Contractor vs. employee: What’s the right mix for your workforce?

You’ve heard, no doubt, that we are living in a “gig economy.” Increasingly, employers are weighing whether to hire a contractor vs. employee – and deciding on independent contractors (ICs) more often than ever.

Uncertain times often lead employers to examine whether it makes more sense to staff with a contractor vs. employee. The key is to balance stability and continuity with flexibility and specialized skills.

The Bureau of Labor Statistics reported in 2017 that fully 40 percent of the private sector labor force were “contingent” rather than permanent. That number is expected to increase to over half by 2030, if not sooner. Deloitte has identified the growing use of contractors as “one of the biggest human capital trends” in recent years, according to Forbes contributor Jason Wingard writing on “The Agile Talent Wave.”

Uncertain times often lead employers to examine whether it makes more sense to staff with a contractor vs. employee. The dilemma is understandable. Many companies have recently taken the painful steps of instituting furloughs, or even letting people go. As we help companies meet their staffing goals, we are aware that even in the best of times their process often includes deciding whether to hire a contractor or employee to fill a role. Wise management requires making wise labor decisions, one of the largest expense lines for most businesses.

Let’s look at how to weigh those options strategically. The guiding principle is to balance stability and continuity with flexibility and specialized skills.

Contractor vs. employee – finding the balance

When a company staffs with permanent employees, they gain stability. Having dependable skills for known roles is great – until unexpected or cyclical economic shifts occur. Then many companies discover that they aren’t as flexible as they need to be, finding themselves overstaffed, understaffed, or with a skill stack that lacks what the organization needs to respond quickly.

Hiring takes time and is expensive, making it difficult to be agile. Various human resource industry sources estimate the costs associated with hiring each new employee is anywhere from $4,000 to six months’ salary, depending on the role being filled. Releasing someone is costly, too. By bringing in contractors, it’s possible to minimize churn and maximize longevity of permanent staff.

When companies staff with contractors, they can gain flexibility and the diverse talents of workers following a nontraditional career model due to either their own preference or life circumstances. On the other hand, they may lose continuity –  Especially in a service-related business or customer-facing roles in any organization. Consistent relationship development is essential if to keep happy and loyal customers. Plus, over-reliance on contractors results in loss of institutional memory and cuts away at the corporate culture of trust.

How do you find the happy balance of contractors and employees?

There is no one-size-fits-all ratio. Each company will need to determine for themselves what makes the most sense.

A white paper from TalentWave on “The Flexible Workforce” includes counsel about achieving an advantageous mix to achieve both cost savings and top functionality. One of their recommendations is to overlap employees and contractors, with enough permanent employees to handle a portion of, but not all, extra work during peak periods while filling in with flexible workers to cover the rest.

Additionally, consider the work involved. Operational and administrative work is best covered by traditional employees, says Wingard, while strategic or technical needs can often be covered by contractors.

There are also an ever-growing number of state-specific considerations to be made about the legalities of using independent contractors, which we will not cover in this article. Our best advice is to seek competent advice from an expert who works specifically on IC compliance and engagement.

Contractor vs. employee – what’s the best fit for you?

Whether you need traditional employees to join your team or the expertise of independent contractors during a transition, a peak season, or a project, Bradsby Group’s experience includes helping our partnering organizations find talented individuals to fill strategic openings. Our goal is to find the best fit and balance for you. Contact us today.

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