As a small business owner with short-term or project-based needs, your peers may have been told to work with a contract employee to help fill in the gaps or even hire permanently one day.
This is a great option! However, a “contract employee” isn’t quite a real thing. This term confuses temporary employees and independent contractors, and there are a few key differences to consider when deciding which one to work with.
At CSI Accounting & Payroll, we’ve worked with small businesses for over 50 years. In all that time, many business owners have asked us these questions about temporary help:
- What’s the difference between a temporary employee and an independent contractor?
- Which factors will help me decide which one to hire?
- Considering all of the associated costs, which one is more affordable?
What Are Temporary Employees & Independent Contractors?
Remember, there’s no such thing as a “contract employee” – that term really means either temporary employees or independent contractors. So, what’s the difference between the two?
What Is a Temporary Employee?
A temporary employee (also called a temp) is a form of temporary help but is never technically your employee.
They are employed by an employment agency (often called a temp agency), which you partner with for the length of their contract. You may even choose to work with multiple workers from the agency at once or back-to-back.
What Is an Independent Contractor?
An independent contractor (also called a contractor or 1099 employee) is another form of temporary help who is never technically your employee.
They are self-employed workers who work with you on a contract basis.
Do I Need a Temp or a Contractor? 4 Factors to Consider
Temporary employees and independent contractors sound like they have a lot in common. However, there are a few differences that you may need to consider when deciding which to work with.
1.) Industry & Type of Job
Temps are often used in office and retail spaces, and contractors are often used in the trades. This is the biggest variable, but it’s not necessarily the rule.
Aside from that, temps may not be easy to find for more niche, specialized jobs. This is because they come from agencies, so they either need to be recruited by the agency or already on their list of job candidates.
On the other hand, contractors can fit easily into more specialized jobs. In fact, they will typically have their own tools to get a job done.
2.) Control
As the owner of a small business, you’re used to being the boss. As far as your permanent employees go, you can dictate who does each job and how it gets done. The same goes for temporary employees!
However, with contractors, you have less control over how the job gets done. An independent contractor is their own boss, and you can expect them to use their own equipment and they may choose to have a partner or employee do the work you hired them for.
3.) Hiring Process
Finding a worker takes a lot of time when you consider searching for candidates, interviewing, and training. If you want to cut down the work in this area, an employment agency can help you quickly find a temp who is the ideal candidate.
Otherwise, you will usually need to handle the hiring process on your own if you work with an independent contractor. They represent themselves, so you won’t be able to just call an agency for help.
4.) Ongoing Employment
Let’s say you reach the end of a temporary employment period, but you still need more help. Why not continue to work with the same person? Since they’ve already been in the role, you understand their work ethic, skills, and how having this additional worker influences your bottom line.
Can you hire the worker onto your team permanently? While the hypothetical answer for both temps and contractors may be “yes,” it’s a little more complicated than that.
Once your agency contract is up with a temp, you can renew the temporary contract or even extend a permanent job offer to them. Many temps are looking for permanent employment and will happily accept!
You can do the same for contractors, but the response will likely be much different. Most contractors want to continue being contractors because they love being their own boss, have already invested in their own tools, and may have even built their own client networks.
How Much Do Temporary Employees & Independent Contractors Cost?
Since temps and contractors are employed differently, there are different associated costs. The exact total cost will vary by the job, of course, but let’s look at the cost factors to consider.
Temporary Employee Costs
Temporary jobs often pay less than permanent jobs, but this is to offset most of the agency fees.
When you partner with an employment agency to create your job listing, you’ll work together to decide the pay rate for that specific job.
After that, there are additional agency fees. Remember, temps are employed by their employment agency. This means that the agency will usually charge you extra fees for:
- The convenience of finding the worker
- Paying their payroll taxes
- Potentially offering the worker benefits
Independent Contractor Costs
Contractor pay rates mostly vary based on the type of job and how much competition there is for it.
To reach a pay rate, contractors bid on your job (give a cost estimate). Because they’re self-employed, they can charge whatever they want, but they’ll factor in their competitors. Their rate can go higher for niche jobs or lower for general jobs.
Since contractors employ themselves, that means they pay their own taxes and cover their own benefits. However, just like agencies, they will usually charge extra so they’re able to cover these expenses.
Take Control of Your Employment Needs Today
Now that you know about the differences between temps and contractors, how to decide which to hire, and what associated costs they may have, are you ready to check out payroll services to stay on top of employment questions?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what a payroll service costs by clicking the image below:
