Should you hire staff or contractor/consultant?
Some Pros and Cons
You’ve got work to do but your current team doesn’t have enough horsepower to achieve the goals. How do decide whether to hire new staff as employees rather than engaging an independent consultant or contractor? This decision can be challenging as each option offers a number of pros and cons, and can have significant impact on your business. In the current state of the economy with limited qualified labor, we are often asked to advise clients on the most optimal way to satisfy staff needs. Below we share some of the most important pros and cons when considering hiring staff versus contractors.
Hiring Staff: The Pros
Greater Supervision – When you hire employees, you are able to oversee their work as closely as desired. You can dictate priorities as well as how the project is completed and the type of equipment and standards to be used. This allows you to better control both the end product and client experience. Close employees are also a benefit when you want to establish long-term or permanent responsibilities and relationships.
Train To Fit– Hiring permanent staff also allows you to train and guide—especially useful when taking on less experienced employees to save on salary and overhead. You may also have specific and proprietary ways of executing processes and data that you can pass on to rookie staff members.
Grow Experience – Ideally staff members grow with your company, saving you the expense of having to search for and hire more people in the future. Plus, as team members accumulate knowledge, their work becomes more efficient and productivity and profitability should rise. Subsequently it is much less expensive to retain employees than to continually replace workers or repeatedly seek out contractors.
Hiring Staff: The Cons
Managing Payroll – The management and administrative burden of wages, benefits and related taxes is very involved and more complicated when hiring staff. You’ll be responsible for withholding and submitting taxes on behalf of employees and paying and reporting on your company’s portion of employment taxes. Additionally, you’ll need to provide insurances and benefits to comply with a myriad of regulations as well as incentives to compete for the best labor in your market. All of this requires considerable time and could double how much you have to pay above the base hourly wage or salary.
Can’t Adapt to Fluxes – If your company is just starting up or has a variable or unpredictable workload (whether by nature of the business or compounded by economic forces) it can be difficult or impossible to provide stable employment and carry the burden of payroll overhead. Dismissing permanent employees is tough for most supervisors, requires careful consideration and documentation, and can be costly for unemployment insurance and any severance packages. And don’t forget there are intangible consequences as well: layoffs often diminish moral and trust among remaining employees, and this can negatively affect productivity as well as your company and personal reputation.
Hiring Contractors: The Pros
Leverage Expertise When Needed – Frequently jobs require specialized skills, experience or licensing that your company doesn’t necessarily require year-round or long-term. One of the best reasons to engage independent contractors and consultants is to take advantage of that team’s strengths rather than pay an employee for his or her current expertise, as well as the necessary training to keep them engaged and highly-capable. Plus leveraging a consultant’s experience, lessons learned and network of resources normally saves you time and minimizes surprises.
Match Seasonality and Workload – The other primary advantage of engaging a consultant or contractor is to better match unpredictable workload or seasonality trends. Contractors can be hired for as long or short as needed ranging from a single task to an entire project, or even an outsourced advisory role for years. This flexibility helps you correlate labor costs with the timing of needs and should lead to greater profitability. Plus you don’t have to worry as much about finding other work or the emotional burden of terminating employees.
Easier Payroll – Other than your accounting group having to issue a 1099 each year, you needn’t worry about the liability and all the paperwork associated with permanent employees. Independent contractors are responsible for all income and employment taxes and costs of benefits and training along with administering payroll to their staff. Keep in mind this is one of the reasons that what you pay a contractor appears to be much higher than what you would pay an employee so make sure to look at the total cost when making that comparison. It is also important to mention that you should understand the IRS rules for treating somebody as an employee vs contractor for tax purposes.
Hiring Contractors: The Cons
Commitment – Many consultants and contractors are deeply interested in building long-term relationships, but those same firms should have more than one client and that sets up a potential strain and maybe even a conflict of interest. Project teams can usually remain focused but task-oriented contractors are frequently balancing workload among a variety of demands that could lead to lack of attention to your needs. It is important to understand the capacity of any vendor you employ. Be sure to talk to references about how the contractor has prioritized tasks in the past and what kinds of incentives helped them be stay committed.
Minimal Supervision – When you hire a contractor, you can set deadlines and outcomes on deliverables, but you have much less control over how and when the work is completed. That’s why it is important to hire reliable contractors with proven track records and solid communication practices. This reduces time you need to spend but don’t forget about the hiring parties’ obligations to clearly communicate expectations and, unless purchasing a time-tested product, participate when needed and make timely decisions.
Labor Shortages – While contractors allow you to quickly adjust your workforce according to business needs, there might be times when good contractors are in short supply and you have to adjust project timelines or spend more money to acquire the expertise—all of which can lead to added costs, but you’d probably be paying more wages and benefits for that same talent as an employee, too.
In summary, our experience shows that you are better off hiring employees when you expect steady and full-time work and want them to be fully dedicated to your business. On the other hand, for time-constrained projects and variable workloads that need immediate expertise, engaging a consultant or contractor is usually wiser and more cost effective.
Tap our talent. For more information on how Real Projectives® advises on building proper teams, including hiring staff versus contractors, please comment below, send us an email or give us an old-fashioned call. And feel free to share our post on social media.