Small Business Finance News

Hiring Contract Employees? Here's What You Need To Know

Written by Tim Morral
Published: 12/23/2013

Independent contractors present both opportunities and risks to small businesses, says workforce technology provider Moka5.

Contract employees are fixtures in many small businesses. Rather than risking additional, permanent hires, it's not uncommon for small employers to hire workers on a contract basis, enabling them to easily offload staff if revenues decline or other unforeseen circumstances arise.

Contractor Versus Employee Rules

According to a recent Small Business Scorecard, nearly one in five small business owners say they are more likely to hire an independent contractor than a full-time employee. But independent contractors aren't all upside--workforce technology provider Moka5 identifies several pros and cons that small business owners need to know about when considering contract employees.

The Pros of Hiring Contract Workers

According to Moka5, cost savings are a primary factor in the employment of workers on a contract basis. Even though contract workers often earn more on an hourly basis than full-time workers, employers are shielded from additional costs like office space, equipment, payroll taxes and unemployment/workers comp insurances.

Contract workers also provide added flexibility. Since most independent contractors are already experienced in their fields, they are productive from day one and are an attractive solution for businesses with flexible workloads.

The Cons of Hiring Contract Workers

There are also several risks associated with hiring people as independent contractors, not the least of which include possible government audits, the leak of sensitive company information and the introduction of malware or other cyber security threats.

Additionally, it can be more difficult to fire a contract worker since termination conditions are often part of the employment contract. If the worker is terminated for reasons other than those stated in the agreement, the business could be legally liable for damages--and a disgruntled contractor can wreak havoc after they are terminated if they still have access to internal systems.

If you are only using independent contractors to avoid payroll taxes, you want to reconsider your hiring plans. Although contract workers present several important opportunities, they also present risks and challenges that you must be prepared to address before you commit to a contract employment relationship.

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