Idea Exchange: Small Business Owner's Weigh In on Contractors Compared to Employees

Many small business owners debate between hiring independent contractors or employees. The IRS and labor laws classify the two differently creating benefits and risks of either. However, are there differences in regards to loyalty, performance, and managerial effort?

We asked the community to share with us your experience with independent contractors compared to your employees.

Small business owners in the Community told us that there are differences in loyalty, performance, and managerial effort.

• Loyalty

  Most small business owners had only one complaint about independent contracto;s loyalty- the possibility that critical knowledge could be passed to a competitor. jthorf described an experience where he had made some design innovations for a large order and needed help with production. A few months later, his competitors had the same design. He felt as though he had lost his marketing edge. Developex suggested diligence on your contracts you write for independent contractors. If you truly want to have exclusive rights, you need to make sure that it is in the contract. Make sure your business information stays secret with a non-disclosure agreement.

   

  On the flip side, a lack of loyalty can be advantageous for business owners. One of the most commented advantages was the ability to let contractors go when business slows down. Small business owners feel locked into employee agreements much more than contractor arrangements.

• Performance

  None of the small business owners felt as though independent contractors performed worse than employees did. finaiddude comments on how independent contractors have the-ability to bring in expertise you may lack quickly' The timeliness on getting someone already performing at a high level is essential for many short-term contracts.

   

  However, JonathanSynnd commented on how independent contractors tend to try to change rates and if they do not deliver on time, your reputation that is on the line. It is a balancing act between what is delivered and the price for it.

• Managerial Effort

  Independent contractors are temporary. This makes them extremely valuable when your business picks up. jthorf said that some of the advantages of using an independent contractor are that you do't have to allocate space, provide training, or be locked into a hiring decision.

   

  Training was one of the most appealing aspects of using independent contractors. SmallbizS-O-S feels that the'ramp up and ramp down periods are shorter' This can be very beneficial if you have a highly technical job for a contractor.

   

  finaiddude.

   

Overall, small business owners recognize the differences between employees and independent contractors. Is one better than the other? No, they are just different. It depends on your business and what you need accomplished.

Related Resources

• Hiring Independent Contractors

  Resources covering the basics including tax requirements and employment information of hiring independent contracts

• Independent Contractor or Employee?

  The IR's webpage dedicated to how to determine whether you are employing an independent contractor or employee

Wha's Next for the Idea Exchange?
The current idea exchange November 2010: How do you balance 'big picture' ideas with 'small picture' accomplishable tasks? will run until November 30. Please submit your thoughts and vote on the ideas you agree with by clicking Kudos!