Choosing Between an External Consultant and a New Employee
February 2019
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Choosing Between an External Consultant and a New Employee
The pros and cons of hiring versus contracting

As a small business owner, you will occasionally need to decide whether to hire a new full-time employee or use an independent contractor to fulfill a task. To help you decide which option is best for you, here are advantages and disadvantages of both to consider.

Advantages to hiring a full-time employee

There are several advantages to hiring a full-time employee. They tend to be more dedicated than external consultants as a result of their involvement in the business, which can improve productivity. Having an employee on-hand means you don’t have to look for help again down the line when extra work arises.

“If you only rely on independent contracts and need urgent help, your favorite freelancer might be booked,” Laura Sherman writes for Yahoo! Small Business. “Or it might cost you a lot more to hire one last minute.” It’s also much easier to coordinate full-time employees on a project, and you can train employees to fulfill multiple roles, diversifying your workforce and reducing the need to seek additional help.

Disadvantages of hiring a full-time employee

Hiring a full-time employee comes with several costs you may not want to pay. “Not only are there the costs of employee benefits and payroll to consider, do not forget that your tiny home business or small office will probably have to move to a bigger space, sign a lease and purchase equipment,” Darrell Zahorsky writes in a September 2018 article for TheBalance’s Small Business.

You will be responsible for your employee’s training and professional licensing requirements, and you will need to withhold their taxes, Social Security and Medicare. Employees need to be managed more than independent contractors do, as the latter tend to be more motivated from being self-employed.

Advantages of hiring an independent contractor

The reduced overhead cost is the primary advantage of hiring an independent contractor. You don’t have to cover payroll and personal expenses, reducing the financial stress on your business — especially since providing health benefits tends to be costly.

Hiring independent contractors is more flexible, allowing you to adjust what you invest on workers based on the changing demands of your business. “You have the ability to take added opportunities as they arise, and during slow periods, have greatest cost control,” Zahorsky says. He adds that most contract workers are highly specialized and fully trained, allowing you to save even more on training expenses.

Disadvantages of hiring an independent contractor

One of the advantages of being an independent contractor is the ability to dictate how the work is performed. As a small-business owner, however, this can prove problematic if you prefer the work to be done in a certain way. Zahorsky warns that “contractors may have additional projects and may have less commitment than an employee.”

Over time, the lack of a fixed rate compared to a full-time employee may prove to be undesirably unpredictable for your business. Even the cost of getting the same task done by your favorite freelancer may increase depending on market demand. You also must be careful not to misclassify an employee as an independent contractor, which makes you liable for employment tax, interest and a penalty.

Many factors make it difficult to determine the right choice between hiring an external consultant or a new employee. Ultimately, it will be up to you to decide what benefits your business the most in the short and long term.

Published by Heritage Bank of Nevada
Copyright © 2019 Heritage Bank of Nevada All rights reserved.
Includes copyrighted material of IMakeNews, Inc. and its suppliers.
Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.
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