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Contractors vs. Full-time Workers: What’s more cost-effective?



 Striking the right mix can be a daunting task when it comes to employing for your small business. While an in-house team is more stable in the long haul, contractors can fill in unique job requirements that you don’t need steadily.


The contractor industry now makes up 15% of the UK’s workforce, which means they are high in demand. Popular contracting jobs include writers, consultants, web designers, secretaries, search engine experts, machine operators, janitors, painters, electricians, IT-related professionals, and other service providers.


More than in any other industry, the IT space is booming when it comes to IT contract jobs. This is especially true because of the rapid proliferation of newer technologies and tools in the industry. As we sit at the cusp of transformation, businesses can often not afford to hire full-time employees to span the multitudes of roles prevalent in IT recently.


While contractors are the ideal choice when you want to fill in a specialised role, for instance, an analytics professional, it can cost a business a hefty sum to look at their contractors as full-time employees.


Identifying an employee or contractor


As per the Internal Revenue Service, three factors determine the relationship you have with a specific individual: financial control, behavioral control, and association specifics. Employees are guided where, when, and how to work. They work for a set number of hours and are paid a fixed salary each month or an hourly wage.


On the other hand, independent IT contractors have varying workloads, work on a project basis, take as many hours they need to complete one project but are paid a set fee.


Employees have most of their tools and financial expenditures covered by their employer. Whereas,  contractors may need to buy their equipment without receiving any reimbursement from any of their clients.


Employees receive benefits such as health insurance, pension, vacation days, and disability insurance. But, independent contractors have to manage these expenses on their own. Independent contractors are solely responsible for taking care of their taxes, while employees share the cost with their employers.


Now that we have established the differences between a full-time worker and a contractor let’s find out the cost of hiring each.



Understanding the cost of hiring IT contractors


How much an independent IT contractor costs you depends on your business’ needs. In reality, the hourly or flat rate you pay an IT contractor is higher than what you might pay an employee to perform the same task.


However, this might be due to the additional costs; you usually pay an employee that isn’t required when you hire an independent IT contractor.


Businessweek Magazine suggests that employers save up to 30 percent by hiring an independent IT contractor as they avoid spending on payroll taxes, workers’ compensation and disability, unemployment insurance, as well as benefits including sick days, health insurance, pensions, and vacation time.


An IT contractor turns out to be costly when you frequently need their services so that you can engage an employee for the same time at a lesser cost. However, when you need to fill in a position quickly, and the task only spans a couple of months, it is better to outsource the job to a contractor instead of making full-time recruitment.



The cost of hiring an employee


As a small business owner, you can have better control over a majority of your expenses with employees, such as the work schedule, pay scale, benefits offered, purchasing, and training costs.


Hourly employees punch a time clock or use a timesheet to log hours. Salary employees are paid a set amount per period, irrespective of the exact number of hours they worked. After acknowledging that employees get paid regularly as per schedule, let’s consider a few hidden costs associated with them.


You need to handle the cost of equipment and all the supplies that your employees need to do their job efficiently. Your business also provides them with the necessary workspace and working environment to make sure employees work at their optimum productivity levels.


Moreover, for them to stay relevant to the ever-changing IT landscape, you will need to continuously invest in training and development programs for new and existing employees. While these investments go into improving your services and products, they cannot be denied being added expenses for you.



Choosing IT Contractors Vs. Full-time Employees


The ideal choice factors in your business’ need at any given point of time. For projects that have a short deadline and require minimal supervision, independent IT contractors can help you turn them in quickly and efficiently, leaving you with less long-term obligations.


In these cases, IT contractors can be a cost-effective option as you only hired them for a specific period to carry out the particular jobs you needed. Here are a few cases wherein independent IT contractors are your ideal choice:


  • When you need expert competencies remotely
  • In cases of particular order fulfillment and customer service requests during a busy season
  • For administrative tasks that only need a few hours a week
  • When you want to have in-depth expertise consulting or implementation in the latest technologies, or any other talent you don’t possess in-house


In the end, your business needs to determine the ideal mix of contractors and full-time employees you need to operate cost-effectively.