Which to Hire: Full-Time Employee vs Contractor vs Temp

Which is better to hire: Independent Contractor, Temp or Full-Time Employee?

Before you can decide on the best type of talent for a particular project or job, it is first important to understand the differences between each worker.

Full-Time Employee

• Works for a single employer
• The Employer dictates and controls work performed
•  The employer determines the hours and location of work
•  Is on payroll
• Entitled to company and legal benefits of a W-2 employee

Temporary Employee

• May be hired directly or retained through a third-party intermediary such as a staffing agency
• May be seasonal or part-time
• Can participate in employer’s pension plans after performing 1,000 hours of work in a 12-month period
• May count towards the total number of employees considered when determining whether or not an employer is covered by certain laws such as the Family Medical Leave Act (FMLA)

Independent Contractor

• Operates as an independent business
• May have their own business name
• May perform work for multiple clients
• Submits invoices for work completed
• May actively and openly market their services
• Provides their own tools and equipment
• Works when and where they like
• Responsible for both individual and employer side of taxes (FICA)

10 Questions to ask when deciding which type of worker to hire

1. When should I hire an independent contractor?
Engaging an independent contractor can have a number of benefits for your organization. You can gain immediate access to expertise or specialized talent, tap into a flexible workforce, and pay for actual work performed. Utilizing independent talent can give you the ability to expand your business without adding headcount, expedite go-to-market strategies, test new services, or lay the foundation for a new division or business unit.

2. When do independent contractors make sense?
When considering whether or not to engage an independent contractor versus a temporary or full-time employee, consider the following questions:

3. Is this a project or ongoing business need? 
A project that has clearly defined success metrics and can be articulated into a deliverable is a good way to maximize the talents of independent workers. Utilizing an independent contractor enables you to keep your internal teams focused on the core competencies of your business. The project you engage an independent contractor for can be short- or long-term, but you will need to have very clear objectives that can easily be communicated and measured.

Engaging an independent for a project is often more cost- and resource-efficient than hiring a temporary employee. Keep in mind that temporary employees are subject to additional regulations and possibly fees if hired through third-party intermediaries.

4. Is the project or work a core competency of your company?
Any type of work that can be considered part of the core competency of your company should be managed internally. You can, however, support these core competencies with independent contractors as needed. The services that define your business and brand are germane to your organization and should remain under internal control.

5. Is there flexibility in how and where the work can be performed? 
Control is a key determinant in properly classifying independent contractors. As such, independents are a perfect fit for work that allows them to control how and where it is performed. An independent contractor is a business-to-business relationship. Outcomes should be clearly defined, and independent contractors should work towards delivering a result within an agreed-upon time frame.

6. Does the work or project require unique skills?
Engaging an independent contractor will allow you to tap into industry expertise and a specialized skillset that may not be available in your core employee base.

7. Are employees performing the same work? 
Engaging independent contractors to perform the same work as employees is a red flag and can put you at risk for worker misclassification. However, you may have a legitimate need to support increased demand for a period of time or fill temporary gaps in your organizational needs. In this case, you can still utilize independent talent but should do so with caution and clearly defined contracts in place.

8. Can the work or project be articulated in a clearly defined deliverable?
“Work that can be articulated in a clearly defined deliverable is a perfect fit for independent contractors. Unlike traditional employees, you are engaging independents for a specific result. What are they expected to produce? Be sure to define a clear work product in your contract.

9. Will the work or project require internal control or supervision?
Work that can be articulated in a clearly defined deliverable This goes back to the issue of control, which is critical when making decisions about staffing needs. If the work or project needs tight oversight and supervision, you may consider a temporary or permanent employee rather than an independent contractor. Assess if the control is necessary or merely a comfort rooted in traditional business operations. Engaging independently does not mean that you have no input or opportunity to provide feedback and guidance. A good communication plan, such as weekly reports or monthly meetings, can be outlined as part of a contract.

10. Are independent contractors common in your industry for this type of position? 
In some industries, it is common to engage independent contractors for certain positions. While it may be an industry norm, do not simply follow the path without assessing if the work or project will meet the test of independence.

Other hiring considerations

	Financial Engaging independent contractors can significantly reduce labor costs. While the hourly cost of using independent talent may be higher than that of traditional employees, it can result in less overall spending. Employers are responsible for withholding income taxes, withholding and paying Social Security and Medicare taxes, and paying unemployment tax on wages to salaried, W-2 employees. On the other hand, independent contractors are responsible for paying both the employer and employee side of taxes. In addition to the tax savings involved, independents are typically ineligible for employee benefits such as health and worker’s compensation insurance.
	Expertise When you engage an independent professional, you are bringing in a highly-skilled industry expert. With their specialized expertise, independents can often save organizations the expense of an extensive employee training program.
	Flexibility Flexibility in staffing is a key advantage to engaging independent workers. If your business has seasonal highs or lows, or if a project requires a certain specialized skillset, independents can provide much-needed staffing flexibility. Using independent contractors on a project allows you to acquire talent for a specified period of time without an ongoing commitment—financial or otherwise.
	Talent Pool Independent professionals expand the pool of available talent. By using independent talent, organizations can seek specific skills and expertise beyond their local area or time zone.

Conclusion

When bringing in talent to your workplace, there are many options to consider. Temporary workers may fulfill a seasonal or short-term need, but are subject to certain regulations and may require additional fees if retained through a third party. Full-time employees may be an ideal solution for handling constant, ongoing business needs.

Independent contractors are often the most flexible and cost-efficient route, providing specialized expertise, a wide pool of talent to choose from, and a variety of options when it comes to fulfilling project needs. The project-based economy is here to stay. Thanks to new talent management solutions, simple onboarding processes, and manageable risks, leveraging the independent contractor talent pool as an integral part of your workforce is entirely feasible.