If all of your developers or HR reps are contract workers, you may have to hire an outside manager for a senior position, which could cost you more money, both in salary and training. One of the biggest benefits of hiring full-time employees is that they grow with the company. After all, training any new worker requires time and funds — and these are two things small-business owners don’t always have an abundance of on hand. In fact, you may not even personally have the skills to train an employee in the tasks required for your business. For this reason, independent contractors tend to be the best choice if you need specific expertise for a project in a short period of time.
- Analyze your team’s work hours (and how frequently you hire contractors) with Toggl’s powerful (and free) software.
- Contractors are typically hired for specific projects or skills, while full-time employees work as part of the company’s long-term vision and culture.
- Employers invest in their training and development—as they hope to retain them for an extended period.
- Contractors assume more liability for their work, including potential legal risks related to project outcomes and client satisfaction.
However, they may want the stability of a full-time (or even part-time) position with your company. Freelancers and contractors who work with your competitors can give you insights into best practices (within ethical boundaries, of course). To determine which employment structure best suits your business, you need to understand the nuances of these employment structures.
Full-Time Salary Pros/Cons
W-2 employers cover much of your tax burden before you get paid, so you may not even be aware that they’re covering such a big cost. The tax burden is often a big shock for folks who decide to go independent as a freelancer or contractor. If you need to solve a short-term problem, a contractor is often the right way to go.
Effective Management Techniques for Contractors and Employees
Contractors often work remotely and can be based anywhere in the world. On the downside, they don’t receive employer-provided benefits such as health insurance, retirement plans, or paid time off. They more often than not don’t receive a laptop, for example, because having equipment could mean they’re employees masquerading as self-employed individuals.
For short-term contractors, set project-specific milestones to ensure goals are met without day-to-day supervision. Long-term contractors benefit from established workflows and regular feedback, while employees thrive with consistent, growth-focused KPIs. Legal considerations can vary significantly between contractors vs. full-time employees.
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Discover actionable steps, legal insights, and impactful strategies to drive growth. Both types of contractors require contracts with clear IP ownership and confidentiality terms to safeguard proprietary information. Employment laws and penalties around misclassifying a worker vary widely depending on where the person lives.
When To Hire Contractors
Of course, one of the less-obvious (but very important) benefits of long-term employees is a sense of family and community. In today’s low-minimum-wage environment, many people use contract work to earn higher hourly wages – at least for some of their work hours. Today’s business leaders eventually all end up facing the contractor vs. full-time employee dilemma. One of the advantages of W2 employees is that they tend to create a sense of community within the workplace. Long-term employees often feel they have a personal stake in the success of the company and become great word-of-mouth marketing tools. As the employer of a 1099 contractor, your only responsibility is to pay the contractor’s fees as invoiced, then supply a Form-1099 each January detailing payments made.
And they can be proud of the work that they’re doing to not only benefit the long-term success of their company, but the labor market and society as a whole, as well. In the end, the right choice comes down to understanding your own motives. Keeping costs down has become a high priority in a corporate world where profits have become the primary product. American (and global) workplaces are trending toward greater flexibility. In this climate, your business will probably find that a hybrid approach works best. U.S. lawmakers haven’t created many distinctions between full- and part-time workers (hence, my use of “full-time” throughout this article).
Just as with independent contractors, there are hidden costs that businesses incur as a result of W2 employees. Some of these are a little more obvious because they are actual expenses. However, all will factor into your decision as to whether contract or full-time workers are best for your business.
So, to make smart hiring decisions, businesses should keep in mind the scope and duration of the project, budget constraints, and the level of supervision they believe they need. Also, and tacitly, full-time employees are expected to work only one job. This was a given before the work-from-home era, because no-one could have two jobs if they were expected to show up to the office. It has recently changed—it’s known as overemployment—but the norm is still that each full-time employee works for contractor vs full time one employer only.
In an age when companies need highly educated and highly skilled technical workers, the combination of these factors can prove very persuading. Companies change quickly—especially when they’re first finding their place in the market—and they may need a completely different skill set in a years’ time. As pointed out in the Wharton article linked above, companies are trying to reduce their overhead costs (whether that actually works or not). Not all consultants are contractors; some contractors are consultants. Simply follow the money – if you’re paying a person directly for their expertise and their work, they’re a contractor.