3 Considerations for Hiring Contract Employees

When they hunt for employees to perform temporary or permanent work, many business owners wonder whether they should hire on a 1099 (independent contractor) or W2 (permanent employee) basis.

Unfortunately, there’s no clear-cut answer. Instead, the right answer requires careful consideration before you make a final decision.

The Benefits of Hiring Contractors

Hiring independent contractors is an option many organizations fail to study. In truth, it can be beneficial and highly advantageous for both parties involved.

From the employer’s perspective, some of the top benefits include:

• Financial savings.This is the overarching benefit from the employer’s perspective. Choosing to classify an employee as an independent contractor eliminates many of the expenses commonly associated with hiring a full-time employee. These include employer-provided benefits and equipment, as well as wage taxes and insurance. With independent contractors, you don’t have to pay the required 7.65 percent Social Security and Medicare taxes, workers’ compensation insurance, or state unemployment compensation insurance. When it all adds up, you could save in the neighborhood of 20 to 30 percent in payroll costs.

• Flexibility and freedom. Most businesses experience peak times and down times. With full-time, salaried employees, you’re required to pay them the same amount regardless of the amount of business. With independent contractors, you have the ability to adjust your labor according to demand. In the long run, this can save you quite a bit of stress and money.

• Less liability. Because independent contractors are not technically classified as employees, you are not liable for a lot of the things you would be responsible for if you have employees. This means fewer legal issues, lower risk of lawsuits, and the option to terminate contracts freely.

Items to Consider

There are many advantages to hiring independent contractors, but think about the following issues before proceeding:

• Best tasks to outsource. Outsourcing your work to independent contractors is great, but be careful about which tasks you delegate. Certain functions should be kept internal, while other areas are conducive to external delegation. According to FrankCrum, HR is one of the best areas to outsource: “HR outsourcing sets you free to invest your energies and attention on what helps your business succeed and grow. You’re more productive. And your company is more profitable. No more sleepless nights trying to work through a mountain of paperwork.

• Structure. Every employee-contractor relationship requires a healthy amount of structure to be successful. While the contractor is not an employee, there has to be an established chain of command, rules, and other guidelines. A lack of structure tends to create an unproductive business relationship.

• Training tools. A major benefit of choosing to use independent contractors is that you can usually find someone with highly specialized skills without too much difficulty. This cuts back on the need to invest in training and accelerates the process. However, if training is necessary, you’ll want to ensure you have the right tools and resources at your disposal.

Hiring Contractors for Your Business

Few tools are more important to your business than the people you hire. While there are advantages to finding full-time talent, supplementing your employees with independent contractors can be an effective way to utilize your resources and capabilities more effectively.

Next time you’re hiring, consider going the contractor route.