelance talent available. For employers willing to take the part-time plunge, and prepared to do the work, a vast talent marketplace of temporary help awaits.

Related: Five to Follow on Twitter for Hiring

An estimated 10 million U.S. workers consider themselves independent. Of these, a sizable number are still interested in full-time work if they can find suitable positions and so are eager for clients who want to "try before they buy."

Josh Weaver was among them. Working in a temporary position at Pricefalls.com, an online marketplace based in Las Vegas, Nev., he was able to demonstrate his abilities and reliability. Eventually the company hired him as its full-time director of public relations. "They could make an educated decision about adding me to their family," he says.

Cons: Contractors work for themselves. They are more likely than full-time employees to put their own interests first and less likely to pull together as a team when sacrifices are needed.

Another potential drawback: Since independent contractors and freelancers work on their own, vetting and reference checks may be less straightforward than the usual calls to former bosses.

Mike Scanlin, chief executive of Santa Clara, Calif., investment software-development company Born To Sell, says he spent an extra six to nine months hiring independent workers, parceling out projects on the elance and odesk online talent marketplaces. The process took far more time than he anticipated. "But I saved half-a-million dollars," he says. "It's been a great experience."

Outsourcing
Pros: When a task calls for highly-specialized skills in a rush -- particularly at scale -- outsourcing can make sense. Desktop help, data centers, and customer and call centers often don't need to be an in-house operation.

What's more, outsourcing certain functions can allow you to focus on things that may be more important to your business success, says offshoring consultant Howard Kiewe, who travels between Toronto, Montreal and San Francisco and has offices in the Philippines.

Cons: You may pay a bit of a premium for outsourced help over what you'd spend to do the work in-house.

Outsourcing also takes resources to manage. According to Kiewe, three factors are key to a successful outsourcing project: a precise RFP, choosing the right organization, and designating a powerful internal liaison, ideally a strategy executive, to nurture the connection.

"You have to view it as a partnership and not a client-vendor relationship," says Kiewe.

San Francisco Bay area shipping-and-transportation consultant Kelan Raph, founder of Raph Consulting, followed that advice all the way to the Philippines. There, he spent months sourcing, contracting and hiring.

"We did encounter a few pitfalls, but the strength of current relationship is built on my ability to carve out the time to do things in person," says Raph.

Related: How to Give New Hires a Great Start