It is becoming more common for businesses, especially small businesses, to refrain from hiring employees with all the skill sets they need. In such a situation, they seek outside help, and they usually turn to one of a group of individuals known as contractors. There are a number of reasons why this is a good business practice, but at the same time, using contractors can hurt a business. Although it may seem that the choice between using a contractor and hiring an employee is an equal one, there is actually a very strong difference between the two. Both sides have their advantages and disadvantages. While it is possible to gain much from the use of an independent contractor, hiring one does not always provide unmitigated benefits to a business.
What Is a Contractor?
Many people toss around the term "contractor" without knowing exactly what this word means. A contractor is an individual who works for himself but binds himself to a business or to another individual for the performance of some job of work. His commitment to a company is not permanent but rather lasts months, weeks, or for the duration of a project. He owns his own business, can usually set his own hours, and frequently works for multiple companies simultaneously. He generally has special expertise in one or more areas, for the use of which businesses form short-term contracts with him.
Key Differences Between Contractors and Employees
Sometimes people misapply the term "contractor," and the individual described is actually an employee. The essential difference between the two is that the contractor is self-employed, whereas the employee is not. Also, the contractor is linked to a business only through a short-term contract, whereas the employee is permanent and draws a salary.
Employees are entitled to certain benefits from their employer, such as insurance, and must pay only portions of their taxes while their employer covers the rest. Likewise, when a business hires employees, it incurs such expenses as the payment of employer taxes and the holding of insurance against workplace injuries. Contractors, however, must pay their own, higher taxes and purchase their own insurance.
Since contractors are involved with a business for a relatively short period, a business cannot count them as assets which will further their development long term. Once a contractor finishes his project or contract, he is free to move on to work for another company, taking his skills with him. An employee, however, is a building block of a business, and his skills are, so to speak, the skills of the business. With their use and development, the business itself develops and becomes stronger.
Benefits and Drawbacks of Using a Contractor
As with almost anything, there are good and bad points to hiring a contractor rather than an employee.
- Hiring contractors does not promote the development of a team to take the business forward.
- Similarly, it produces uncertainty about the future of the business since business owners will not know whose services they will have as their business develops.
- Hiring contractors deprives the company of the assurance of the possession of special skills. Training employees makes a better business, but training contractors and then having them leave helps only the contractor, in the long term.
- When hiring contractors, businesses can focus on acquisition of specific skills pertinent to a current need.
- Using contractors instead of employees allows the size of the company to be elastic if needed.
- If a certain field is in demand, especially if it is a changing field such as technology, accessing the skills and talents of a contractor is often easier and faster than finding an employee.
- Contractors lower the business's costs since they do not require the usual insurance, vacation pay, and similar benefits that an employee must have.
In the end, whether it is wise to use contractors is dependent on the vision and goals of business owners.