Hiring Top Talent: The Real Differences Between Employees and Contractors

Learn the differences so you can effectively hire each

If you’re a hiring manager, you know how hard it can be to hire both full-time permanent employees and contractors. What can make the process even more complicated is how these two candidates can differ and either fit or clash with your hiring goals.  

So, we wanted to take a moment to clarify a few important distinctions between the two worker classifications. Hopefully, you’ll be better informed on which candidate would best fit your needs and when you should hire them. 

Key Differences Between Employees and Contractors

Although the nuanced difference between employees and contractors are not always clear-cut, there are still distinguishing features of each.

First, we’d like to clear up a couple of prevailing points of confusion: 

1. The lengths of contracts are too short to make a meaningful impact. Just because an employment agreement is for contract work doesn’t necessarily mean it’s going to be shorter term than traditional employment. In fact, some contracts span beyond a year! Besides, most full-time positions are at-will based and could end at any time because of either party’s decision to withdraw.  
2. There’s a tendency to confuse contractors with freelancers. Contractors are often paid through an external vendor, like a staffing agency. Freelancers, on the other hand, are often paid directly and oversee their own employment documents. While contractors often work on one contract at a time, freelancers will often simultaneously work between multiple projects from various employers.  
3. For more information on the specifics of hiring contractors, contact TeamSoft for more! 

How the IRS Views Differences Between Employees and Contractors

Perhaps the biggest difference between employees and contractors is flexibility and savings. Contractors are ready to work when you need them. They’re immediately available to fill specific, short-term projects and high-need surges like budget seasons in the fall. Employers love the savings they get with contractors who they can cycle out during downtimes, freeing them from the financial burden of maintaining an overstaffed workforce. 

Because the IRS considers anyone working for you to be an employee until you can prove otherwise, the burden is on hiring managers to keep careful records of their tax documentation in the case that they’ll need to prove your contractor is not a full-time employee. 

Other Items to Consider

Typically, you’ll find that payroll responsibilities are much easier with contract workers, as you’ll have fewer contractual obligations with payroll and benefits. Most contractors won’t receive full-time benefits like paid time off or health insurance, so employers will have fewer administrative burdens like checking PTO allocations, benefits enrollment and any pay issues that arise from employer benefits. 

Additionally, employers of contractors must provide work equipment, like laptops, monitors, keyboards, A/V equipment, and printers not just for ease of technical integration, but for security purposes as well.

When to Hire an Employee or Contractor

Now that we know the most important differences between employees and contractors, let’s explore ideal ways to most strategically utilize them at your company.

Employee: An employee is hired to perform specific, defined tasks as part of a company’s ongoing business. These people are typically hired on a full-time basis and have set wage levels and other conditions. They are generally considered part of the organization and must be treated as such under the law and within your group policy.

Consider hiring an employee when you need ongoing, long-term work performed. Since you’re investing presumably more time, effort, training, etc., into an employee, you will need to spend more time ensuring a positive fit. They’ll need to have the necessary job description skills, fit your culture, and meet other specifications like alignment on travel requirements.

Contractor: If you have an important project that appears to have a clear beginning and end, then you’ll want to hire a contractor. This can be especially true if you don’t require a high level of oversight into how their work is executed. Because contractors operate with higher levels of autonomy, they’ll expect less training and ongoing supervision. 

The Benefits of Using a Staffing Agency 

Keeping your business fully staffed costs money and time. Making a poor hiring decision can be additionally costly and waste valuable time. Collaborating with a staffing agency can minimize your administrative burden and manpower associated with the drawn-out hiring process, eliminating mundane and costly tasks like sourcing, following up, screening candidates, and more.

And those benefits only multiply when you choose to partner with a staffing agency that is specific to your industry. TeamSoft has earned a reputation as a leading recruiter for tech employees for many years. We know the lingo, the technology, and the unique needs of the industry that are critical for hiring for each role. This means we not only know who looks good on paper but intuitively have a feel for who might be a long-term fit and who may make a better contractor.

Ready to learn more about hiring the right people for your tech company and driving them to achieve a positive, profitable workplace dynamic? Contact our specialized recruiters at TeamSoft today to get a jumpstart on finding your next employees.