3 Factors When Choosing Between a Contractor or Full-Time Employee
The traditional 9-5 office job is dying a slow death. That’s no secret. In fact, full-time workers in general are in decline. A new study suggests that by 2020, 40 percent of America’s workforce will be contract, temporary or self-employed workers. Businesses adapting to these trends love the flexibility and lower costs of non-fulltime employees.
For workers, the transition to freelancing can be arduous. However, as I've experienced myself, if you have the right temperament and you don't mind a little instability at times, you may make even more money and enjoy a greater sense of freedom and control over how much time you devote to work.
As an employer, you may have noticed that full-time employees provide a level of stability and engagement that can be hard to get from someone who is not a totally committed part of your company. You get what you pay for, and cutting costs by hiring contract workers can sometimes lead to less productivity. Here are some factors to consider when deciding which type of worker is right for your team.
Hiring full-time employees means taking on a variety of costs on top of salary: Health insurance, vacation time, payroll taxes, workers comp, etc. Especially now with the employer mandate of the Affordable Care Act, full-time employees can be significantly more expensive.
Hiring contractors can save you some of the costs of these benefits. Independent contractors can have more leverage in negotiating their wages than employees, and recently many have grown more organized in asking for benefits. Still, they’ll usually end up being cheaper.
There is one way in which a contractor can cost a lot more, and that’s if they're in fact misclassified employees. Generally speaking, if you have control over not just what the worker does but also how they do it, and you’re regularly supervising the worker, he or she is an employee, not a contractor. If you improperly classify an employee as a contractor, you could face a significant penalty.
Contractors usually work for a short, specified length of time. They come in, do a temporary job and leave. For a business in a rapidly changing environment, this could be a positive. You’re bringing in people with specialized skill sets to do a specific job, and then replacing them with new people that fit your new needs. Plus, if someone doesn’t work out, it’s much easier to let them go and replace them.
However, most companies rightly view high turnover as a negative. It comes with all sorts of associated costs such as training, recruiting and paperwork. These costs generally tend to be lower for each independent contractor, as they tend to be more self-directed in seeking out clients and require less training. Still, with so many coming and going, the costs can add up.
Just as importantly, a high rate of turnover makes it difficult to establish a strong corporate culture, an attribute correlated with long-term success. Full-time employees can carry a sense of your company’s values and goals, whereas contractors are more likely to view the relationship as strictly financial.
Going hand in hand with the last point, independent contractors tend to be less engaged with the overall mission of the company. If you treat fulltime employees well, they might go above and beyond for you, taking on extra responsibilities and working extra hard to make sure everything they produce is of the highest quality.
Many independent contractors take a great deal of pride in their work, but not so much in the company they happen to be working for at the moment. Don’t expect them to go outside the strict parameters of their job (at least not without asking for more money) or contribute in other ways. Also be aware that you may have less control over their work.
As with most decisions, there’s no choice that’s always right when it comes to contractors versus employees. You have to consider many questions. Are you looking for a specialized worker or someone with a more general skill set? How will your needs be different a year from now? What does your cost structure look like? Only by asking these questions and considering all the various factors can you make the right choice for you.
Entrepreneur Leadership Network VIP