Full-Time Workers vs. Contract Workers: Which Option Is Cheaper?

As your business grows, determining which type of employee to hire is a crucial deliberation—and the main divide, full-time versus contract workers, will have a huge impact on your business’s budget. 

Depending on what your business needs from a position, choosing to go with a full-time worker or a contract role could make a major difference in your ability to succeed. Handle the situation incorrectly and you open yourself up to tax fines, or even a legal liability.

Should you make your business’s next open position a contract or a full-time one? And what investments will these two types of hires entail?

Here’s your guide to deciding which route will be more cost-effective for your business:

Full-Time Workers

First, let’s take a look at what hiring a full-time worker would entail. You likely know that bringing on full-time workers involves more administrative tasks and upfront costs for your business. However, investing in a full-time worker now could save you from unforeseen costs in the future.

Full-time worker costs and logistics

Some small business owners hesitate to hire full-time employees because this type of worker typically involves substantial costs and administrative work. For example, you’ll need to pay half of the Social Security and Medicare taxes that each full-time employee owes. 

But beyond those legal tax obligations, you’ll also need to offer up significant employee benefits to attract top talent to a full-time role. These can include—but aren’t limited to:

• Health, dental, and vision insurance
• Equity
• Paid time off
• Parental leave
• Workers’ compensation insurance
• Thorough job training
• Professional development programs
• Top-tier tools and equipment
• A stellar office space

Logistically speaking, full-time employees will require more from your business, as well. Your business will need to deduct employment taxes on behalf of full-time employees. This will include Medicare taxes, Social Security taxes, and any state and local taxes that apply. 

Not to mention, because full-time employees are legally part of your business, they will be your business’s responsibility. As a result, purchasing general liability insurance that covers full-time employees will be a crucial investment. 

When full-time workers are the best fit

There’s no doubt that full-time employees will require more upfront investments of time and money from your business. Even so, it’s possible that the benefits of hiring a full-time employee could more than make up for these investments. 

For instance, you can more closely supervise the work of a full-time employee than you would a contractor. Plus, your team can better communicate with a full-time employee, since they’ll be on the same schedule as everyone else. 

As a result, full-time employees build a greater understanding of your workflows and culture. This makes working with them on a series of projects more effective than hiring various freelancers or contractors and having to onboard them to your processes each time. 

It also helps that full-time employees have a greater sense of loyalty towards their employers, not only contractually speaking, but also thanks to the benefits you provide. You’ll be much less likely to cycle through full-time workers than contractors, reducing training costs. 

Because of all of this, though they might not be the “cheaper” option, full-time employees are the better option for businesses who need to access dedicated workers for evergreen projects and functions. Though putting a dollar value on all the benefits of full-time employees isn’t easy, if you’re seeking loyalty and focus from a worker, then investing in a full-time employee is the best way to access these upsides. 

Contract Workers

Investing in full-time employees is still that: an investment. 

Many small businesses – especially those who are hiring their first few workers – can’t afford the benefits necessary to get top talent in-house. If that’s the case, hiring an independent contractor is a more affordable option. 

Contract worker costs and logistics

Contract workers tend to involve fewer costs and logistics for business owners. They pay their own taxes, which means fewer taxes – you won’t have to pay half of the worker’s Social Security and Medicare taxes – and less administrative work for your business. 

Plus, they don’t require your business to invest in any benefits like health insurance, office space, or paid time off. Contract workers also have to pay for their own general liability insurance and professional liability insurance because they are their own separate business entity. 

Hiring contract workers also has its downsides, though. Legally speaking, they’re only allowed to work 130 hours monthly for a single employer. Contract workers also make their own hours, so your team won’t necessarily be able to reach them on a given work day. 

Perhaps most importantly, contractors will have less loyalty to your business. Contractors are often working on multiple projects at a time, and yours might not take precedence if another business is offering a better rate. You simply can’t hold them accountable in the same way you do full-time workers. 

When contract workers are the best fit

All in all, contract workers are ideal for small businesses that need access to expert help for seasonal or short-term projects. Because contractors have a legal limit – and sometimes a mental limit – to the amount of work they can do for you, they aren’t great hires for long-term business functions. 

Full-time vs. Contract workers: Moving forward

So, when you measure the upfront investments of hiring full-time versus contract workers, there’s no question: Contract workers will almost always require less investment of time and money for your business. Even though opting for contract workers can help you cut costs now, however, hiring a full-time employee will be an investment in your business’s future. 

About the Author

Randa Kriss is a staff writer at Fundera, a marketplace for small business financial solutions such as business loans. Randa writes extensively on human resources and has also written dozens of reviews on payroll services and eCommerce solutions.