Deciding to hire a part-timer versus taking on an independent contractor isn’t an easy decision for a small business. As an entrepreneur I’ve been asked which is the “better” choice, but this is a much bigger issue than simply saying one is a better choice than the other.
There are legal implications, financial implications, and general work style questions that need to be answered before a decision can be made on which is better for any business – small or large.
The first step is to understand what factors determine whether the individual is classified as an employee or contractor. This is not a discretionary classification, but one dictated by both legal and tax lays.
Employee – A simple definition is that anyone who performs services for an organization is an employee if that organization/manager can control what will be done and how it will be done.
Contractor – A simple definition is that anyone who performs services for an organization is a contractor if that organization/manager can only control the result of the work, and not what will be done and how it will be done.
Now let’s consider the potential pros and cons of part time versus contract employees.
The potential benefits to hiring a contractor:
- Reduced Tax Burden – Payroll and social security taxes are not paid by the company.
- Flexibility – Often contractors can be used at the convenience of the company and the company can avoid the risk of hiring or firing employees as needs change.
The potential risks of hiring a contractor:
- Legal/Tax – The work a contractor performs often fits the legal classification of an employee
- Higher Costs – Often, contract workers can demand higher compensation for their services since they are most likely responsible for paying for their own benefits.
The potential benefits of hiring part-time employees:
- Lower Costs – Part time employees often receive no benefits and are paid an hourly rate, often lower than that of full time employee.
- Loyalty – Part of what makes a contractor independent is their ability to choose the control over the work performed. Contractors may have additional projects and may have less commitment than an employee.
The potential risks of hiring part-time employees:
- Turnover – Part time employees statistically have a higher turnover rate. Many take part time work until a full time job presents itself.
- Legal – Part time employees enjoy the same level of protection as full time employees under the Fair Labor Standards Act
As a leader of a small business it is important that you continually ask yourself the following questions each time you consider hiring a part time employee or contractor for a specific role:
- Does the worker need to comply with specific instructions as to when, where, and how they will work? If so, hiring a part time employee is probably the better option.
- Are you looking for someone to work set hours in your place of business? Or are you looking for someone to complete a job and you are only concerned about the results? If the first, hire a part time employee. If the latter, chances are a contractor is the better fit.
- Are you looking for a worker to fulfill the needs associated with a project for a limited period of time? If so, hire a contractor. Are you looking for a worker to fulfill the needs associated with your core business for an indefinite period of time? If so, hire an employee.
- Do you have to train a worker to perform the function? If so, hire an employee. Is the worker expected to know how to do their work and will not require training? If so, hire a contractor.
Although these factors are only basic guidelines, they will help you determine which is better at a specific time for a specific role.