When You Should Hire Contractors vs. Permanent Employees

Contractors vs. Permanent Employees


In both small and large companies, the landscape is changing. And so are the needs for how and why you harness your manpower. Regardless of industry, companies grapple with when they should seek to employ their own permanent employees. Or, when they initiate certain roles as contractor roles. And, when to make those permanent. So, while there are no hard and fast rules in our evolving business world, you’ll want to take note of the following important details.

A few key traits separate contractors from permanent employees?

Here Coastal Human Resources shows you what these are.



The individuals are hired on a W-9 status. The employer is usually invoiced for work completed. Further, employers forego costly benefits paid to the employee such as medical insurance. This alone saves employer an average of $10,000 per year per employee.

Contract employees are well suited to fill temporary project roles. In business settings like accounting or manufacturing, where there is strong seasonality and a higher call for expertise and/or manpower, contractors fill a huge need. To hire your own permanent employee to fill a season that lasts a quarter once a year doesn’t make good business sense.

If your business experience strong seasonality, contract employees make sense.

Another good fit for a contract employee is a business or project launch. The typical new business hard launch takes approximately six months. During that time, you’ll be opening your doors, hosting open houses and events and implementing and ramping up marketing to get the business. This calls for extra help. Contract employees in the areas of Public Relations, Marketing, Event Coordination or simply an Extra Set of Hands expertise are all logical choices. By contrast, after that hard launch, you’ll likely hone in on what works and what doesn’t. By then, you’ll also be looking at where to cut costs. Will you still have a need for that extra staff? If the answer is no, you’ll have the flexibility to cut them loose as a contract employee.

Hiring contract employees gives employers flexibility with hiring and firing and keep overall benefits costs low.

While contract employees have these advantages, there are drawbacks.

First, contract employees as a general rule won’t give you the loyalty a staffed employee will. Invest in benefits, retirement, training and a real title – in other words, an employee – and you’ll get loyalty in return. If this is important to you for the competitive nature of your business or simply philosophically, consider the investment for employees. Examples are when intellectual property is a resource or in small, family-owned businesses. Environments like these would be well-suited to take the leap and find the right person to call their own and become a part of the team long term.

If your business holds valuable intellectual property a staffed employee may provide you with more peace of mind and loyalty over a contract employee.

In addition, contract employees come and go as a rule. That’s the name of the game by design. You may find yourself having to repeat the same process over and over with new contractors. This means time and resources on your part in training, acclimation and culture perhaps two or three times a year. In the end, it may or may not be worth it.

One last note: in the case of hiring contractors it is extremely important to classify them correctly. Stay abreast of IRS laws as well as state statutes with regard to classifying and payment of contract workers. If you switch a contract worker to an employee, be sure to change the classification correctly.

If you are looking to hire a contractor and are in need of a background check, give us a call! Coastal Human Resource Group, Inc. is a Human Resource Outsourcer (HRO). We serve as a full-service human resources department for small and medium-sized businesses throughout the Southeast which provided compliance screening as well as background checks. Visit www.Coastal-HR.com or call us toll-free at 1-888-757-7444. We’re here to help ensure that all your human resources needs are met.

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