As a small business owner you are probably constantly asking yourself whether employing an in-house employee or an independent contractor is more financially viable for your business. Often, business owners believe that hiring a contractor is the ‘cheaper’ option as you don’t have to worry about paying PAYG Withholdings, Superannuation and Leave entitlements, but is this really the case?
What are the pros and cons of hiring an employee?
An employee is hired as a part of your business and is therefore your responsibility when it comes to wages, superannuation, leave and training. There are a number of pros and cons when it comes to considering hiring an in-house employee, including:
Pros:
- Employees become part of your team and may be more loyal to you and your business.
- Employees are there when you need them (depending on their rostered hours).
- Employees are trained by you, to do things the way you want them done, which means that they are more familiar with your organisation, its processes and practices.
Cons:
- Employees may be the more expensive option, long term, as you are required to pay hourly wages/salaries, taxes, insurances, superannuation and paid leave.
- Not all employees are loyal, dedicated and capable and as such are harder to work with, especially if they are on a fixed contract.
What are the pros and cons of hiring an contractor?
Contractors are individual entities, and are not actually part of your business. They should have their own Australian Business Number (ABN) and instead of paying them a wage/salary, contractors invoice your business for their services. Contractors can be called independent contractors or subcontractors and usually work their own hours, have their own set of processes and practices and set their own fees. There are many pros and cons when it comes to hiring contractors, such as:
Pros:
- Although contractors charge more per hour, they may be the cheaper option for your business as you only need to hire them on a need basis and do not need to worry about paying for taxes, superannuation or other benefits.
- Contractors may be more flexible with their working arrangements, especially when you employ them for services only as required.
- Contractors come with a specialised set of skills that your employees (or yourself) may not have, and may not require any specific training before beginning work.
- Contractors require little supervision as they are qualified professionals who are responsible for their own services/work.
Cons:
- Because contractors work for themselves, they may not feel loyal to you and your business.
- You’re not their ‘boss’ – although you may not like the way they do things, the hours they work or their specific processes and practices, you may not have a say in providing specific guidance, limitations or deadlines for their services.
In summary, there are a number of differences between hiring an employee vs. employing a contractor, but only you will know what your business will benefit more from. You may even need a mix of both employees and contractors. If you’re unsure where to start, or want to discuss your options further, it’s best to contact your accountant for their advice as they know your business as well as you do and can provide some guidance as to what might work best for your organisation.
Contact Lana and her team at Matovic Business Accountants to discuss your options today.
Email us at info@matovicaccounting.com.au or call (07) 3557 5721.
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