What entrepreneurs should consider when hiring employees vs contractors.
You’ve been doing “all the things” in your business—by yourself. While you’re proud of what you’ve created, you’d like to scale and grow. And where’s that seemingly-elusive freedom you’ve been waiting for?
You’re ready to leap from stressed-out solopreneur to confident CEO, and you need a team to help you do that.
Bringing on team members can be a significant financial and time commitment, so you want to set up a good structure from the start. One that makes the most sense for how you like to work. And maybe you didn’t even know that you had options.
You may be stuck wondering which hiring method is best for your business, leadership style, and budget.
I see a lot of people like you end up asking: Should you hire employees or contractors?
The difference between hiring employees vs contractors.
While there isn’t one right solution, knowing the difference can help you design the best structure for you.
- Employees work for a business. The owner controls how, where, and when they do their work and pays them a consistent wage and benefits. An employee is typically on your payroll—they receive a set salary (and often benefits such as paid time off and depending on your country, retirement benefits like superannuation/ 401(k)/ pension scheme).
- Independent contractors are self-employed and contract with one or several other businesses. They are their own boss and are paid by the hour, project, or monthly retainer. Contractors are responsible for paying their own taxes and don’t usually get benefits from your company unless they pay for them themselves (which is uncommon).
So how do you make the decision? Let’s get into a few specific things to review before hiring.
Consider your finances and preferences.
What’s the better option for your business? Hire independent contractors or full-time employees?
Here’s a handy list of 5 things to consider when deciding between these two hiring options:
- Overhead – Bringing on full-time employees can be perceived as more expensive than independent contractors. You’ll need to factor in benefits, office space, equipment, payroll service, and other admin costs BUT contractors already factor this into their costs when they give their rate. If you compare a contractor hourly rate and an employee annual rate (inclusive of benefits), you’ll probably be surprised to note the employee comes out cheaper.
- Flexibility – Take a look at the expertise you need and when you need staffing. Do you only need a launch consultant twice a year? Or do you need daily maintenance of your systems and operational support?
- Training – Do you want a specialist who can hit the ground running and do things their own way and in their own style? Are you ready to implement SOPs (Standard Operating Procedures) and train a team on your company philosophy and procedures?
- Control – Are you interested in setting an employee’s schedule and workload requirements with specific meeting times and software usage? Or prefer to have a contractor make their own schedule but still have deadlines and parameters?
- Stability – With the right hire of an employee, you hope that person stays on board for a reasonable time before leaving for another opportunity. And since they focus on working just for your company, they won’t have to spread themselves too thin.
Do you have enough work (and budget) to hire full-time staff?
One thing to consider when hiring employees vs contractors is: Do you need a full-time or part-time team member?
Hiring an employee may be better than a contractor if you have plenty of work and a structure to keep someone busy full-time. In addition, full-time employees can provide stability and consistency to your business while allowing flexibility in workload demands.
But if you have more cyclical projects, then hiring project-based contractors, subcontractors, or freelancers (depending on your industry) can be a great option.
There are a few other things to ponder…
Include onboarding and training investment.
There are different intensities when it comes to training and onboarding contractors or employees.
Since contractors usually focus on a specific project, you may only need to provide critical information instead of covering a range of responsibilities to complete that task. And independent contractors can bring specialized expertise to a project or task, so they can jump in and get started with minimal training.
Setting up a full-time member for success requires a more detailed hiring, interview, and training process. A solid employee SOP (Standard Operating Procedure) includes an onboarding process, so they understand the company culture, systems, team dynamics, and overall goals.
Leadership style and business structure.
Other considerations to keep in mind are your leadership style and hands-on involvement.
- Do you like being a solopreneur and just looking for extra admin support?
- Or are you interested in building a tight-knit (small or large) team and mentoring the group based on your philosophy and broader vision?
- Are you comfortable with the team working with other clients, or do you want 100% of their focus on your business?
In general, contractors need to be managed less closely. You can’t expect them to hop on a last-minute virtual meeting or attend training sessions (unless it’s agreed to ahead of time). But they also don’t need a lot of management or regular feedback either.
As a budding CEO, you may love the idea of working consistently with a team of employees and a tight-knit group who get on board with your goals and mission. Where you can guide and teach them, watching them flourish while helping you grow and scale.
And how is your business structured? Looking at the 3 main small-business categories, Solo, Hero, or Agency, will help you determine what type of hiring scenario can best support you. Take a read of these models and see what best matches your leadership style and vision.
You may not have to choose between hiring contractors or employees.
Good news: The decision doesn’t need to be either/or… Both might be the best fit for you.
Depending on your current (and future) needs for growing your business and maintaining a healthy work/life balance, you may choose to bring on a combination of independent contractors and full-time employees.
You could decide that a hybrid approach is best where you hire contractors for occasional tasks and specific expertise (like web design or copywriting). And a set of full-time employees for recurring tasks (like customer service or sales) and consistent company culture.
Another “newish” structure that has been gaining popularity with the rise of the ‘gig economy’ is called ‘fractional teams.’ This is where you bring in a team of experts who perform specific duties in your business, picking up the slack where needed and boosting your overall performance.
Sounds like a win-win!
Luckily, your clients often don’t know if your team comprises employees or contractors—how they’re paid or what their hiring agreements are. Instead, your clients care about the excellent service your business is providing! (And you care about how they rep your company.)
Your ideal team structure.
The great part of creating your team is you get to choose. You get to decide what works best for your business.
You also get to continue to shape your team as you grow into your unique leadership style and level up from solopreneur to CEO of your thriving business.
Once you consider all the factors, you can make an informed decision about whether or not hiring employees or contractors is how you want to fuel your growth and success.
What’s your next step in moving toward your team-building goals? Check out my free masterclass, Time to Hire, to pause the overwhelm and learn exactly what you need to know before hiring your first (or next) team member.