Employees or Contractors? Which Makes Better Sense for Your Business?

By Randall Orser | Small Business

Different businesses like to handle their staffing needs in different ways. Some prefer to keep a consistent team of permanent employees, while others are perfectly content to hire contractors on an as-needed basis. Both scenarios can make sense, but don't expect to impact your finances in the same way. Here are the respective pros and cons: 

Contractors-- If you're not determined to keep the same people on the job indefinitely, and you're willing to keep re-filling it as needed, hiring contractors can be a big money saver for your business. That's because you don't have to pay state unemployment compensation, worker's compensation, or half of the contractor's Social Security and Medicare taxes, as you would for an employee. You're also off the hook for many of the standard types of lawsuits filed against employers by employees. On the negative side, you arevulnerable to the personal-injury lawsuits that worker's compensation is designed to prevent. 

Employees-- Employees usually cost more to maintain than contractors. In return for the job security and benefits you're providing, you can offer a substantially lower hourly wage for the same work. You may also save on training-related expenses because you only have to train a permanent employee once, as opposed to constantly training an ongoing parade of new contractors. But you'll also have to pay your portion of Social Security and Medicare taxes on each paycheck, maintain worker's compensation, and pay state unemployment compensations. 

There is no "better" or "worse" in choosing to hire employees vs. contractors; ultimately, you have to weight the financial pluses and minuses against the qualities that will help your business run better (which also affects your bottom line).

If you want to make your new business a more prosperous one right from the beginning, assemble your bookkeeping and CPA team, hire the types of workers most likely to help your bottom line bloom, explore your eligibility for special ACA health insurance options, and talk to your financial team about any upcoming franchise taxes. Get your financial ducks in a row right now, and your business is more likely to enjoy a smoother glide toward success!


About the Author

President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.