Small Business Hiring: Contractor Versus Employee

small business hiring

Going it alone in business can be a real challenge. There are pages full of ‘to do’ items and not nearly enough time in the day to get them all done. You’re constantly assuring yourself that you’ll get to it, whatever “it” is, done tomorrow, but tomorrow never seems to come. It might be time to think about hiring someone to help you out.

If you find yourself in the position of having not enough hands for the job, but enough cash flowing in to hire some help, you might be thinking of adding someone to the team. But, should you hire an employee or get yourself a contractor?

Small Business Hiring: Contractor vs. Employee

There are two main options when you decide to add a new member to your team: hiring a full-blown employee or hiring a contractor, in some circles referred to as a freelancer.

An employee is someone you hire, you pay them a specific salary (or a wage), and you have an employee-employer relationship with a contract (written or implied) between your organization and that person, and you control the work they do.

If you are thinking about hiring an employee, you should know there are different tax implications such as withholding state or federal income taxes from their pay. Employees also typically work for one (or perhaps two or three, depending on their hours and personal financial situation) organization. And employers typically provide benefits such as health insurance, vacation time and RRSPs.

A contractor is typically self-employed, though they might be employed by another organization. And are typically hired for specific projects which may be on-going or not. The biggest difference when you hire a contractor is that you have a contract between your business and another business (the entity the contractor works for, in the case of self-employment it would be their entity).

Typically, when you hire a contractor you do not withhold taxes but simply pay them whatever the agreed compensation is. Contractors handle their own taxes on their end. And contractors also tend to work for more than one client.

Hiring Employees

Two major benefits of hiring an employee are, you control their schedule (specifically their work schedule) and you train them as you see fit, however is best for your company. Hiring an employee typically sees a longer-term relationship with the intent for the employee to grow and move within the company (in a perfect world).

But hiring an employee also means you have to make accommodations and deal with taxes and benefits. Making accommodations means you need to provide your employees with the tools to do their job. If you require them to work at the corporate office, you need to provide them with an office. And if their job requires a computer, you’ll provide that computer. Dealing with employee taxes and benefits can also cost you additional money, in both cold hard cash and time resources.

Generally speaking, hiring an employee might cost less on the bottom line but more in resources and time. But you hire and train employees to do the work you want with an assumption of a longer-term relationship. Hiring an employee might be right for your small business if you need more hours a longer-term work that may vary such as hiring an assistant.

Hiring Contractors

Contractors mean reduced overhead. Unless it is previously stipulated in your business-to-business contract, you do not need to provide them with the means to do their job. If they need a computer and program to run graphic design software, you can assume they will have it. Likewise, if they need a space to work they will provide it.

Generally speaking, you’ll likely pay higher rates for contractors, but you’ll get less hassle in the long run. A contractor will accept a job and complete it with as much or little input and time on your part as you’d like. However, when it comes to a contractor you do not have a say over their time (unless previously agreed upon) or necessarily when they do the work (though you provide a deadline).

Hiring a contractor might be right for your business if you need a few hours a month or work on a short-term project like writing your company blog or designing you a newsletter. It also might be a great option if you need specialized skill but don’t have the budget to hire someone at a salaried rate.

Should I Hire a Contractor or an Employee?

Hiring an employee or a contractor is a decision you should make based on your business needs. If you are ready to grow and need consistent long-term help, you might look toward the prospect of bringing on a permanent team member. But if you just need a little help here and there with a skill set you don’t know, like graphic design, audio production or video editing, consider hiring a more specialized person for a shorter or limited amount of time.

Most of all, you need to look at the long-term goals of your organization and decide which path works best for you and your work. Happy hiring!

Do you have insights into hiring contractors versus employees? Share them below!

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