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The Benefits of Employees vs Contractors

Even if you start your small business alone, if your company is successful it won’t be long until you need to enlist the help of others to keep up with the demand for your goods or services.

The two options for increasing the human resources in your small business are 1) hiring employees and 2) hiring contractors. Each has it’s benefits and downsides, and it’s best to consider each before deciding which kind of resource you’re going to hire. Your decision will impact what kind of paperwork you have to fill out throughout the year and what taxes you are responsible for.

The Benefits of Hiring Contractors

Small Business Contractors Have Their Own Equipment. When you hire a contractor for your small business, they will have their own equipment. This means that you may save your small business money, especially if the equipment is only used on occasion and purchasing it outright would be expensive.

Small Business Contractors Can Be Hired As Needed. Contractors work for several people, not just your small business. That means that the can run their business just fine without the need for your work. The result is that you can hire a contractor when you need their work. Of course, this can also be a negative factor if they are too busy and are unable to work for you at a certain time.

Small Business Contractors Require Less Paperwork. When you hire a contractor for your small business, you have to pay them for their work and you have to supply them with a simple tax form at the end of the year that they can use for their taxes. Typically there is also an agreement or contract you have to sign for each project a contractor is hired for. The paperwork is fairly simple.

Small business employees, however, require that you generate paychecks each month, submit taxes to the state and federal governments regularly, keep track of hours worked, and several other paperwork items. Keeping track of these requires a somewhat advanced system that not all small businesses are ready for.

The Benefits of Hiring Employees

Small Business Employees Are Less Expensive to Hire. Probably the most convincing benefit to hiring employees is that you can offer less per hour than you can a contractor. A contractor has their own small or large business and understand that true value of the work they do and charge accordingly. They also typically have a significant amount of overhead that they have to recoup through their fees.

Small Business Employees Are More Reliable. Knowing that you will have a certain amount of human resources in your small business at any given time gives you the opportunity to make more concrete plans for business growth, and more reliable promises to customers. That structure is very important for many small businesses, especially ones that have to remain open to the public during certain hours.


Your choice to hire employees or contractors for your small business depend on several factors, including 1) how much money are you able to spend on extra human resources, 2) is there enough demand for extra work that hiring a full-time employee is justified and 3) how simple or complex would you like your paperwork burden to be. Remember in either case that you do have legal responsibilities to your human resources that you should investigate before you hire anyone.

About Dave Solomon

Dave Solomon is a serial entrepreneur influenced by Terry Murray, one of the greatest business mentors of 21 century. This Blog is an initiative to recollect the lessons of Mr. Murray and help aspiring entrepreneurs become transformational entrepreneurs

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