Summary: Maybe your business has grown, or maybe you just realize you could use some specialized help (such as in keeping the books). No matter the reason, you’ve decided that it’s time to hire some help. Should you hire an employee or an independent contractor? Let’s look at some pros and cons of each.
When deciding whether to hire an employee or an independent contractor (such as an independent consultant or freelancer), you need to keep in mind that there are legal and administrative issues tied to each option. Here are some of the things you should consider when making the employee vs independent contractor decision when hiring help for your small business:
Employees (Pros)
- When you hire employees (full-time or part-time), you can exercise greater control over them and how they work. For example, you can require that they work on-site during specific hours, and directly under your supervision (or the supervision of someone else).
- You know that the work is being done directly by the person you hired rather than subcontractors.
- You can have someone there full-time dedicated solely to your business if you need that.
- Employees can become more invested in your company and wanting to see it succeed.
Employees (Cons)
- Hiring employees costs more. You have to pay benefits, a portion of the Medicare and Social Security taxes, workers’ compensation coverage, etc.
- You’ll need to spend more time training and supervising an employee.
- There are administration issues to consider – you have to deal with tax withholdings for example.
Independent Contractors (Pros)
- You can hire contractors for short periods of time when you need specialized expertise, or you’re not confident that the business growth will yet support a full-time employee.
- Because they’re specialized professionals who work independently, you don’t need to devote a lot of time to managing and supervising them (as a matter of fact, you really can’t for them to legally be classified as an independent contractor).
- Contractors are less expensive to hire than employees – for example, they pay most of their day-to-day business expenses.
- They can work from their own place of business, so you don’t have to have space available for them.
Independent Contractors (Cons)
- You can’t legally control them like an employee – such as where, when, and how they actually get the job done, as long as the job gets done. For example, if you hire a freelance writer, they can choose to do your writing in the dead of night or on weekends if they prefer – you can’t tell them that they have to write for you during certain time frames. Their responsibility is to meet deadlines.
- They’re free to work for other clients in addition to you – that may very well include competitors or related businesses. For example, if you run a pet store and you hire a freelance copywriting to write the marketing copy for your website, you can’t stop them from writing marketing copy for other pet stores down the line.
- You can’t “fire” a contractor the way you can with an employee – you’ve entered into a contract, and are tied to that contract unless they breach it in some way.
Before deciding to hire an employee or independent contractor for your small business needs, find out about the legal differences where you live (in the US, for example, the IRS classifies your workers as one or the other). If you don’t find out the rules before making the decision, you may find yourself with heavy penalties down the road that far outweigh the benefits you received from hiring contractors (in other words – never hire someone as a “contractor” if you plan to treat them as an employee).
