Who should you hire – a contractor or an employee?
As a small business, you may find yourself in a position where your workload is such that you need source some sort of assistance with the running of the company. It may be with accounts, admin, operational tasks etc. You can employ somebody to help with specific tasks, or you could outsource those tasks to a contractor, but what are the pros and cons of each option? Here’s what you need to know to make a decision on how to get the additional support your business needs.
What is a contractor?
Contractors are self-employed and could be sole traders, partnerships or limited companies. You will have a contract with them covering the work you need to be done, and they can work with you on an as-needed basis or for a fixed number of hours or days each month. The contract may be ongoing or only cover a specific period, e.g. six months. You can stop working with the contractor at any time by giving notice in line with the time frame outlined in the original contract.
What is an employee?
An employee is part of your business and has an employment contract outlining everything they and your company are required to do while they remain employed. The company will be required to provide an employee with certain things during their employment. From providing equipment to carry out their job to delivering payroll services. The contract is permanent, and the employment cannot end unless:
- The employee resigns or retires.
- The employee is fired – after following the correct legislative procedures.
Pros of hiring an employee
- You have complete control over what, how and when they do their work.
- They can work on other company projects outside of their primary role.
- They only work for you, so all their time is dedicated to the company.
- You have rights to anything they create as part of their role.
- They often feel a sense of loyalty to the company, and you can build a long term relationship that benefits the business.
Cons of hiring an employee
- You have to pay them every month, even if you have nothing for them to do.
- You are required to pay income tax, national insurance, holiday pay and provide a pension, alongside administering statutory sick pay and maternity leave. As well as any other employee benefits you wish to offer.
- If you do not follow employment law, your employee could take you to court to seek redress.
Pros of hiring a contractor
- They are responsible for their own income tax and national insurance.
- You do not have to provide a pension.
- You only pay them when you have work for the contractor unless the original contract states differently. This can be great if you only need a small amount of help now and again.
- You can stop working with them at relatively short notice usually. The contract will state what this period is, but it can often be as little as one week.
Cons of hiring a contractor
- You will not be their only client.
- You may not automatically have intellectual rights to the content they create. Ensure that any agreement regarding this is part of the contract.
- You can tell the contractor the work that needs doing and impose a deadline, but you may not be able to completely control how and where the work is carried out.
- They do not have to work on tasks outside of the contractual agreement, and they can refuse work.
Employee or contractor
Ultimately the decision will depend on the type of support you need in your business, the hours you need to be covered, whether you need a person on-site or would prefer remote working, your budget and how much work there is.
Alongside looking at the practicalities of each option, consider what the financial impact may be. For example, while contractors charge more, you do not have the same administrative overheads. Run the figures and see which could be more financially viable. If you have a fluctuating workload, then having a full-time employee may not be the best solution. However, if you need a reliable person to staff your store every day, then you may find an employee is more appropriate.
It is also worth noting that not all contractors are equal, and a contract can be created to meet your specific needs. Some may agree to work onsite or particular days, others may be part of a broader team to give you some reassurance that should they be ill the work will continue to be covered.
The decision about whether to hire an employee or contractor should be relevant to the need you are trying to resolve. Whichever option you choose, you will have specific regulations that you have to abide by so ensure that you are aware of your company’s responsibilities. The gov.uk website has guidance on what the difference is between a contractor and an employee here. You also need to understand how you may potentially be impacted by the IR35 rules if you use a contractor. Get more information on this here.
If you found this information useful, you may also want to check out the following:
- Flexible working and your business
- Could your business survive economic insecurity?
- Can you get a mortgage if you’re self-employed?
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