Let’s say your business has reached a growth phase, or requires a skillset or extra set of hands, feet and brains beyond that of the founding partners. Let’s also say you’ve got limited finances at the moment to bring on that extra help. What should you do?
You could hire a fulltime employee, and cross your fingers the demand for your products or services continues to grow to a stage where you can sustain their salary and related expenses. Or, you could hire a freelancer or contractor, and hope they stick around until you are on more stable footing and certain you can sustain a fulltime salary over the long haul.
Finding the nirvana balance of incoming revenue and outgoing salaries and expenses, especially during the first years of business, can be a challenge for startups. Often, the product might still be in development or in v1.x stages, making it difficult to forecast longterm staffing requirements.
However, if you’ve decided it’s time to expand, you should get to know some of the key differences between hiring an employee versus hiring an independent contractor, especially as it relates to your obligations as an employer. Also, both you and your new hire should have a clear understanding of the Canada Revenue Agency’s definition of a contractor versus an employee. As an employer, you need to understand what your responsibilities are with respect to Workers Compensation, unemployment insurance, taxation and other factors.
Ultimately, there are pros and cons to each hiring scenario, depending on the shortterm and longterm needs of your startup. Below we take a look at a few of the considerations.
Hiring an Employee
Before deciding to pay full boat for an employee, you should ask yourself a few key questions, such as:
- How critical is their skillset to the growth of your business?
- Is the cultural fit of the new employee good for your existing team and the company’s future?
- Will you require their talents for the long term, or do they have a limited potential before retraining?
- Will their utilization be more than 80 85 % over the course of a year?
- Are there government programs you can leverage to augment your funds for supporting staff?
- Is an apprenticeship program, or temptohire arrangement workable for the candidate?
Your ability to offer competitive wages should also factor into your hiring decision. If you aren’t able to pay competitive salaries at the outset, consider offering other incentives such as:
- Performance bonuses on an individual or company level
- Revenue sharing or stock options
- Tierbased salary raises when the startup reaches gated milestones
Hiring a Contractor:
Contractors can be a great resource for those times when you need a particular set of skills in a niche area or for a shortterm or oneoff project. Still, there are some downsides to this arrangement, which you should be aware of before engaging with a freelancer. Some of the risks and benefits include:
Benefit: You pay for only their services for the time/extent they deliver them.
Risk: They may not be as accountable or engaged in delivering their best, or they may jump to another project if given a better offer.
Benefit: You bring in an outsider’s perspective and a fresh set of eyes to the project.
Risk: A freelancer owns the intellectual capital they bring to and take from the project. They might also share information gained about your business to a competitor.
Benefit: You don’t have to pay benefits, equip the contractor with their tools or finance their training. Should your business take a downturn, you won’t have the burden of severance or other responsibilities of laying off an employee.
Risk: If you are working with a contract developer, they may walk away from a project with the expertise needed to upgrade or support the product in future. You might not be able to get the contractor back on the project as they may secure a fulltime job elsewhere.
Additional examples of risks and benefits can be found on UpCounsel’s blog.
You should also consider contract employees if there is a wealth of talent in a specific role, and you only require their services on a part time, or short term basis. However, if there aren’t many people available who can fulfill the requirements of the job, or a fulltime employee’s commitment to the business will provide intangible benefits in the long term, you should consider staffing the position as a fulltime role.
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