In my last article we wrapped up our series on how to start a successful business, with a look at how to set up commercial office space. In today’s article we are going to begin a new series on how to hire and manage employees, with a look at hiring independent contractors (freelancers) vs. full time employees. So let’s get started!
As we discuss in our article on becoming a freelancer, intuit predicts that 40% of the US workforce will be part time workers or full time freelancers by 2020. When you add in all of the other independent contractors from around the world, there is an enormous pool of talent that you can leverage to help grow your business, without adding full time staff.
Before we dive into the details on this topic, we suggest you check out Indeed, the best job board for small business owners. Visit Indeed to get $50 of free premium advertising.
My Experience Hiring Independent Contractors and Employees
At Marc Waring Ventures (the parent company of FitSmallBusiness.com) we currently work exclusively with independent contractors, who help us with everything from writing articles to accounting. I have also worked as the head of sales and business development for a large organization, where we only hired full time employees. Here is what my experience has been:
Update: Since this article was written, we’ve begun growing our full-time team. We still work with several freelancers, but we also have a growing team of full-time employees.
The Advantages Of Working With Independent Contractors vs. Employees
Costs are lower with independent contractors vs. employees:
- You save on Wages – You can work with people from lower wage countries and, assuming you pay by the project, you don’t pay for downtime or time they spend learning how to do the project.
- You Save on Taxes – When hiring employees you not only have to withhold their taxes but your company also has to pay social security, Medicare, and unemployment taxes. This is over and above what the employee pays. Independent contractors pay all their own taxes.
- You Save on Insurance – Most states require you to buy workers compensation insurance for employees. This is not required when working with independent contractors.
- You Save On Benefits – Many full time employees expect benefits such as healthcare (which will soon be a requirement for many businesses), 401K plans, and paid time off.
- Its harder to get sued: You are not subject to the same labor laws with independent contractors as you are with employees.
As we discuss in our article hidden costs of hiring an employee, just the taxes, insurance and benefits portion outlined above can add up to 10% or more of the employee’s salary.
With independent contractors, you can also be very specific about the skills you want to have.
Many small businesses do not have enough of a specific type of work to warrant hiring a full time person for that role. If we had hired a full time employee when we started out, we would have needed them to be able to do a whole host of tasks including writing, accounting, web work etc. It is very unlikely that this person would have been highly skilled in each of these areas.
Because we went with independent contractors however, we were able to find a person who was great at writing, another who was great at accounting, and another who was great at web work. This is true even though we didn’t have anywhere close to full time work for any of them in the beginning.
You Have Much More Flexibility When Working With Independent Contractors
When you hire full time employees they expect to work and be paid a full time wage, regardless of how much work you have for them. Working with Freelancers is much more flexible, because it allows you to give out work when you have it, and reduce the amount of work you are paying for during slow periods.
Good independent contractors are easier to manage.
When you work with an independent contractor you are really working with another business, so they are not expecting you to manage them. This does not mean that you don’t need to give guidance or set priorities and deadlines. It does however mean that you do not need to look over their shoulder or spend as much time with things like training and performance reviews.
Advantages of working with full time employees vs. Independent Contractors
For some types of businesses, like retail stores and restaurants, working with freelancers is not really an option, at least for your primary employees like floor salespeople, waiters, and cooks. However, this is not the only reason why you may want to hire full time employees.
In a previous position I ran sales and business development for a large brokerage firm. Many of the projects that my business development team worked on could have been easily outsourced. However we decided to do them in house for three reasons:
- We viewed the projects and the firm’s knowledge of how to execute them as a competitive advantage of the company.
- Some of the information we were dealing with was confidential, and we did not want it leaked outside the firm.
- We wanted to bring up talent from within the organization who could take on management and other higher level roles. Since full time employees generally do a variety of different types of work for you, they are generally better suited to grow with the organization.
Full time employees are also better able to jump in and take care of a variety of different tasks as they arise. This is in contrast to independent contractors who are generally hired for very well defined tasks.
Finally, while not impossible with independent contractors, teambuilding and getting people to work together as a tight nit group is generally much easier with full time employees.
Where should you post jobs for freelancers? We recommend Elance.
Our favorite job board for full time employees is Indeed.
That’s our article for today. If you have any questions or comments please feel free to leave them in the comments section below. Also be sure to stay tuned for the next article in this series where we will discuss how to hire independent contractors.
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