Contract vs Full Time IT Workers in 2023: What Is Best For You?
Introduction
The demand for contract workers has continued to increase at a steady rate. In such a scenario, it can be difficult to decide the right time for hiring the services of a full-time employee or a contract worker for IT positions. According to a survey conducted by Gusto, a payroll company, 9 out of 10 companies are for retaining or increasing their reliance on independent workers in the near future.
The demand for specialized IT skills is at its peak, as contract workers involve a more cost-effective and flexible approach to hiring for employers. While these benefits of hiring contract workers are proven beyond doubt, concerns have been raised by many.
An increasing number of employers are likely to place their employees in the category of contract workers when they provide full-time services. This is a costly mistake and it is important for employers to know when to hire contract workers and when to hire full-time employees.
So, what are the differences between these two profiles and how should you hire their services?
Who are Classified as Contract Workers?
Contract workers are referred to by various names, including freelancers and independent contractors. These are independent individuals hired by an employer for a fixed period and at a fixed rate.
These workers are hired because of their skills in a specific area of specialization. They are hired for a period of time until a project is completed or to provide support. Usually, these workers are hired for a period ranging from three months to 1 year. However, there is also room for extending the contract based on the need.
A contract worker is an independent service provider and is not ‘employed’ by the business like a full-time employee. They are not on the payroll, which means they have to pay or report their taxes on their own. Such independent workers are also responsible for managing their own benefits.
However, this does not mean that you can hire the services of an independent worker under Form 1099 and stave off issues with the Internal Revenue Service or IRS. The IRS considers various factors to assess the proper classification of a contractor.
According to the IRS, a worker can be classified as a contract worker if they meet the following conditions:
- They are working on a short-term and temporary basis
- They make use of their own equipment to work
- They have control over the way the work gets done
- They get paid on completion and after submission of an invoice. This is different from receiving periodic payments via the employer’s payroll system.
When you ensure that your contract workers meet these requirements, you will be able to avoid retroactive payroll taxes. You do not want to be a victim of misclassification by the IRS.
While a significant percentage of IT contractors are managing their profile and contract work on their own, others get employed by staffing companies. The latter choose this path so that the staffing company can take care of their placements, performance, and taxes.
Who are Classified as Full-Time Employees?
A full-time employee or FTE is a staff member of a company. They are an internal employee and their services are hired for an unlimited period. Such a worker gets paid a fixed wage, either as an hourly wage or salary. Compared to a contract worker, an employee has lesser room for negotiation in the areas of compensation, hours of work, and methods of operation. A full-time employee uses company equipment and is subject to greater levels of employer collaboration and supervision.
A full-time employee is hired under the W-2 form. This means:
● Employer takes care of tax management and deduction from their paycheck
● Employer offer benefits such as health insurance, 401k, holiday benefits, and paid parental leave
A full-time employee is more responsible to their employer and the same holds true for the employer too.
As you can see from the above-mentioned points, there is not much in common between full-time employment and contract work. So, how do you choose between a contract worker and a full-time employee? There are a few tips to help you make the right assessment and choose the right type of worker.
When Should You Hire a Contract Worker?
You should hire IT contractors when you have short project completion times. Contract workers should be considered when the tasks you want to assign them have a clear and fixed start date and end date.
Consider, for example, a project needs to be completed within a period of 12 months and your in-house staff does not have the time to handle that additional project. In such a scenario, it is more reasonable to hire the services of one or more contract workers as compared to full-time employees. If it is an app development project, you can hire contractors to take care of the initial build-out and launch before your full-time employees can handle maintenance and other aspects of the project.
Positives & Negatives of Hiring Contract IT Workers
The following positives and negatives should help you determine whether a contract IT worker is perfect for your projects.
Positives
i. High Cost-Efficiency
Independent contractors typically charge higher pay rates compared to their full-time counterparts. Still, hiring a contractor is a more cost-efficient option. The employer is not liable to bear the extra costs that come with hiring and managing a full-time employee.
The employer will not have to pay for expenses including, health insurance, employment taxes and worker’s compensation.
With full-time employees, you have to bear various hidden costs. This makes it much more cost-effective to hire an independent contractor.
ii. Lesser Training
One of the most lucrative aspects of hiring contract workers is that they are well-trained experts. They have a proven and long track record of demonstrating their experience and expertise in their field of specialization. There is no need to train such a worker, as they already have the skills needed to complete the task.
Note: This doesn't mean that full-time employees are hired without a demonstration of experience and skills. They are inner members of the staff and the employer has more time at their hands in training and developing their capabilities. When it comes to contract work, there is limited time. Thus, there is not much time for training.
Negatives
i. Difficulty Collaborating
While a contract worker is an independent professional, they are required to collaborate with your full-time employees. This collaboration is important to ensure the work is completed in accordance with the company’s guidelines and specific requirements.
Since contract workers are used to working independently, they are less likely to get involved in teamwork. Communicating, setting up meetings, and addressing feedback can be more difficult than managing everything with full-time employees.
ii. Lack of Loyalty
Independent contractors are not loyal to your brand. They don't have any stake in the project they are handling or the company they are serving. They are less likely to follow the desired techniques, promote the brand on their social network, or commit their entire time and attention to the project.
When Should You Hire a Full-Time Employee?
Employers usually hire full-time employees when a gap exists in the capabilities of their existing employees and in delivering on their daily business operations. You should hire such an employee only when long-term services are needed in a particular area.
Consider the need for a site reliability engineer in your organization. The position ensures your website is always available. This is a permanent position and you will need to hire a full-time employee.
At the same time, it is important to realize that there is more resource commitment to hiring a full-time employee than a contract worker. Before you hire an FTE, it is important to ensure your organization considers the following points:
- Whether you need ongoing or temporary support.
- Do you have enough work orders to support a full-time hire?
- Whether a full-time employee will bring skills and experience currently missing in your organization.
- Is your organization capable of supporting a full-time employee with their financial and professional growth?
Positives & Negatives of Hiring Full-Time IT Employees
Similar to independent contractors, there are both positives and negatives to hiring the services of full-time employees.
Positives
i. Stronger Commitment
FTEs are focused on both their career and paychecks. They will spend the time and make an effort to learn about their role, build in-office relationships, and take over greater responsibility over time. They are more committed to the brand. Over time, as their knowledge of the organization and skills increase, they become increasingly important assets.
ii. Better Supervision
When an individual is hired as a full-time employee, their respective managers or supervisors will be able to supervise their performance. This form of greater monitoring helps lower the chances of mistakes and low performance.
Negatives
i. Costlier
As indicated above, full-time employees cost more to employers than contract workers. Even when their compensation is relatively lower, there are many hidden costs that will add up to make it much costlier to hire and maintain a full-time worker.
ii. Potential Risks
When you hire an FTE, you are making a major investment in terms of money, time, and effort. If an employee resigns after a short period, it will be a big loss to your company. It means the entire hiring process has to start again. You will be taking the same risks again while going through the hiring process.