Should start-ups hire permanent employees or contract resources?
What are advantages and disadvantages of each one? Let’s take a look.
When you’re starting a new company, hiring employees can be a difficult task. Most of the start-ups begin their business by hiring contracted workers and later hiring some permanent employees. It that the best thing to do?
Hiring Permanent Employees
The key advantage here for startups is the fact that they have complete control to direct the employee’s schedule, training, and require the individual to only work for you. Permanent staff come with loads of state and federal regulations. This means that you have to follow regulations when it comes to salaries, overtime, and other aspects of employment that fall under the law. Startups will also have to deal with payroll taxes and pay Social Security and Medicare, worker’s compensation insurance, and unemployment insurance for each member of staff.
Hiring independent contractors or consultants
An independent contractor (or consultant) is typically someone who can provide you with short-term, niche expertise to support your business decisions. They can be anything from a sounding board to your project leader. Whatever your requirements, there is expertise available, locally or globally.
Hiring independent contractors can help to eliminate overhead costs like employee benefits, training programs, and supplies. And because they often work on a project-by-project basis, this gets rid of the need for a long term commitment. That means it’s easy to switch up who you’re working with if things don’t work out.
However, the reality behind the rhetoric is often quite different and many contractors receive orders and must comply with a specific schedule and deadlines. Furthermore, they have to invoice every month with correlative invoices, this configures a certain risk of a disguised dependency relationship. It is important to mention that this risk depends and varies on the country you are working in.
The Difference Between Contractors and Employees
The main difference between contractors and employees is that contractors are in business for themselves. Therefore, when you hire a contractor to help you out, you are essentially paying them to perform a specific service for you on their own time using their own resources.
They are also responsible for declaring taxes on their own personal income. On the other hand, if you hire your own employee, you are responsible for taking care of and paying a bunch of taxes. In short, when hiring a contractor, the paperwork burden is on the contractor and not on your business. For this reason, it can be very useful for many companies to hire an independent contractor to guide you to the best possible decision. Are you considering hiring employees or independent contractors? Contact us here