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When to hire full-time versus contract staff

The best hiring practices for your small business.

If you need additional hands on deck, you’ll have to decide whether to hire a full-time employee or go with a contract worker — but this isn’t always a straightforward decision.

If there’s a short-term need (say, for a specific project or to cover a maternity leave), it makes sense to hire someone on contract. If the requirements of the job span a year or longer, however, the decision is more complicated. And there’s more to consider than how much you’ll be paying out in benefits.

If the scope of the work is project-based, a contract may make more sense. If it’s administrative or cyclical in nature — such as IT, HR, payroll and other commonly outsourced items — a permanent hire may be the best route.

What are the benefits?

When to hire full-time versus contract staff

If you hire a full-time employee, you’re likely going to be offering benefits, perks and training, says Aimee Rieck, Senior Manager, Human Resources with Workpolis. With a contract employee, you probably won’t offer benefits, but you may offer perks — and there’s still a need for training. However, Rieck points out this is likely to be internal training by your own staff rather than third-party training (and therefore less costly).

But benefits, or lack thereof, isn’t the only consideration. If there’s a surplus of labour in your field or industry, you have more options. For example, if an employee leaves (whether contract or full-time), it’s easier to find a replacement. But if you’re looking to hire someone on contract and there’s a labour shortage, you could be better off hiring them on a full-time basis, says Rieck.

“If there are labour shortages and you really need that skill set, you may end up paying a little bit more to secure that talent … so you don’t have the worry about them ending their contract early to take a full-time position elsewhere,” she says.

Consider the costs

When to hire full-time versus contract staff

Some employers will hire a contract employee at the same rate as a permanent employee but without the benefits, particularly in cases where those employees perform the exact same job such as in a call centre.

But if you’re hiring someone on contract for project-based work — and if it involves a niche skill set — you may want to set their salary higher than what you’ve established as your salary grade. In this case, you want to compensate for their lack of benefits, according to Rieck.

If you’re replacing a full-time employee who has left the company, there are costs associated with hiring — and these costs can be steep. If a contract employee leaves, “you may or may not still have some cost associated with recruiting, but there’s less of a risk,” she says. “If it’s close to the end of their contract you probably wouldn’t need to hire someone again.”

The flexibility factor

When to hire full-time versus contract staff

Another factor to consider is flexibility for the employer. If you hire someone on contract, there’s an end date — you can either part ways or extend the contract if necessary. Still, there’s no guarantee a contract employee will work out, so it’s important they sign a contract, which includes what the worker is entitled to if the contract ends early.

A handshake or verbal agreement will favour the employee, not the employer, from a legal point of view. A contract should include the terms of the arrangement, including — if necessary — a non-compete clause. “Even if the relationship ends on a good note, you don’t want that contract worker giving away proprietary information,” says Rieck.

While contract work provides flexibility for the employer, with some roles it’s more important to consider engagement and commitment levels. “If you hire someone on contract, they’re probably not going to do a great deal of building rapport and relationships with a long-term purpose in mind,” says Rieck.

The commitment level

When to hire full-time versus contract staff

“Consider the calibre of talent you’re going to be attracting,” she says. Some contract workers prefer this type of work for its flexibility and the ability to gain work experience. For others, it’s a matter of not being able to find a full-time job, so they default to contract work.

Those applying for a full-time position are making a commitment to the company, says Rieck, and “are more likely to have a long-term vision in mind.”

Every company is different, and every role is different. That’s why it’s key that HR works in partnership with the rest of the business to understand current and future needs — so they can find the right match for the job.


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Vawn Himmelsbach

Vawn Himmelsbach is a freelance writer and editor based in Toronto. She has covered technology and travel for 15 years, for media outlets such as, The Globe & Mail, Metro News, ITBusiness, PCworld Canada and Computerworld Canada. She also spent three years living abroad and working as an Asian correspondent.

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