There has always been a question among company owners about the efficacy and cost of employing full-time employees versus the more flexible (albeit less reliably consistent) availability of freelancers that may be capable of handling the same set of tasks.
How do you know when to hire for the short term and when to employ for the long term, and what factors should you consider? Here are some helpful things to think about in your quest to get the most value for yourself and your business partners:
Long-term projects benefit from the reliability of a full-time employee who can grow their role as the project reaches critical mass.
THE OBVIOUS BENEFITS OF FULL-TIME EMPLOYEES
A full-time employee has the advantage of learning your business over time, will benefit from becoming part of your team and can daily add value to your company’s culture by empowering others or sharing information that is new to your knowledge base.
When a full-time employee (FTE) starts at an entry-level role, earning a lower pay rate, they can then move up in your organization as their experience and expertise expand. This often allows you to eventually have a higher-level employee at a lower price than a similar person would cost if you hired them after they were already trained and ready to take on a commanding role.
Well-run companies also garner a fair amount of loyalty from their FTEs, who are unlikely to resign without notice and who come to value the relationship they have to your brand and organization after years of investing their work in your shared success.
THE OBVIOUS BENEFITS OF FREELANCERS
Freelancers can be commissioned on a per-project basis without any additional overhead or benefits packages, while providing a degree of detachment that can be helpful if they or the project they’re working on need to be terminated due to a lack of viability.
You can often get a completely different perspective from a freelancer who brings insights to your company from other ecosystems, rather than sharing the sort of groupthink that plagues many organizations that allow themselves to become too insular.
CHOOSING THE RIGHT PERSON FOR EACH PROJECT
In almost every organization, a blend of full-time employees and freelancers is the most desirable way to build your team. The project itself is often what determines the appropriate type of person to bring in, and successful companies often analyze their needs by considering the length of the project as well as the recruiting and training required.
Short-term projects are much more likely to be done best by freelancers who can provide services for your company and be dispatched as soon as the project needs are completed. Long-term projects benefit from the reliability of a full-time employee who can grow their role as the project reaches critical mass.
If the project requires specific expertise, that quickly becomes a known cost. For example, what would it cost to hire a freelancer with a particular certification vs. what would it cost to hire a less savvy FTE or train an existing FTE to have that same level of expertise?
Projects requiring a narrow or niche skill set, like SEO or a particular coding language, are often better suited to hiring a freelancer. At the same time, a broader skill set like bookkeeping or engineering would be better served by an FTE, who can apply those same skills to other projects the company is engaged in.
The Center for American Progress estimates that filling high-level positions requiring advanced education or training cost more than twice as much as hiring a freelancer who already has that skill set to handle the same projects.
COMPARING THE COST OF TAXES AND BENEFITS
Always speak to your accountant to verify the numbers in your specific jurisdiction, but as a general rule of thumb, you can expect the following costs associated with FTES:
- Employee Payroll Tax: 15% of an employee’s salary
- Employee Social Security: 6.2% on each employee’s wage up to $118,500
- Employee Federal Unemployment Insurance: 6% on first $7,000 of employee’s wages
- Employee Workers’ Compensation: on average, about 1.85% of employee’s wages
- Employee Medicare: 1.45% on each employee’s salary
- Health coverage: $2,000 to $3,000 per employee
- Vacation
- Insurance
- Office Space
- Equipment
For freelancers, none of the above costs apply, which is a pretty sweet reason to choose a freelancer if all other things are equal.
BOTTOM LINE
The easiest way to make the right decision is always to assume that a freelancer is the better option. Any time you are considering hiring, ask yourself, “Is there any reason why I need to have an FTE doing this for my company?” In many cases, the answer will be a resounding yes, due to privacy concerns over proprietary information or a need to have enough hands available to get the job done reliably.
However, any time you can’t come up with a compelling reason to hire a full-time employee, you are almost always better off going with a far cheaper, already-trained and responsive new freelancer.
The magic, of course, is in finding a freelancer who can provide what they promise. And that makes having a valuable network of connections at your fingertips essential to being able to operate as an agile business entity capable of combining the lowest expenses possible while maximizing the productivity that your clients expect from you and your staff.
Jonathan Corona has over 15 years of experience in the electronic payments industry. As MobiusPay’s COO, Corona is primarily responsible for day-to-day operations as well as reviewing and advising merchants on a multitude of compliance standards set forth by the card associations. MobiusPay specializes in merchant accounts in the U.S., EU and Asia. Follow them @MobiusPay on Twitter, Facebook and IG.