Contract vs. Full-Time Employees in IT: Which Should You Hire?

Deciding when to use a contract worker versus full-time employee to fulfill your IT hiring needs can seem difficult, especially with the popularity of contract work steadily rising. In fact, a survey from payroll company Gusto found that out of all businesses they surveyed, 90% said they plan to increase or maintain their use of independent contractors in the coming years.

This comes as no surprise; the need for specialized tech skills is higher than ever, and contractors present a flexible and cost-efficient new hiring method for employers. Even so, the growing appeal of contract workers is stirring up trouble. More and more businesses are at risk of classifying their employees as contract workers when their services are more aligned with full-time work (a common mistake known as worker misclassification). Managers must understand when to use contractors versus full-time employees—and why it matters—to avoid this costly error.

Keep reading to learn about contract work and full-time employment, the differences between them, and which might be better suited your hiring needs.

What is a Contract Worker?

A contract worker, also known as an independent contractor, freelancer, or contingent worker, is an individual hired by a company usually for a fixed period at a predetermined rate. Employers engage them for their niche skills or expertise, and their purpose is often to provide support on or complete a particular project. The average period in which a contractor is engaged ranges from three to 12 months, but contracts can be extended on an as-needed basis.

Despite being hired by a company to perform services to meet their business needs, a contractor is not employed by the company in a traditional sense. They are not on the company’s payroll, so they’re responsible for reporting and paying their own taxes (hello, 1099s) and taking care of their own benefits. It’s not enough to hire a contractor under a Form 1099 to avoid trouble with the Internal Revenue Service (IRS), however. The IRS looks at multiple factors to determine if a contractor is classified correctly. Here are a few conditions that may need to be met:

They work on a temporary, short-term basis
They control how and when the work is performed
They use their own tools and equipment to perform most, if not all, of the work
They are paid after submitting an invoice (rather than receiving a weekly, bi-weekly, or monthly amount through the company’s payroll system)

Ensuring your independent contractors meet all or most of the above requirements can help your business avoid paying out retroactive payroll taxes, a costly result of worker misclassification. But be sure to work with your payroll provider or employment lawyer for advice.

Many IT contractors manage themselves and land their own contract work, but some are employed with a staffing company who place them in the role—and to help manage their performance, taxes, and placements.

What is a Full-Time Employee?

Unlike contractors, a full-time employee (FTE) is part of the internal staff of a company. An internal employee is hired for an indefinite period and paid a set wage in the form of a salary or hourly wage. Their methods, hours, and compensation are usually less negotiable than an independent contractor’s. As a part of the company, full-timers must yield to higher levels are supervision and collaboration, use only company-issued equipment, and perform their duties with company-sanctioned tools and methods.

Since full-time workers are employed on a W-2 basis, the company is responsible for managing and deducting taxes from their paychecks. Employers of FTEs must also provide benefits like health insurance, paid parental leave, holiday pay, and long-term financial planning services like 401k management. Overall, full-time workers have more responsibility to their company. In turn, their company has more responsibility to them.

Contract work and full-time employment have little in common, but deciding when to use a contractor and when to hire a full-time employee can be tough — especially when faced with the consequences of accidentally misclassifying your workers. Luckily, there are indicators you can use to assess what type of employment your company needs.

When to Hire a Contractor in IT

Hiring managers should consider using IT contractors for projects with short estimated completion times or tasks with a clear start and end date. For example, say your company wants to develop a single-use mobile app to enhance the customer experience in some capacity. The wireframe, interface design, development, and testing processes will take less than a year to complete.

Still, your company’s internal software developers lack the bandwidth to shoulder an additional project. This scenario is when you would hire a team of contract employees over FTEs. They would handle the app’s initial build-out and launch, while your FTEs can take on any subsequent maintenance.

Pros and Cons of Hiring a Contract Worker in IT

Before you decide on whether a contract worker is right for your business, let’s review some pros on cons of contract employment.

Pros of Hiring an Independent Contractor

They are cost-efficient.  Contract workers usually require higher pay rates than full-time employees. Businesses are not responsible for the additional costs that accompany full-time employment, however. This includes expenses like health insurance, workers’ compensation, and employment taxes. In short, the hidden fees of full-time employment make contractors less expensive to hire.

There’s less training involved.  Businesses hire independent contractors because they are highly trained professionals with a long history of experience in their field. Their credentials prove they’re capable of completing the task at hand, so there’s little need to train them.

Note: This advantage of contract work doesn’t mean you should hire an FTE without experience. As a part of the company, there’s more time to invest in their development with in-depth training and exercises. For contract work, time is of the essence, and training likely isn’t built into the project’s timeline.

Cons of Hiring a Contract Worker

Collaboration may be more challenging.  A contractor’s work is mostly independent. Still, they must collaborate with internal employees to ensure their work adheres to brand guidelines and meets the required specifications. Contractors are accustomed to working alone, however, and they are less primed to engage in teamwork. It may be challenging to communicate, set meetings, and discuss feedback.

They are not as loyal as full-time employees.  Contract workers have no personal stake in their projects or the companies that engage them. This makes them less likely to:

Follow the preferred methods of the business
Promote the company to their social network
Dedicate all of their time and effort to the project at hand

When to Hire a Full-Time Employee in IT

Companies hire full-time employees when there is a gap in capabilities in their day-to-day business operations. In other words, only hire an FTE if there’s a need for long-term support in a specific area. Maybe your company needs a  site reliability engineer  to keep its website well-maintained and available to the public, for example. This is an ongoing need, so it wouldn’t make sense to hire temporary support in this scenario.

Hiring a full-time worker is riskier than engaging an independent contractor, however. Make sure your company is ready to embrace the responsibility of full-time employment by carefully considering the below questions:

Is the need for support temporary or ongoing?
Is there enough work available to justify a full-time hire?
Will a full-time hire bring a skill or capability to the table that is currently missing?
How will a full-time hire collaborate with existing employees in similar roles?
Can the company support a full-time hire in their professional and financial development (i.e., training, promotions, and periodic raises)?

Pros and Cons of Hiring a Full-Time Employee in IT

Just like with contract workers, there are both advantages and drawbacks to hiring a full-time employee. Let’s review a couple of pros and cons for each:

Pros of Hiring a Full-time Employee

They’re committed. Full-time employees are not just looking for a paycheck; they’re looking for a career. They will take the time to learn their role, develop professional relationships with their colleagues, and accept more responsibility as their tenure increases. Over time and with enough institutional knowledge, an FTE can become a valuable asset to their company.

They can be supervised. When you hire an employee as an internal part of the business, managers have more authority to monitor their work. With so much oversight, there’s less room for error.

Cons of Hiring a Full-time Employee

It can be more expensive. As previously mentioned, hiring a full-time employee is an expensive investment. Their compensation may be lower than that of a contractor, but the hidden costs associated with full-time employment tip the scale toward the pricier side.

It’s riskier.  Hiring a full-time worker poses a risk. If they resign after only a few months of employment, you’ve wasted your effort, and the company loses money. Even worse, the hiring process must begin anew, and your company must assume all the same risks as it did before.

Contract vs. Full-Time: Know the Difference

Taking time to understand the difference between a contract worker versus full-time employee is a crucial step in the hiring process. It can help boost your company’s workforce, increase efficiency, and maximize hiring budgets. Perhaps more importantly, it can help your company avoid worker misclassification—a troublesome (and costly) error that comes with a slew of legal fees and processes, IRS headaches, and retroactive employment taxes.

Avoid making any hiring mistakes by studying the differences between contract and full-time workers—and carefully weighing the pros and cons of each type of employment—before you start interviewing candidates.

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