05.11.20177 min read

Contract vs. Full-time Employment for Small Businesses

As of 2016, the contingent workforce, also referred to as contract employees, accounted for 29 percent of all U.S. workers, representing 44 million people, according to a 2016 study from Staffing Industry. It’s quickly becoming apparent that this “Gig Economy” is on the rise, and you may be wondering if it’s the right fit for your small business.

Hiring contract workers has both its pros and cons and considering all of them will be important in making the right decision for your small business. We’re diving into four different areas that will determine whether your next hire should be contract versus full time. Will full-time or contract employees win out for your business? Find out now.

Scalability

The first question to ask yourself, according to Raymond Grainger, founder and CEO of Mavenlink, is whether you want a workforce that is scalable or steady. Granger explains: “[Your] business probably falls into one of two categories: The workforce is scaled for growth, fluctuating depending on how many projects are acquired. Or the workforce remains steady, regardless of the number of projects in the pipeline.”

As a flexible company with contract workers, you can take on projects as they come by hiring workers on a project-by-project basis. When the work is finished, and you have to cut back on costs, those contract employees are gone.

Luckily, you don’t need to hire exclusively full-time workers or contract workers. You can hire contingent employees for temporary projects as they come in, and keep your core staff as full-time status.

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Flexibility and learning potential

Does this sound familiar to you? “Many founders dream of winning over great programmers from whatever large, highly acknowledged company. Or the experienced chief of marketing known for those great campaigns everyone is talking about,” says Bogdan Carstoiu, founder of Hubgets.

In many cases, these contract workers are specialized in what they do—that’s often why they contract with companies, as opposed to settling down in a full-time role with one organization or another. As such, they may not be a great fit your small business, especially if it’s still in startup mode.

Why is this? “When you are highly specialized, you rely on others to do some things you cannot afford to. You are used to very precise recipes and processes. But a startup does not have these in place,” explains Carstoiu.

In this case, hiring full-time employees who can wear multiple hats and are more invested in the company is your best bet. Keep contract workers as an option for specialized projects that require the attention of someone with that specific skill set.

Finances

Contract workers may seem more expensive to hire, thanks to an often-higher hourly cost. But they’re inherently less expensive to hire than full-time employees because they don’t qualify for benefits, including health care, 401K, and bonuses. Not to mention, you’re not paying for half of their social security and medical taxes—contractors are responsible for putting away the appropriate amount to pay out these taxes themselves.

Other full-time employee costs that you won’t spend with contract workers often includes:

  • Computer/laptop/hardware
  • Software licensing
  • Business cards
  • Office equipment/supplies
  • Insurance
  • Training

Use this Real Employee Cost Calculator, from Toptal, to get a better idea of the cost difference for your business. You can also get more tax information from the Small Business Association.

Culture

For most small businesses and startups, culture is a critical part of the organization. Not just for the millennials who demand it, but for the success of your business. Great company culture boosts employee morale, and happy employees are less sick and more productive.

An important part of culture is the relationships employees cultivate with one another. When they have friends in the office, they’re more likely to attend happy hours or other company events because they want to spend more time with their friends. Contractors that come and go can take away from this culture, with little time (and likely minimal interest) for making friends within the company.

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However, that doesn’t mean contract workers will ruin your company culture. You simply need to find ways to weave them into your world, even if only for a little while. Here are a few ways to do that:

  • Be as picky with contract workers as full-time employees in terms of cultural fit
  • Introduce all new contract employees to the team, and give them a chance to introduce themselves as well
  • Include contract workers on meetings wherever possible, such as informal brainstorming sessions, all-hands meetings, and off-campus events

HR training

Your HR team is well-versed in full-time recruiting and hiring, but likely not this new form of staffing—which means they need training: “With the evolving types of HR, supportive technology, and the ever-expanding role of your HR team—you must prioritize ongoing training. Keep your eye out for HR seminars, conferences, industry events, and both online and offline training,” suggest experts at The Office Club.

Keep this as an important of the conversation when considering hiring contract employees. How will you prepare your team to make sure you stay compliant? Can they sign up for a few online courses? Are there nearby courses that your HR employees can attend together? What are the costs—both in time and money—to prepare your hiring team, and is that worth it?

Contract vs. full-time—what’s right for your small business?

There are pros and cons to both options, and the only way to know what’s right for your organization is to weigh them against your business priorities, budget, and needs. Bring culture, finances, training, and scalability into the conversation as you decide whether to become a part of the “gig economy” or not.

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Jessica Thiefels has been writing for more than 10 years and is currently a content marketing consultant and freelance writer. She’s been part of a growing startup for two years now, where she’s learned a lot about running a business and being resourceful. She now owns her own business and has been featured on Forbes. She’s also written for StartupNation, Manta, Glassdoor and more. Follow her on Twitter @Jlsander07 and connect on LinkedIn.

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