The Pros and Cons of Hiring vs Outsourcing your team
When starting a business, one of the first decisions you’ll need to make is how to handle your growth strategy. Knowing whether it’s more appropriate to hire contract workers or invest in employees depends on the needs and goals of your business. Understanding the pros and cons to both approaches will help you determine the right fit.
Contractors and Employees: What’s the Difference?
As the name would suggest, contractors operate independently on a contract basis. Balancing the financial risks and rewards of forging their own career paths, contractors are self-directed in their pursuits, investing in their own professional development and side hustles. As self-employed individuals and freelancers, they value the autonomy and flexibility that goes with choosing their clients, schedules, and workloads.
Contract workers may handle short or long-term projects for one or more companies at the same time but are not technically on anyone’s payroll. Instead, they work for an agreed-upon wage and are responsible for paying their own taxes and obtaining any additional health benefits.
Meanwhile, payroll employees are rewarded for their commitment to a company with regular wage increases and opportunities for advancement. It is the company’s responsibility to invest time and money into training their employees and to withhold the appropriate taxes from their hourly wage or salary. Employees may also receive additional benefits like health insurance plans, paid vacation time, spending accounts, and other perks.
The Pros and Cons of Contractors
Like many entrepreneurs, Nicole Smith was employed full-time when she first started her global photographer-for-hire business, Flytographer. Nicole was inspired by the idea of capturing one perfect photo of herself and two best friends in Paris. She hired a photographer off Craigstlist and the idea was born.
Nicole worked nights and weekends building the business on her own steam until 8 months in when she was ready to hire her first two contractors. The first was a part-time weekend position that had someone recruiting international photographers. The second was a part-time person to assist with customer service. Today Nicole’s business has expanded across six continents, hired 600+ photographers, and captured 4 million memories for travellers.
Affordability is one of the most obvious advantages for using a contractor as they are often hired on a project-by-project basis. “It’s a cost-benefit in that you only pay them for the specific deliverable or hours,” says Nicole. “I was able to use my full-time job to pay part time contractors to help with pieces of the job while I was learning and building.”
Flexibility to scale up and down to fit your business’ needs is another huge benefit. “The great thing about contractors is that they can have specialized skills or expertise that you might only need for a short amount of time. For example, we are bringing in an agency to help us level up our email program. We don’t need to hire three people full-time, but they are coming in on a four-month project to help.”
Of course, there are some relative cons to consider….
Lack of control is one of the downsides. Contractors are independent of your business, so you do not have the same level of control has to how work is completed. Because you’re not going to manage a contractor the same as you would an employee, Nicole emphasizes that it’s important for all details to be clearly understood up front to set them up for success.
“Be clear about what the deliverable is. Make sure the project is scoped properly, expectations are aligned and clear, compensation is clear, and ownership of the deliverables is also clear.”
Lack of loyalty is the other con in contractor. Contractors have their own opportunities and goals outside of your business, so you aren’t going to experience the same level of commitment that you have with an employee.
The Pros and Cons of Hiring Employees
“With contractors you’re paying to get something done, whereas with an employee you can find that match of mission and values,” says Joe Collins, founder of Avalon Accounting. “Often, they’ll go above and beyond what might be the minimum of what is required.”
While cost-savings is an incentive for some to hire contractors, when Joe Collins was starting out with his business, the conversation was more of a qualitative one.
Loyalty is the biggest draw for most business owners to hire employees. “If you want to build something stable and long-lasting, employees are so important to have, because you take that extra step to ensure somebody shares the same values and believes in what you want to accomplish.”
When Joe first stared Avalon Accounting, his initial reaction was to hire an all-rounder person with talent in a bunch of things. Joe explains, “Small businesses tend to blend a lot of roles.”
In the early stages, a bookkeeper might also handle the work of an accountant and go by the title of Associate. It was Joe’s growth strategy to identify what every employee was capable of, carving each role into its component parts, and eventually hiring people for more specialized functions.
“It’s not about taking things away from people but allowing them to do their best work and dig into one area, instead of asking them to do the kitchen sink stuff.”
Joe compares his company’s growth to cell division – starting off with himself and expanding outwards, dividing into more specialized parts, until it eventually becomes a whole living organism. Each member providing a vital function of the whole.
Of course, bringing all parts together into a cohesive whole requires time and integration. “Full-time employees may require lengthy bouts of training as they integrate themselves into the company’s culture, find their place within team dynamics and align themselves with a company’s vision,” acknowledges Joe. “But while the investment in training could be seen as a con in comparison to the minimal needs of a contractor, the benefit of this is the mutual investment and loyalty an employee will have towards the company in return.”
Administrative investment or the cumulative time and cost it takes to appropriately care for employees can be another con for businesses to pursue this avenue.
“You need to take care and spend more time and money to ensure employees understand what the culture is, as well as training and helping those people on their career paths,” explains Joe. “There is a lot more to having an employee than just paying them on payroll. Administratively employees are also much more cumbersome and harder to get rid of.”
Problem employees can poison the batch, causing projects to fail and good employees to move on. Problem contractors, on the other hand, are a short-term pain-point with a foreseeable end date. They can be removed from projects much more easily and don’t need to be hired again.
Get to know the difference between contactors and employees.
There can be legal risks to treating contract workers as employees. It is important to be mindful of the rules where you live and how you classify the difference between the two, so you don’t set yourself up for any problems.
What is the intent of the relationship? Examine the language you use. A contract of service indicates that two parties have entered into an employer-employee relationship, while a contract for services implies a business relationship.
Because contractors have control over how and when the work is done, they can also subcontract portions of their work onto others. This is obviously not the case with employees.
Nicole adds, “If someone is working full time as a contractor and you’re giving them equipment and telling them how they should work, then they are actually an employee, and you could expose yourself to legal risks. A good accountant or HR person can also help with advising you around that.”