Hiring Employees vs Contractors? Building your team
Today's topic is all about whether you should hire employees or contractors. It is a topic that is both suitable for people that work within a business in a leadership role, looking at expanding the team, and also for people that own their own business and looking at how to expand the team. As you step into 2023 and to think about how you want the year to go, this is a common question that people ask.
So first I'll be showing the definition of an employee and a contractor and five different things to consider when you're working out which to hire.
I'll also share a little bit about fractional teams and if you're not familiar with it, it's a great thing to understand a little bit more about. If you are looking at hiring in 2023, I also have a free mini course that is called time to hire, which walks you through how to make the decision on hiring. You can find at zenithjourney.com/timetohire and I talk about it a little bit later in the episode, so let's get into it.
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Episode Transcript:
[00:00:00] Today's topic is all about whether you should hire employees or contractors. It is a topic that is both suitable for people that work within a business, in a leadership role, looking at expanding the team, and also for people that own their own business and looking at how to expand the team. As you step into 2023 and to think about how you want the year to go, this is a common question that people ask.
[00:00:23] So first I'll be showing the definition of an employee and a contractor and five different things to consider when you're working out which to hire.
[00:00:32] I'll also share a little bit about fractional teams and if you're not familiar with it, it's a great thing to understand a little bit more about. If you are looking at hiring in 2023, I also have a free mini course that is called time to hire, which walks you through how to make the decision on hiring. You can find at zenithjourney.com/timetohire and I talk about it a little bit later in the episode, so let's get into it.
[00:00:56] Today's episode is specifically for people that have been doing all the things in their business by yourself, and you are looking for a way to get out of the weeds and scale and grow. Because after all, where is this seemingly elusive freedom you've been waiting for?
[00:01:14] If you are ready to step out of the 'doer' role to the 'leader' role, or perhaps you've got your own business and you're ready to step from the stressed out solopreneur to confidence CEO, you need a team to help you do that. But bringing on team members can be a significant financial and time investment so you want to set up a good structure from the start, one that makes the most sense for how you like to work. And maybe you didn't even realize that you had options!
[00:01:41] So you may be stuck wondering which hiring method is best for your business, leadership style and budget. Is it employee or is it contractor?
[00:01:49] I'm going to explain the difference between the two and a few ways that you can decide what is the best option for you. Because let's be honest, leading into this time of year it is something that's on everyone's mind. In 2023, do I want to do things similarly or differently to how I've done them in 2022?
[00:02:07] So the difference between an employee and an independent contractor. An employee works for a business. Typically they work for one business and that business controls how, where, and when they do their work and pays them a consistent wage and benefits. An employee is typically on your payroll. They receive a set salary and often benefit such as pay time off and depending on your country, some sort of retirement benefits like superannuation or 401k or pension schemes.
[00:02:37] The other option, the independent contractor, they are self-employed and contract with one or several other businesses. They're their own boss and are paid by the hour, project or monthly retainer. Contractors are responsible for paying their own taxes and don't usually get benefits from your company unless they pay for them themselves.
[00:02:56] So, how do you decide whether you want an employee or an independent contractor? There's a few things to consider with your finances and your preference. Such things to think about is your overhead flexibility, training, control, stability.
[00:03:15] The thing, when it comes to clients, is your clients do not know how you've hired this person, whether you've hired them as a contractor or whether you've had hired them as an employee, your clients do not know. And frankly they don't care. So really it is about your preferences and how you want to go about it, not about what is best for the clients.
[00:03:36] So let's go through this handy list of five things to consider when deciding between these two hiring options. The first thing to consider is Overhead. Bringing on full-time employees can be perceived as more expensive than independent contractors. You need to factor in benefits, office space, equipment, payroll services, and the other administration costs.
[00:03:57] But contractors already factor this into their cost when they give you their rate. So if you compare a contractor hourly rate and employee at annual rate inclusive of benefits, you'll probably be surprised that the employee comes out cheaper, but that doesn't necessarily mean that the employee is cheaper. They're just not comparing apples and apples. So don't get tricked into thinking that an employee is cheaper just on their dollar value upfront of their cost. Make sure you're factoring in everything that is included that I mentioned.
[00:04:29] The second thing to consider is Flexibility. Take a look at the expertise that you need when you are staffing. Do you only need a launch consultant twice a year, or do you need daily maintenance of your systems and operational support?
