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Which to Hire: Full-time Employee vs. Independent Contractor

By MBO Partners • August 16, 2022

4 MIN

GATE

Today, there are many options for identifying and engaging talent for your business. You can hire temporary workers to fill a seasonal or short-term need, full-time employees to support core organizational objectives, or independent contractors for high-value projects.

It’s important to consider the advantages of engaging independent contractors versus temporary or full-time employees so that you can make the best choice in recruiting the right kind of talent. Before you start recruiting for a specific project, take the time to consider the project’s purpose, identify the skills needed to complete it, and assess whether it aligns with your core business objectives.

While rules and regulations govern how different types of workers are engaged, there are also practical applications to consider. Each of these types of workers can fulfill a role within your company, but there are many times when the best choice for the job is an independent contractor.

Which is Better to Hire: Independent Contractor, Temp or Full-Time Employee?

Before you can decide on the best type of talent for a particular project or role, it’s important to understand the differences between each worker.

Full-time employee

Works for a single employer
The employer dictates and controls work performed
The employer determines the hours and location of work
Is included on the payroll
Entitled to company and legal benefits of a W-2 employee

Temporary employee

May be hired directly or retained through a third-party intermediary such as a staffing agency
May be seasonal or part-time
May count towards the total number of employees considered when determining whether an employer is covered by certain laws such as the Family Medical Leave Act (FMLA)
Can participate in employer’s pension plans after performing 1,000 hours of work in a 12-month period

Independent contractor

Operates as an independent business
Chooses their own schedule and work environment
Provides their own tools and equipment
May have their own business name
May perform work for multiple clients
May actively and openly market their services
Submits invoices for work completed
Responsible for both individual and employer side of taxes (FICA)

While hiring independent contractors offers numerous advantages, such as flexibility and specialized skills, it’s essential to consider several important factors before making that decision.

Questions to Ask When You’re Considering Hiring an Independent Contractor

1. When should I hire an independent contractor?
Engaging an independent contractor can have many benefits for your organization. You gain immediate access to in-demand skills and expertise, leverage a flexible workforce, and pay only for the actual work performed. Working with independent contractors can give you the ability to expand your business without adding headcount, expedite go-to-market strategies, test new services, or lay the foundation for a new division or business unit.

2. When do independent contractors make the most sense?
When considering whether to engage an independent contractor versus a temporary or full-time employee, consider the following questions:

3. Is this a project or an ongoing business need?
A project that has clearly defined success metrics and can be articulated into a deliverable is a good way to maximize the talents of independent workers. Working with an independent contractor enables you to keep your full-time employees focused on the core competencies of your business. The project for which you engage an independent contractor can be either short- or long-term. Regardless of the duration, it’s essential to have clear objectives that can easily be communicated and measured.

Engaging an independent contractor for a project is often more cost- and resource-efficient than hiring a temporary employee. Keep in mind that temporary employees are subject to additional regulations and possibly fees if hired through third-party intermediaries.

4. Is the project a core competency of your company?
Any type of work that can be considered part of the core competency of your company should be managed internally. You can, however, support these core competencies with independent contractors as needed. The core services that shape your brand identity should be managed internally to ensure alignment with your organization’s values.

5. Will there be flexibility in how and where the work can be performed?
Control is a key determinant in properly classifying independent contractors. As such, independent contractors are a perfect fit for work that allows them to control how and where it is performed. It’s important to set specific outcomes to ensure independent contractors work towards delivering results within a mutually agreed time frame.

6. Does the work or project require unique or specialized skills?
Engaging an independent contractor will allow you to tap into industry expertise and a specialized skillset that may not be available in your core employee base.

7. Are employees performing the same work as independent contractors?
Engaging independent contractors to perform the same work as employees is a red flag and can put you at risk for worker misclassification. However, you may have a legitimate need to support increased demand for a specific period or fill temporary gaps in your organizational needs. In this case, you can still use independent talent but should do so with caution and have clearly defined contracts in place.

8. Can the work or project be articulated in a clearly defined deliverable?
Work that can be articulated in a clearly defined deliverable is a perfect fit for independent contractors. Unlike traditional employees, you are engaging independents for a specific result. So, what exactly are they expected to produce? In your contracts, be sure to clearly define the expected work product in your contract.

9. Will the work or project require internal control or supervision?
This goes back to the issue of control, which is critical when making decisions about staffing needs. If the work or project needs considerable oversight and supervision, you may consider a temporary or permanent employee rather than an independent contractor. Keep in mind, though, that engaging independently does not mean that you have no input or opportunity to provide feedback and guidance. A good communication plan, such as weekly reports or monthly meetings, can be outlined as part of a contract.

10. Are independent contractors common in your industry or for this type of position?
In some industries, it’s common to engage independent contractors for certain positions. While it may be an industry norm, do not simply follow the path without assessing if the work or project will meet the test of independence.

Other hiring considerations

Financial

While the hourly cost of using independent talent may be higher than that of traditional employees, it can often result in less overall spending. In fact, engaging independent contractors can significantly reduce labor costs. Employers are responsible for withholding income taxes, withholding and paying Social Security and Medicare taxes, and paying unemployment tax on wages to salaried W-2 employees. On the other hand, independent contractors are responsible for paying both the employer and employee side of taxes. They are also typically ineligible for employee benefits such as health and worker’s compensation insurance.

Expertise

When you engage an independent professional, you are adding a highly skilled industry expert to your team. With their specialized expertise, independents can often save organizations the expense of an extensive employee training program. Their fresh perspectives and innovative solutions can enhance your team’s overall performance and drive success.

Flexibility

Flexibility in staffing is a key advantage to engaging independent workers. If your business has seasonal fluctuations, or if a project requires specialized skills or expertise, independent contractors can provide much-needed staffing flexibility. Using independent contractors on a project allows you to access talent for a specified period without an ongoing commitment.

Talent pool

Independent professionals expand the pool of available talent. By using independent talent, organizations can seek specific skills and expertise beyond their local area or time zone.

Conclusion

When bringing in talent to your organization, there are many options to consider. Temporary workers may fulfill a seasonal or short-term need but are typically subject to certain regulations and may require additional fees if retained through a third party. Full-time employees may be ideal for handling ongoing business needs.

Independent contractors often offer the most flexible and cost-efficient solution, providing specialized expertise, access to a diverse pool of talent, and a variety of options when it comes to fulfilling project needs. The project-based economy is here to stay. Thanks to advancements in talent management solutions, streamlined onboarding processes, and manageable risks, leveraging the independent contractor talent pool as an integral part of your workforce is now more feasible than ever.