Companies have a lot of options when it comes to hiring. Not only can they hire globally, but business owners can choose whether to bring folks on as full-time employees or independent contractors.
Which type of worker best fits your company depends on your unique needs.
Key takeaways:
- There are several differences between full-time employees and contractors, including cost and a company’s control over when work is performed.
- Companies typically seek full-time employees to fill long-term staffing needs while contractors are brought on to perform work on short-term projects.
- An Employer of Record (EOR) can manage onboarding, administration, and payroll for full-time employees and independent contractors.
What is a Full-Time Employee?
A full-time employee is directly employed by a company and works a set number of hours on a schedule defined by the employer.
Employees receive comprehensive support from their employer, including training, equipment, and ongoing professional development. In addition, employees benefit from perks like healthcare, paid vacation, sick leave, and retirement savings as part of their employment package.
Traditionally, companies have employed staff who live locally, but this is shifting due to the growing popularity of remote work and the evolving global talent marketplace.
When hiring international employees, it’s essential to follow all applicable regulations governing the region where your employee is based to comply with local labor laws. This includes payroll taxes, paid leave, health insurance, and more.
Pros of Hiring Employees
Employers have more control over an employee’s work schedule, tasks, and performance than they do with contractors, who operate more independently.
Full-time employees are generally more invested in the company’s success, growth, and company culture — leading to a higher degree of loyalty and stability.
Long-term employees are often motivated to excel in their roles in order to advance to more senior positions. This drive boosts productivity and enhances retention, ultimately helping to reduce overall costs.
Cons of Hiring Employees
One of the biggest cons of hiring people full-time is the cost. One estimate, published in the New York Times, found that a tech company could save up to $100,000 annually by hiring a contractor rather than a full-time employee.
This is due to expenses associated with:
- Payroll taxes
- Training
- Equipment
- Professional development
- Paid leave
- Retirement contributions
These added investments contribute to the long-term commitment of full-time employees but increase the overall financial costs for employers.
Depending on the country where the employee is located, employers with full-time employees may be required to pay into local social programs, such as health and maternity care in Costa Rica or pensions and long-term insurance in Germany.
In some countries, employers may even need to go above and beyond offering the mandated benefits. For example, in the Philippines employers frequently need to provide more sick and vacation leave than is legally required to attract qualified job applicants.
What is a Contractor?
A contractor is a freelance worker hired by a company to perform a job for a specific timeframe on a temporary basis. They provide their own equipment, their own tools, set their own schedule, and possess a skill set in a particular niche, such as coding or graphic design.
Contractors might work for an hourly wage, on a per-project basis, or for a monthly retainer and typically aren’t entitled to overtime pay.
While companies need to determine payment terms when hiring contractors (and spell them out in the contract), they are not responsible for payroll taxes. The contractor is self-employed and responsible for making any necessary income tax payments themselves. However, the company must provide the contractor with any required tax documents at the end of the year.
Pros of Hiring Contractors
Freelance workers are often brought in for a contract position to address a company’s specific needs for a particular project or timeframe.
For example, a developer may be contracted to focus exclusively on app development by a healthcare company or a communications consultant might be hired to write specialized whitepapers for an accounting firm.
These professionals provide the necessary expertise without a long-term commitment to full-time employment. Companies also don’t need to provide independent contractors with health insurance, vacation, or other benefits.
While all types of companies hire contractors, it’s especially common for newer companies and start-ups to employ independent contractors to help reduce costs and allow them to flex their headcount with business needs.
Cons of Hiring Contractors
Businesses have less behavioral control over their contract workers. Contractors typically set their own work hours and often work for multiple companies simultaneously.
One of the most significant risks of hiring contractors is misclassification. This is when an employer mistakenly classifies a worker as an independent contractor and it’s later determined that they should have been classified as an employee.
Employment laws and penalties around misclassifying a worker vary widely depending on where the person lives. A mistake on classification can be costly for the employer with the possibility of legal action, fines, back wages, and even jail time.
Should I Hire a Full-Time Employee or Contractor?
It comes down to your business needs.
Consider hiring a full-time employee if you need someone for an ongoing, long-term position, such as a salesperson or human resources manager.
Choose a contractor if you require specialized skills for a specific project or a short-term need, such as redesigning your website or shooting a video for a company presentation.
Hiring a full-time employee might be the best choice if you:
- Are building out a long-term team
- Need someone to work a consistent schedule
- Know the need for this position will be ongoing
- Want someone more likely to be engaged in the company’s success
On the other hand, a contractor might be the best choice if:
- You need help with seasonal or temporary work
- You’re looking for specialized expertise
- The work does not require full integration into the company or team
- Your company is in the early stage and needs to stay adaptable to changing needs
Employ Contractors and Employees with RemoFirst
RemoFirst’s free contractor platform lets you onboard and manage contractors in 150+ countries. This includes:
- Identity verification
- Contract generation
- Onboarding
If you’d like the ability to also pay your contractors through our platform, pricing starts at $25 per person/month.
RemoFirst’s EOR services include the ability to employ full-time employees in more than 180 countries. We take care of all HR aspects of employee management, including onboarding, background checks, legal compliance, and payroll for the global hiring market.
Schedule a demo today to learn how we can help you hire, manage, and pay contractors and full-time employees.
