Expand with employees or outsource with consultants?

As a business owner, you have a good understanding of the demands on your staff, and you know when the work is outstripping their ability to do the job well. But does that automatically mean you need to hire more people? Not necessarily. It may mean you “hire” a contractor instead. Have you considered the differences between the two? Here’s a quick summary:

An employee works for you over a long-term period. There is job security, satisfaction and usually an hourly wage or salary with assorted benefits, depending often on whether the employee is full-time. Once you provide training, employees typically take the ball and run with it, completing the tasks you need accomplished. They are paid through your payroll, and you or your payroll provider takes care of taxes, Medicare, Social Security, and any other deductions. As the employer, you issue a W2 at the end of the year. As the employer, you take care of any state licensure requirements.

A contractor typically operates under his or her own name or business name. The hourly rate charged by a contractor is typically higher than for an employee. However, this is usually offset by the fact you only pay them when you need them. You’re free to replace a contractor whenever you choose, so if one doesn’t work well with your team, you simply choose another for the next project. You are not responsible for training, permits, insurance or professional licenses. The independent contractor is also responsible for his own taxes and benefits. Usually, she will invoice you. Typically, you issue any independent contractors a 1099 after the tax year for tax reporting purposes.

It is important to know that the IRS views contractors and employees differently when it comes to specifics of roles, responsibilities and ongoing commitment. You can find more information on the agency’s guidelines here.