Should I Hire an Employee or a Contractor

Should I Hire an Employee or a Contractor?

When it’s time to hire, do you want to hire an employee or an independent contractor? The answer depends on the type of work required and how often the work needs to be done.

Independent Contractors

An independent contractor is a worker who follows an independent trade or business and offers their services to the public. If you hire a contractor, you can control the results, but not the methods used to accomplish the work.

Advantages of Hiring an Independent Contractor

  • By hiring an independent contractor, you’ll have lower overhead costs than when hiring an employee because you’ll have reduced costs in expenses, payroll, and benefits.
  • You don’t have to provide an independent contractor with health insurance.
  • Hiring independent contractors offers more flexibility. You can hire a contractor when you need them, and when business is slow, you don’t hire anyone.
  • Most contractors are highly trained in their field, so you don’t have to train them.

Disadvantages of Hiring an Independent Contractor

  • When you hire an independent contractor, you don’t have control over the work they do. You control the results, but the contractor chooses when and how they will complete the work.
  • Independent contractors will often be working on other projects at the same time, so the’ll devote less time to your business.
  • When you hire an independent contractor, their rates can change based on the project and the overall market demand.
  • For tax purposes, the IRS assumes anyone you hire is an employee, unless otherwise stated. If you misclassify an employee as a contractor, you will be liable for employment taxes, interest, and a penalty fee.

When Should I Hire an Independent Contractor?

If you’re hiring someone to perform work that’s not central to your business, work that can be done by a professional who doesn’t need much supervision, or work on a short-term project with a defined timeline, hire an independent contractor.

Employees

A worker is an employee if you control what, when, and where the work will be done.

Advantages of Hiring an Employee

  • Employees are more loyal to your business than independent contractors. This loyalty can lead to more productivity, and the employee will be willing to take on more responsibilities as your business grows.
  • Employees in small businesses will often take on many different roles at once, which will create a flexible workforce and give your employees many learning opportunities.
  • Having an employee can make it easier to coordinate projects without juggling multiple contractors.
  • Employees see your company as offering security for their future, so they’ll invest more time and energy reaching company goals.
  • Customers prefer to deal with people they’re familiar with, so if you’re hiring someone for a customer-facing position, hiring an employee is best for business.
  • Retaining your workforce will save you money on human resources activities because you aren’t continuously recruiting new staff or renegotiating contracts.

Disadvantages of Hiring an Employee

  • When you hire an employee, you take on more responsibility. You’re no longer using your business’s success just to support your family, but you also have the added burden of making payroll so that your staff can provide for their families.
  • There are extra overhead costs associated with hiring an employee. Besides benefits, payroll, and employment taxes, you may also have to move to a bigger office or purchase more equipment.
  • You become a manager. You will have to become less involved in your industry and more involved in managing your staff.

When Should I Hire an Employee?

Hire an employee if the work needs to be done under your supervision, you want to control the hours worked and the tools used, the work is a long-term need, and the work is essential to your business.