What will you choose: an employee or a contractor? This can be a difficult decision for startups, with big legal and financial implications. 

Choosing between hiring an employee or a contractor depends on your company’s unique needs. There are major differences between the two that you must understand before hiring your next team member. 

Employees

Employees are regular staff, either full or part time. You hire them to perform ongoing support for your business, and their tasks may vary. You have complete control over their work activities, including their working hours and place of work. 

Of course there are limits – you’re not supposed to have your accountant washing your car. But ultimately, you hire an employee to perform an often wide and varying assortment of tasks. And you get to determine which of these tasks they perform (and how they perform them) on any given day. 

Legally, employees have termination rights, such as the right to a final pay cheque or sometimes severance pay. You withhold payroll taxes (CPP, EI, etc) from employees, and your business provides them a T4. 

Employees will also expect certain benefits, like health care and sick leave. This, along with the associated HR and accounting costs, means that employees are usually the more expensive choice. 

Contractors

On the other side of the spectrum, a company can choose to hire a contractor. Contractors are independent workers that you hire to perform a certain task. Unlike with employees, the contractor gets to decide how they will perform that task. That’s why, if you hire a contractor, you need to be very clear up front about what your requirements and timeline will be. 

Contractors are generally a less expensive choice, as you do not need to offer them benefits, and there are no associated HR costs. You will not pay them through payroll, so you will not withhold any payroll taxes. Instead, they will invoice you, and manage their own taxes independently. 

Contractors are usually hired for a specific project or task, or for a set length of time. For example you may hire a web developer to build your website or a virtual finance team to handle your taxes and accounting. These would both be contract positions. 

How To Choose An Employee or a Contractor

Like with everything, there are pros and cons to both types of workers, and what you choose will depend on your company’s unique needs and circumstances. 

Contractors are great when you don’t want or need to commit to long-term support, or if you’re looking for an expert to complete a task. Take the website example. Most small businesses will need a website, but most won’t need a full time developer on staff. So in this case, hiring a contractor to build your website is usually your best bet (since you likely don’t have the time or know-how to build one yourself). 

And, yes, employees often cost more. But they also provide ongoing support and loyalty – both of which your company needs to thrive. You can also give them in-depth training, so that they do exactly what you need done, exactly how you need it. This can also be critical to your ongoing success.

Ultimately, a growing company will need a combination of both contractors and employees, to maximize the benefits of both. For example, if you need to hire more employees but are struggling with HR costs, you can contract out your bookkeeping and payroll to professionals. That way, you can still enjoy the best of both worlds. 

Choosing between hiring an employee or a contractor depends on your company’s unique needs. There are major differences between the two that you must understand before hiring your next team member. 

Employees

Employees are regular staff, either full or part time. You hire them to perform ongoing support for your business, and their tasks may vary. You have complete control over their work activities, including their working hours and place of work. 

Of course there are limits – you’re not supposed to have your accountant washing your car. But ultimately, you hire an employee to perform an often wide and varying assortment of tasks. And you get to determine which of these tasks they perform (and how they perform them) on any given day. 

Legally, employees have termination rights, such as the right to a final pay cheque or sometimes severance pay. You withhold payroll taxes (CPP, EI, etc) from employees, and your business provides them a T4. 

Employees will also expect certain benefits, like health care and sick leave. This, along with the associated HR and accounting costs, means that employees are usually the more expensive choice. 

Contractors

On the other side of the spectrum, a company can choose to hire a contractor. Contractors are independent workers that you hire to perform a certain task. Unlike with employees, the contractor gets to decide how they will perform that task. That’s why, if you hire a contractor, you need to be very clear up front about what your requirements and timeline will be. 

Contractors are generally a less expensive choice, as you do not need to offer them benefits, and there are no associated HR costs. You will not pay them through payroll, so you will not withhold any payroll taxes. Instead, they will invoice you, and manage their own taxes independently. 

Contractors are usually hired for a specific project or task, or for a set length of time. For example you may hire a web developer to build your website or a virtual finance team to handle your taxes and accounting. These would both be contract positions. 

How To Choose An Employee or a Contractor

Like with everything, there are pros and cons to both types of workers, and what you choose will depend on your company’s unique needs and circumstances. 

Contractors are great when you don’t want or need to commit to long-term support, or if you’re looking for an expert to complete a task. Take the website example. Most small businesses will need a website, but most won’t need a full time developer on staff. So in this case, hiring a contractor to build your website is usually your best bet (since you likely don’t have the time or know-how to build one yourself). 

And, yes, employees often cost more. But they also provide ongoing support and loyalty – both of which your company needs to thrive. You can also give them in-depth training, so that they do exactly what you need done, exactly how you need it. This can also be critical to your ongoing success.

Ultimately, a growing company will need a combination of both contractors and employees, to maximize the benefits of both. For example, if you need to hire more employees but are struggling with HR costs, you can contract out your bookkeeping and payroll to professionals. That way, you can still enjoy the best of both worlds.