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Hired Help

The pros and cons of hiring independent contractors.
Magazine Contributor
3 min read

This story appears in the October 2008 issue of Entrepreneur. Subscribe »

In entrepreneur Bruce Law's former life at a corporation, his unit's regular work virtually came to a stop at the same time every year when a certain big annual project was due. Today, Law, 46, keeps his company's wheels turning during both fast and slow times by using a corps of independent contractors to provide flexible, skilled help just when he needs it.

"We use [independent contractors] for two reasons: flexibility and variety," says the founder and president of Salt Lake City-based Sprout Marketing, which has 15 employees and 30 to 40 people on contract at any time. "You don't have issues of hiring and firing and morale. You can scale up and then scale back if something doesn't pan out. And you've got fresh ideas. You get experience from different areas, and you can bring that experience when you need it without trying to hire a full-timer."

The number of entrepreneurs who subscribe to Law's way of thinking is growing steadily. Of every 100 workers engaged by entrepreneurs in June, 3.54 were contractors as opposed to regular W-2 employees, according to the SurePayroll Contractor Index. The payroll service reports that June marked the fifth straight month in which entrepreneurs increased their contractor use.

Financial flexibility and added expertise are key contractor benefits, agrees Rebecca Mazin, an HR consultant and co-author of The HR Answer Book. In addition, she says, entrepreneurs seem to use contractors more intelligently than they do regular employees. "When you hire a contractor, you tend to be more specific about what you need done than if you're hiring an employee," she explains.

Contractors can also present significant hurdles. Improperly classifying employees as subcontractors is a common way to run afoul of wage and hour laws and risk fines and other penalties, Mazin says. Because they aren't usually vetted as thoroughly as employees, contractors probably shouldn't have access to confidential information, she adds. To avoid wage and hour complaints, Mazin advises treating contractors well, paying them fairly and on time, and avoiding teaming them with employees who receive benefits and other added compensation for doing the same job.

Law warns against counting on any given contractor to be available when needed for a new project and says they can be hard to find compared to regular job candidates. He networks with other entrepreneurs to build a database of potential contractors and says he adds a couple of names a month to his list of potential contractors. He expects to continue using contractors to keep his company healthy. "I want to keep our overhead in control," he explains. "But I want to do lots of projects."

Mark Henricks writes on business and technology for leading publications and is author of Not Just a Living.

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