The Pros and Cons of Hiring an Independent Contractor
January 25, 2016
Over the past year, I’ve relied on the help of contractors to grow my business. I know I wouldn’t have been able to accomplish half as much without their help. But every business is different.
What’s worked for me might not work for you. And, honestly, what’s working for me right now may not down the line. That’s why it’s always important to understand the pros and cons of every business decision, especially when it impacts the lives of others.
I’d like to use today’s article to explain some of the main benefits and drawbacks of using contractors on a regular basis. But first, let’s make sure we’re on the same page about the definition of a contractor.
What Exactly Does a Contractor Do?
The legal definition of a contractor varies based on your country and additional local laws. As such, you’ll need to talk with your accountant or lawyer to understand exactly how your region defines contractors.
Speaking in generalities, contractors are treated as separate businesses that you are employing for their services. They’re often referred to as freelancers or consultants. The biggest distinction is that contractors are not employees.
Treating them as employees may result in legal fines, lawsuits and increased taxes. That’s why it’s vital to understand your local regulations to understand exactly how you can work with them.
3 Pros To Hiring Contractors
There are a number of unique benefits to enlisting the assistance of a contractor. Here are a few of the best benefits I’ve experienced by hiring contractors for my business…
You Can Save Money
When you hire an employee, you have expenses that extend beyond their hourly rate. You’re responsible for also paying for:
- Office space
- Any equipment needed to perform the task at hand
- Worker’s compensation insurance
- Unemployment insurance as dictated by our region
- Social Security and Medicare (for U.S.-based businesses)
- Other benefits, such as health insurance and paid time off
- Any contractor invoices
Conversely, when you hire an independent contractor you only pay them a set rate. Some contractors work on an hourly basis, while others are paid per project.
Typically, contractors will be paid more than an employee, but since there are no added expenses, it ends up saving you money.
You Increase Flexibility
Working with independent contractors is one of the best alternative ways to grow your business. Instead of having to provide full time employment for every skill set you’d like on your team, you can work with contractors.
This gives you access to everything from high level network administration to top tier copywriting. You can use contractors to compete with companies much larger than yours. In fact, 64% of businesses said that increased access to skills is more beneficial than the cost savings.
Beyond having more skills at your disposable, contractors will enable your business to respond to unexpected surges in work. If you operate a content marketing agency, for example, you can hire contractors only when your employees are overwhelmed with work. Then, when the work subsides, the contractors can be on call in your bullpen until they’re needed again.
Reduce Training Expenses
When you hire an independent contractor, you’re selecting from a wide array of specialists. It’s assumed that you won’t have to provide any paid training – they’re ready to go.
The only training required will be your onboarding procedure, involving learning your policies and tailoring their skill set for your needs. And you can easily automate this process with documented workflows, processes and training materials.
Sticking with the content marketing agency example… You may hire an experienced writer to handle some of the client work. If they’re good and experienced, they should require minimal direction to satisfy your unique requirements. All you would need is editorial guidelines and a bit of constructive feedback. After a few articles they’ll be ready to roll.
3 Cons To Hiring a Contractor
As with everything in life, there are downsides along with all the benefits. These are some of the main hurdles I’ve experienced…
Possible Increased Risk of Audits
Working with contractors has been shown to increase the risk of being audited by the government. Specifically, they’ll be investigating the working relationship between the contractor and your business.
This underscores the importance of understanding how your local and federal government classifies contractors. According to the IRS website, it’s fairly vague.
They say that the key factors are if the business controls . Essentially, you need to keep contractor freedom in mind.
Turnover and Lack of Loyalty
Independent contractors come and go. People are drawn to contracting largely because it gives them greater control over who they work with. Additionally, most businesses hire contractors for short term jobs, which makes it difficult to cultivate loyalty.
Relying too heavily on contractors means dealing with a higher turnover rate than employees. Contractors can be notoriously disloyal, meaning many can leave you in the dust if a higher paying project comes along.
Perhaps the core problem with working with contractors is the varying degree of quality you’ll receive. This, in turn, can harm relations with your clients or customers. Managing quality control and contractor freedom is quite the balancing act.
More Legality Involved
If you haven’t picked up on this recurring theme: you need to keep legalities in mind.
In addition to your lack of control, you also need to make sure contracts and paperwork are in order. Failing to outline expectations in a written agreement could mean that you don’t actually own the copyright to the work.
When you work with an employee, work created by them is automatically owned by the organization. With contractors, it must be specifically stated in a legal document.
Ready to Start Hiring?
Deciding when and how to work with independent contractors depends on your business model. Some businesses will thrive and blow past their competition by using contractors. Others may end up finding themselves being audited and failing to satisfy their clients. But the only way to really know is to evaluate it for yourself.
Have you worked with contractors in the past? Do you feel like they enhanced your growth? I’d love to hear about your experience in the comments below.
about the author
Chelsei Henderson is a content marketing consultant helping freelancers and entrepreneurs build successful companies in the digital world.