Independent contractors are different from freelancers in that they commit to one client at a time, working for one “employer” at a time, similar to full-time employees. Yet, there is a critical difference between them, and which one you choose can have a serious impact on your bottom line.
Understanding the difference between a contract worker and a full-time staff member helps business owners, especially those who plan on hiring their first staff member, to weigh their options.
Difference Between a Contactor and a Full-time Employee
There are quite a few differences between a contract worker and a full-time employee.
What is a Contractor
A contractor is a person who has a contractual agreement with a company that specifies that the person is expected to execute a specific task within a set period of time. The company can also choose to extend or renew this agreement.
Some characteristics of a contractor include:
- They are not entitled to paid annual leave, sick leave, or overtime pay, including public holidays and weekends.
- They are not included in the company’s pension or medical aid schemes.
- They work flexible hours, but for a specified length of time.
- Usually paid a one-time fee per job or according to negotiated terms.
- They are responsible for purchasing their own equipment and resources.
- Usually works remotely or only visits the office under certain circumstances.
- You have to manage your own taxes.
What is a Full-time Employee
A full-time employee is someone who works for a particular company for a specified amount of remuneration, usually paid every month. The contractual agreement has a start date, but no end date.
The Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA) define the benefits that a person is entitled to as well as the minimum number of working hours that the person has to work in order to qualify as a “full-time” employee.
Characteristics of full-time employees:
- The job has no set end date.
- They are paid according to their hours of work, often determined by their employment contract.
- If the company has a pension or medical aid scheme, the employee does qualify.
- They might receive internal training.
- They complete specific work procedures.
- Taxes are managed by the company.
Advantages of the Types of Workers
Contract Worker
Advantages of being a contractor include:
1. Contractors determine their own schedule
Many contract workers enjoy the flexibility this type of work brings because they determine their own schedule. But for the business owner, the joy of it is that the contractor doesn’t need to be managed closely. You don’t need to constantly ensure that the job will be completed, because you are protected by a contract that outlines what deliverables should be completed by which day.
2. Not paying a fixed salary
You are able to pay contract workers per project or per hour, meaning that your business doesn’t need to commit to paying a recurring salary. This means that when your company needs a bigger labour force, but you cannot foresee what the long-term financial projections will be, you can use a contract worker for a shorter period, with the option to extend your contract as the financial standing improves.
3. Advanced or extensive expertise
As a business owner, you might find yourself in need of particular expertise. If you are planning on growing your business in a particular area, it might also be beneficial to only employ a contract worker with a specific skill for a set period of time, instead of investing in a full-time worker indefinitely.
Full-time Employees
Some advantages of full-time employees include:
1. Long-term planning
When you are bringing a full-time employee on board, you are assured of having someone that you can rely on long-term. This means that business owners can plan for the future, business growth and other developments. Depending on the role you are hiring for, you also need to ensure that the business needs that particular job to move forward strategically.
2. Team culture and collaboration
A full-time team member helps you set the tone for the company culture. In teams that consist of more than one person, a full-time staff member builds strong relationships with colleagues, leading to enhanced trust, stronger team collaboration and better aligned values.
3. Financial stability
When it comes to the budget, planning your salary expenses for your financial projections based on a set number of salaries allows you to ensure that this expense is always covered. In comparison, if you are paying a contract worker every now and then, it becomes hard to predict what your exact expenses will be.
How Do Entrepreneurs Choose Between Contract and Full-time Workers?
Business owners need to assess what exactly their needs are when considering expanding their team. Ask the following questions:
1. Do you have long-term work for an employee?
2. Do you need a particular set of expertise?
3. What is your budget allocation?
4. How will this help your business grow?
Other factors that you will need to consider are physical space for a full-time employee. Will this person be office-based or a remote worker? What expenses are included with employing this person?
For contract workers, you need to ask how hands-on you need to be with the project, and if you can ensure that the project doesn’t run overtime from your side.
Write a Job Description
Based on the above answers, take the time to write out the list of duties the individual will be responsible for. Although it isn’t a legal requirement for any contract worker, it does assist you in providing clarity about the scope of work. This job description will help you see what key requirements the candidate needs to have. For instance, a person who has a degree and some experience in accounting might be a prerequisite for a role as a financial officer. Similarly, contract work for a once-off project, such as revamping a website, might need a strong portfolio of work.
Based on the funds you are able to allocate to either a contract worker or a full-time staff member, you have to research what the going rate for a particular position is. This budget constraint will indicate whether you have funds to, for example, pay an assistant for help with admin tasks every now and then, or if you can afford a full-time candidate who assists with a wide array of ad-hoc responsibilities.
The nature of the project or role at hand will also give you insight into whether or not this role needs to be office-based or not.
Once you have set up this job description, you will have a clear understanding of whether you need to find a contract worker or a full-time employee.
