When Should An Employee Be A Contractor?

employee of a business

Whether you’re just starting your first business or you’re operating a giant multinational company, keeping costs down is important. Payroll is one of the biggest expenses for any business, so it makes sense to constantly evaluate who you’re employing, what you’re paying them, and what kinds of benefits you’re offering. You’ll also want to look at the cost of hiring and training new employees. In this light, it’s worth evaluating whether or not certain tasks being performed by employees would be better outsourced to independent contractors. 


A quick aside before we look at what kinds of work independent contractors are particularly well-suited for: you should be aware of the rules and regulations that govern the status “employee”. There are a variety of benefits that employees are entitled to – benefits which, as an employer, you must pay into –  the Canada Pension Plan and Employment Insurance. Should you consider someone an independent contractor when the Canada Revenue Agency (CRA) would consider them an employee and fail to pay into those benefits, you could face penalties as well as a requirement to pay the employee’s share of the benefits. For more information, see this resource from the CRA.


There are a number of advantages to independent contractors. Generally, contractors have a fully developed skill set so they require little to no training in order to complete their work. Another advantage to contractors is that you don’t have to pay into the aforementioned benefits so it can be less expensive to hire a contractor than to maintain a full-time employee (though that’s not always the case). What’s more, independent contractors are generally hired for a set period of time or until a particular piece of work is completed. That means when the work is done, there’s often little more than a payment, a handshake, and a goodbye. As anyone who has had to layoff or terminate an employee knows, goodbyes are not as simple when someone has worked for you on a permanent basis.


There are, of course, plenty of advantages to having employees. Employees grow and develop with the company. They get to know you, their coworkers, the company’s philosophies and its systems and practices. When employees are happy, they’ll stay with you for years to come, mitigating your need to spend money to find and train others to replace them. More often than not, you can pay them less than you would pay a contractor; benefits and stability are very attractive to most employees. 


When, then, should a contractor be an employee? When you have a particular piece of work that needs doing for a set amount of time (or until project completion), when you don’t want to go through the work of hiring and training an employee, and/or when you don’t believe it’s practical to use someone within your company. In these cases (often short periods of time or to accelerate growth), independent contractors can be a good bet. 


Here at Compass, we offer a professional accounting team for your business. We’re another example of a great way to outsource: when you need professional services on an ongoing, but not constant, basis.