
Is it better to hire employees or independent contractors?
The first step is to understand the difference and related expectations. An employee does a job defined by you, and you control the deliverables and the process of how it must be done. Employees will have company benefits, including soft benefits like flexible hours. You will have the right to manage those benefits, manage the staff member, performance appraise and guide them. Contractors do specific tasks without a permanent employment relationship, without company benefits and, whilst you specify the work deliverables, you have less control on how the work is done. You also have less knowledge of the contractor/contractors as they most probably have not gone through as thorough an interview process as employees have. The legal definition of an employee and independent contractor can depend on where the work or the contract is located. Each definition comes with different work-related rights and entitlements as well as different responsibilities and obligations from the business. The following points will assist with a decision guideline:- Is the work an essential or critical part of your business? If yes, then it is best to hire an employee who can be trained, mentored, groomed and developed. An employee with growth opportunities, and respect for your brand, will care far more about their performance in a key or critical role.
- Does the role contribute substantially to net profits? If yes, this should be an employee hire, especially as the legal relationship and performance relationship is stronger.
- Are you hiring in a special skill set? Suppose the skill set is a long term requirement of your business. In that case, it could be a full-time employee or a long term contract with a specialist firm, i.e. the social media marketing skill from a marketing specialist or structural concrete senior professor for structural monitoring of nuclear plants. If the specialised skill set is integral to the product, it would be best to make it full-time employment as a Materials Scientist at Tesla.
- Autonomous work control. A contractor usually controls their own hours, work location, days they work and the specific end date, e.g. inhouse software project by independent contractors.
- Tax management requirements. You have less tax management requirements for an independent contractor as they will do their own provisional and final tax submissions. Their project costs will be added to your business costs column in your declaration.
- Do you have sufficient work for them? Regardless of whether the work is highly specialised or general, if there is insufficient work to fill up a full day’s schedule, you can either opt for half-day employment or independent contracting. Half-day employment might suit an experienced person who wants to do their doctorate or an MBA. It is not easy to find an experienced person who wants part-time employment.