Contractors vs. Full-Time: The Small Business Guide

One of the most effective ways to scale your business is to grow your team. But that can be a difficult undertaking with several considerations before you even start taking applications or interviewing contractors. 

The Difference

A freelance contractor works for you independently and covers taxes on their own. An employee is an in-house team member that answers to you. You’re responsible for reporting their earnings to the IRS. 

You hire a contractor as a 1099 employee after the terms and scope of services provided are agreed upon, as well as the cost. In this role, you will not have control over their process, pricing, or working hours, unless these were stipulated in the agreement. 

This category would include:

• – Freelancers
• – Consultants
• – Temp-to-hire
• – Agencies

A W2 employee is usually a long-term arrangement where you provide consistent direction and supervision. You dictate their hours, their job expectations, and pay. For a W2 employee, you may also have to offer other benefits or insurance.

There is also no competition for their time. A contractor will have other clients and projects in the works that require their attention, whereas an employee is someone you don’t have to share. 

The Cost

Independent contractors typically get paid with a flat fee for any services rendered or deliverables provided. This is usually determined in contract negotiations prior to any work taking place. 

With a contractor, you’re paying for their talent and expertise. While you’re in control of your overall project, they will play a more collaborative role, like a consultant. As a business owner in their own right, consider them a partner in your business, not an underling.

For a W2 employee, you can pay an hourly wage or salary that fits within your budget. Talent that is interested in that pay scale will apply and may or may not negotiate pay. Keep in mind that when you hire a W2 employee, you will also have to cover any benefits, 401K, as well as cover tax payments.

Contractors will typically cost you more upfront with deposits and initial fees, whereas employees will require very little upfront but could cost you more over time. 

The Bottom Line

What do you want most out of this new team member? Do you want total control over their schedule? Are you looking for someone you can train up who will buy into your company culture and mission? 

Do you want exclusive access to their attention and talents? Are you hoping this person can wear multiple hats to take even more tasks off your plate? If you can afford all of the incidentals that come with an in-house employee, this may be the best path.

Or are you more interested in saving on hiring costs and benefits? Do you need more flexibility with short-term contracts? Is your need more immediate, and you don’t have time to train someone? 

If you’re not sure what you need or who to bring on, let’s chat! Helping entrepreneurs scale their businesses is my sweet spot! Book a consultation!