Tags: , , , , , , , ,

Employees vs. Contract Workers: Which Should You Hire?


Hana Dickman


Once your business begins to grow, you may be faced with the decision to hire part-time, full-time, or contract-based workers. Historically, businesses have been able to take advantage of many great and cost-saving benefits when using contract workers. However, the previous definition of contractual laborers no longer applies to some of your workers, and you need to know how this change can affect your business costs.

How Much Do You Need Additional Staff?

Your first consideration when hiring staff should focus on how many hours you need covered. If you need at least one staff member for a full-time position, you may want to consider hiring a true employee. If you have rare needs, such as a single shift per week, consider hiring an independent contractor.

Will the Cost of Employee Benefits Outweigh the Benefit of Hiring a Staff Member?

Since the passage of the Affordable Care Act, you may be required to provide health insurance to your employees, depending on the number of employees you hire. If you have less than 50 employees, you’re not required to offer health insurance. Previously, you could have used contract workers to avoid this situation and scale your business to meet your consumer demand. However, the changing definition of an employee poses serious implications for this common practice.

Why Is the Definition of an Employee Changing?

Many workplace rights have roots in the early 19th century, explains CNN. However, many modern labor agencies, such as those that classify workers as independent contractors, have sought to prevent workers from unionizing and gaining employee-based rights. Compare how statistics of unionized laborers have changed in the last 30 years: In 1983, 17.7 million workers were members of a labor union. In 2014, this number had dropped to 14.6 million. 2.87 million workers were classified as independent contractors in 2014, reports the Portland Press Herald. This reflects the growing surge towards employing independent contractors in place of actual employees. However, America’s workforce demands stronger representation and equal rights, and authoritative entities are starting to change things.

The National Labor Relations Board, under the authority of the US Department of Labor, is responsible for determining what defines an employee. For example, contractual workers have been routinely classified as independent contractors. However, the NLRB is attempting to modify the standard definition of an employee to include such contractors. This comes as a result of contractual and franchisee employees seeking a resolution to unionize in large-scale forces. In other words, contractual workers should be able to join in your company’s voice, and therefore, in your company’s employee benefits.

What Does a New “Employee” Definition Mean For Your Business?

Now, consider how changing the definition of an employee would affect the cost of a contractual labor. Depending on the NLRB’s final ruling, contractual workers may be reclassified to obtain the same benefits as your traditional employees. As a result, you may need to offer paid time off, FMLA allowances, and insurance benefits to contractual workers in the future. Furthermore, you can’t escape the costs of these benefits to your own employees by outsourcing job duties. Consider this scenario:

With 46 employees, your business currently employs less than 50 people. You need to increase your staff by six additional positions for the holiday-rush. Unfortunately, this places you in the mandate to offer health insurance. Previously, you could have avoided this requirement by hiring three workers and outsourcing the remaining positions to independent contractors. With the NLRB’s ruling, the contractual workers will now count towards your total number of employees.

Ultimately, you must review how each decision will affect your overhead costs.

Key Comparisons to Make Between Employees and Contractors…

The best way to approach the new definition of an employee is to consider that any person who performs work for your business, even if the worker is an independent contractor, is your employee. However, you must also consider the following costs:

  • How much will you need to pay in health insurance for your employees if you have at least 50 employees?
  • How much do you spend in training costs? For example, an employee who requires one day of instruction will incur the cost of the person training him and the cost of the new employee’s daily rate.
  • How much would you spend in pre-employment eligibility screening? This includes costs for drug tests, background checks, and time spent checking credentials.
  • Does your contracting agency require a minimum number of hours and placements per time period? For example, would you be obligated to using contracted workers for X number of hours every month or quarter?

By understanding how the definition of an employee affects your business, you’ll be better prepared to decide between hiring your own employees and using third-party contractors.