Which is Better for Your Business, a Contractor or a Full-Time Employee?

There’s been a dramatic change in employment over the last 20 years. It used to be that when someone graduated high school or college they would go to work for the same company until retirement age, but those days are long gone.

We now live in a world where people change jobs every few years. An entire generation of a flexible workforce is spending time driving for LyftUber, or some other on-demand company, and then taking long periods of time off while pursuing other interests, hobbies or even travelling the world.

This changing environment is important for any business owner to understand. When you hire someone they may only be around for a year or two (if you’re lucky), but with today’s flexible workforce, you also have options for being flexible. This flexibility means that you may be able hire a contractor instead a full time employee, depending on your needs.

Here are some tips to help you understand the difference between these two types of employees, why one may be more advantageous over the other, and what your legal choices are.

What is the difference between a contractor and an employee?

The main difference between the two is that contractors basically work for themselves, while a full time employee often fills more general position and may have less specific duties.  A contractor is usually hired to perform a specific task. Along with completing the task, the contractor will handle most of the paperwork associated with the job.

In contrast, an employee works for you. It is assumed that an employee will continue to work for you as long as both of you are happy with the work being performed. He or she may have to adapt to the job requirement and the time frame associated with the work is usually less precise.

Classifying someone as a contractor vs. an employee

Although there can be some vagueness here, it’s important to get this right, because classifying an employee incorrectly can get you into legal trouble.

Someone can be a contractor if:

  • They perform a job with their own tools
  • They work for other people besides you
  • They set their own work hours and schedule
  • They have their own office or place of business

Classify someone as an employee if:

  • You are the only person or company they work for
  • You give orders and supervise their work
  • Your equipment is used to complete the work
  • Their hours are set and controlled by you

Are there differences in loyalty and turnover?

Turnover is usually more manageable with contractors. The person is generally hired to work for a specific length of time. Without the expectation of long term employment, disengaging is less personal and easier. If their work is unsatisfactory, you can choose to dismiss them early or wait until the contracted period of time is over.

However, this is also true from the contractor’s point of view. If offered a contract that pays better or is more interesting to them than yours, they may finish up the work for you and move on. With contractors there is less loyalty, so you may lose someone that you like.

In contrast, with full time employees, it’s often very difficult letting someone go because of cost constraints or because you aren’t pleased with their work. With employees, a long term engagement is usually expected. Whether or not you want this expectation depends on your needs.

What are the cultural differences?

Think of contractors as hired mercenaries. While they might be very skilled at the job they’ve been hired for, they also tend to be less engaged with the mission of the company. Because they believe in the company’s vision, full time employees are far more likely to go above and beyond for the company.

Are there cost differences?

Cost differences can vary a lot. Although not required, benefits like health and dental insurance, paid sick leave, vacation time, etc. are usually expected with full time employees. Providing hese benefits may end up costing you more than hiring a contractor.

But with a contractor, you could potentially pay more because of their expertise at the task you are hiring them for. It’s for a shorter term where they often set the price.

Another possibility with contractors, one which can often be less expensive, is to hire someone outside of the U.S. Depending on what you are hiring the person for, this flexibility can become an advantageous, low cost option.

Where can contractors and employees be found?

A couple of great sites for hiring freelancers are UpWork and Fiverr. Along with details about the services offered, these sites provide reviews and ratings for freelancers. The prices are often lower because many of the freelancers live outside the U.S. in areas with a lower cost of living.