[00:04:45] If you're looking for someone that is just doing a project that comes up a couple of times a year, then looking at a contractor is a great option for that. If it is a repetitive task or project, having an employee or a contractor could be a good option.
[00:05:01] The third thing to factor in is Training. Do you want a specialist that can hit the ground running and do the things their own way and in their own style? Or do you specifically want someone to do things your way? If you wanted them to come in and they're already trained and hit the ground, running a contractor as good option here. But if you have specific ways that you would like things done, that's in your style. You might want to consider an employee.
[00:05:29] The fourth area is control. Some people do not care how the team gets the work done, as long as it's done. Others like to have a set times that they work and how they work and to be on call when they need. If you've got a question you want to be able to reach out and ask them that question. If you want more access to the person and employee is an easier way to get that. Where a contractor is more likely to work if you're happy for it to be done in their own time and way.
[00:06:00] The fifth one is Stability. Often we think that by hiring an employee, that the person might stay longer. And this can be true. If you're wanting someone to join your business as part of your business and not join your business as a stepping stone to start their own business. It's more about the question you ask in the interview then about hiring for stability.
[00:06:23] Some of the people that I've worked with for the longest have actually been contractors because they're doing what they love and in a flexible way that suits them. There are some people that love getting a regular paycheck every week of having a stable job. And therefore, if it's that type of person putting them on as an employee, it could be very attractive for them.
[00:06:43] Now, when it comes to training, there's something to factor in when you're hiring a contractor or an employee. Typically a contractor, you want them to hit the ground running, but an employee may take some time to get up to speed on things.
[00:06:58] I have a rule of thumb of three months. The first month is getting to know your business and your systems. The second month is getting to know your clients and how you work. And the third month is when they start to get cashflow positive from your work with your clients. So when you are hiring an employee, have a buffer of three months salary, so you can take the time to correctly get them on board. Typically, if you're hiring a contractor, they will come with their own systems and procedures and hit the ground running. So you will get a quicker return with a contractor, but it might not be done at your way.
[00:07:31] One final thing to consider is your leadership style. Do you like being a solopreneur and you're looking for extra admin support, or do you want to build a tight knit team, whether small or large, and mentoring that group based on your philosophy and broader vision is really appealing to you. And if it it's that second one, then perhaps getting employees is going to be more fulfilling.
[00:07:54] The final thing to think about with your leadership style and business structure is if you're comfortable with your team working with other clients, or do you want a hundred percent of their focus on your business? In general contractors need to be managed less closely. You can't really expect them to hop on last minute virtual meetings or attend training sessions, unless it's a great to ahead of time. But they also don't need a lot of management or regular feedback. Now that said, even if they are a contractor, I would still be encouraging you to have a regular meeting with them.
[00:08:26] That's one place that people really miss the mark. I have a virtual assistant, we have a fortnightly catch up to make sure everything's on track. And each month I meet with my marketing manager, and we go through the plan for that quarter. What's coming ahead. We strategize and work out exactly what needs to be done.
[00:08:44] The great thing about these meetings is that they're proactive, they're not reactive. And it's rare that we get caught out missing something. So, whether they're an employee or a contractor, I would still encourage you having a regular meeting with them.
[00:08:59] So after listening to this, it may still not be clear if you want an employee or a contractor. But the great thing is you don't have to choose between one or the other. You can have a team of both.
[00:09:09] A term that people are getting familiar with is the gig economy, but there's a newish term that people have been talking about, which is called a fractional teams.
[00:09:19] This is where you bring in a team of experts who perform specific duties in your business, picking up the slack when needed and boosting your overall performance.
[00:09:27] So after today's episode, if you have been thinking, well, maybe 2023 is a time for me to start looking at contractors or employees or perhaps growing the team, then I have a great resource for you. It is a free mini course called "time to hire?". You can find it by going to my website, zenithjourney.com/timetohire and that will step you through five different stages of what sort of business that you want and how to decide who and what to hire and what tasks to give them, which is a really great place to start your year of 2023 fresh.
[00:10:06] I also have a blog post that goes into how to decide to hire employees or contractors in more detail. And you can find that link in the show notes.
[00:10:18] Thanks for listening.
