UWR 036 Using contractors versus employees

In today’s episode, I am speaking about using contractors versus employees. I am a firm believer that for most roles in your business, you want to have an employee and you want them to be full-time. There are a few exceptions which I will dig into shortly. But first, I want to speak about why, whenever possible, it is the most advantageous to have a full-time employee in a position. I also want to offer a short note that if you are in the UK, whether someone is on board as a contractor or an employee is not actually a choice.

I often get asked, “Shall I take this person on as a contractor or as an employee?” But actually, it’s not really up to you or them. It’s up to how you set up the role. And you need to check with the HMRC guidelines to see if your team members are contractors or employees if you are asking that question. The general rule is that if it looks like a duck and it quacks like a duck, then it is a duck. For full details, you can find them on the HMRC website. And there is a quiz that you can go through to assess.

So, back to the reasons why I recommend full-time employees over contractors. Well, you have a lot more control over the time of a full-time employee and their working hours than you do over a contractor. If you need for them to be in a meeting at 9:00 AM every single day, what is within their contracted working hours, for an employee, that’s easy to enforce. For a contractor, not so much. They generally can decide what hours they work to get the job completed. With a contractor in the UK, they have the right to send a replacement to do their job. They themselves don’t have to turn up to work every day for you. This could cause you a major issue for your business and you could end up not working with the person that you thought you’d hired for the role.

Generally, full-time employees, you are showing a commitment to hiring them full-time and you’re putting faith in them. We would expect this to be reciprocated in their dedication to their work and supporting your business. You are all-in on commitment to them and they, in turn, are all-in commitment to you. Their loyalties are not split to anyone else. The downside, of course, can be tax. Most countries, including the UK, have employer taxes to pay when you employ someone as well as increased admin of running payroll. If the person is sick or doesn’t come to work, with a contractor, they should be sending a replacement if they’re sick. Although often that actually, in reality, doesn’t happen. Notice periods, if things are not working, most contractors have no notice period at all whereas employees usually do in their contracts to the employment.

I truly believe that the upsides of having a full-time employee however, far, far outweigh the negatives in most situations. Now, the situations where I wouldn’t have a full-time employee but instead use a contractor are if they are highly specialised or technical jobs that only require, say, a few hours a week, then I would look at contracting those. That could be something like website maintenance or, of course, accounting and finance work for most businesses. I hope that this episode has given you some things to think about in relation to contractors versus employees and what might be best for your business.

Thank you so much for listening. Until next time, let’s find the clarity in your numbers, increase your wealth, and get more money in your pockets.


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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.