Contractor or Employee? The Pros and Cons

If you are planning on expanding your workforce, it can feel like a mixture of emotions all in one, from excitement, to worry and stress on how you will actually go about doing this. It’s important to ensure that the right decisions around your hiring process are made as this will impact your bottom line and have many other business implications.

Below is a guide when comparing a contractor vs employee position with the pros and cons of each so you can make an informed decision about which one is best suited for you.

It’s Important To Understand The Difference Between Contractor and Employee

An employee is a fixed position worker who performs a job that is outlined by you. As their employer, you are in control of deliverables and how and when it should be completed. While an employee does have some freedom (like working from home or work only a few hours each day), you have the right to manage and direct them as it is outlined in their employment contract.

Contractors are usually hired for specific tasks or short term projects as and when needed. These tasks are less “strict” in nature as it is done without a permanent employment relationship. As the employer, while you outline the tasks needed and expected results, a contractor has more control over how the work is done.

The Pros of Hiring an Independent Contractor

Reduced costs

An advantage of hiring a contractor is that you’ll save money on employment taxes, health, insurance, and other costs you’d be liable to cover for full-time employees. When you hire a contracted worker, you won’t withhold and/or pay income taxes, medical aid, unemployment taxes, equipment costs, training, or other benefits.

Flexibility

Because contractors are not full-time working, you as the employer have the flexibility to easily increase their hours during busy periods and decrease during quieter times, which lowers your business risk.

“Trial Before You buy”

A great way to find the right candidate is to bring someone on board as a contractor to see if he or she is a good match for your business. If they meet or exceed your needs, consider offering them a full-time role if it’s both what you want. On the other hand, if they don’t work out, you can walk away without much obligation.

Minimal training

Contractors are highly trained in their area of specialty and generally only require minimal training and are ready to hit the ground running, saving businesses time and money.

The Cons of Hiring an Independent Contractor

Limited control

You as the employer don’t have total control over independent contractors. They will still have the freedom to decide how much of an active role you can play when discussing job responsibility. They are also free to take up additional client projects along with yours, which can reduce their commitment in the long run.

No fixed pricing

An independent contractor sets his or her prices depending on the demands of the project and the market demand. There is no fixed rate that you can rely on unless you agree on a fixed monthly retainer.

Relationship building

If you’re looking to develop strong employee relationships, a contractor might not be right for your business. Full-time and In-house employees know of what’s going on in the company and can assist clients more directly and freely, saving time and being more productive. Contractors don’t have that sort of access.

The Pros of Hiring an Employee

A greater sense of loyalty

Job security and the opportunity to build solid relationships with other staff members help employees to do their job more effectively. Contractors may provide employers with flexibility during times of economic stress and downturns, but employees usually possess a greater sense of commitment and loyalty to their company and employer. If you treat your employees right, you can depend on their commitment and loyalty, even when the company is not performing at its best.

More control

An employee is easier to manage than a contractor. You will have a say over the workflow of the employees, and you can coordinate projects closely. They will be more likely to meet your deadlines than contractors who work for multiple clients.

Multitasking

Your staff might also be willing to play different roles, depending on the requirement of the day. As a result, they get to learn new things and improve their skills. You will be left with a workforce that is flexible and multi-talented.

The Cons of Hiring an Employee

Legal and tax requirements

Employers are required to pay taxes and certain benefits to employees. Complying with all payroll, insurance, HR, and tax requirements make hiring, accounting, and payroll more complicated and lengthy.

Consistent payment must be made

Employees must be paid even if your business can’t afford it. Payment has to be done consistently, even if the business has a period where it’s not growing or if you’ve lost your biggest client.

Training is required

Training usually first occurs during orientation and might continue throughout the employee’s duration of the contract if needed or required by the employer. Depending on the employee’s skill set, training can be expensive and might be needed regularly. During this time, the work which was hired for cannot begin yet.

Employee vs. Contractor Checklist: Which is Right For Your Company?

When it comes to contractor vs employee, the best option for your small business depends on the type of services offered. Writers, for example, often make excellent contractors, and so does manual labor workers. Receptionists, however, are almost always better as employees because they need an in-depth understanding of the business.

When choosing between hiring a full-time employee and a contractor it’s important to make sure your company’s needs are being met. When making the decision, first find out if you can allow the work to be done without your input and/or in-person supervision. Additionally, can you trust the individual to complete the work to a satisfactory level (taking into account privacy laws, etc) and review what the financial obligations are for an employee versus a contractor.

To help determine which type of worker is best for you and your company, consider these questions:

• Can the work be done outside of your supervision?
• Can the work be completed at any time, without needing to set exact hours?
• Do you trust the individual to complete the work?
• Do you want to save money on overhead fees taxes, benefits, and materials?
• Do you need someone to complete a project or short-term work?

If you answered “yes” to these questions, then the work can likely be done by a contractor instead of a full-time employee

If there is something I want you to know about me right away, it’s that I have a passion for supporting business owners. I believe in the future of South Africa and that there are so many opportunities out there to be successful and to make a change to our economy.

I want to be part of that change by providing businesses with core HR and Labour Solutions that will not only result in legislative compliance but actually positively impact their bottom line.

Over the years I have gained practical HR experience working in various sectors such as mining, construction, financial services, and corporate legal. As a business owner myself, I can relate well to businesses and what their needs are.