Employee vs Contractor: When Should You Hire One?

As a business owner or HR professional, you face a crucial decision when hiring, especially when you like to save cost. You often ask yourself “should I hire an employee or a contractor?

In this article, we will explore the differences between employees and contractors, and discuss the circumstances that warrant hiring each type of worker. By understanding the nuances of these roles, you can make an informed decision that best suits your company’s needs and goals.

Who is an Employee

An employee is an individual who works for an employer or a company in exchange for wages, salary, or other forms of compensation. Employees typically have a contractual relationship with the employer and perform tasks or services as specified in their job roles.

Contractor Meaning

A contractor is a person or a company that is hired to provide specific services or complete a project for another individual or organization. Contractors are often engaged for tasks like construction, renovation, repairs, or other specialized work. They are usually not employees of the hiring entity, but rather work on a pay-per-task basis.

Read Also: Social Contract Theory and the Workplace: What Hiring Managers and Employees Should Know

Difference between Employee and Contractor

1. Work arrangement and control

Employees operate within the framework set by the employer, adhering to company policies and procedures. Employers have the authority to direct their tasks, set their work schedules, and closely supervise their performance.

In contrast, contractors have independence in determining how they complete their tasks and manage their workload. They have the autonomy to accept or decline specific projects and can often negotiate the terms of their engagement, including the fees they charge for their services.

2. Payment, taxes, and benefits

The distinction in payment, taxes, and benefits reflects the difference in the employment relationship. Employers are legally required to provide benefits and withhold taxes for their employees as part of their duty of care and compliance with labor regulations.

In contrast, contractors are considered self-employed and are responsible for managing their tax obligations and benefits. Contractors typically charge higher fees for their services to account for these additional expenses and the lack of traditional benefits.

3. Loyalty and engagement

Employees are part of the company’s internal workforce, and their success is closely tied to the organization’s overall performance. They are encouraged to align with the company’s values and long-term objectives, contributing to a cohesive work environment and fostering a sense of loyalty.

In contrast, contractors are external entities hired to perform specific tasks or projects. They operate as independent businesses and are primarily focused on delivering results of their assignment. While they bring valuable expertise to your projects, their primary objective is to complete the contracted work and fulfill their obligations as independent service providers.

Read Also: Conflict Management in the Workplace: How Employers Should Handle Interpersonal Conflict Between Employees

When to Hire an Employee

You need to hire an employee when you need someone to;

1. Perform core operations

Employees are particularly suitable for roles that are fundamental to your business’s core operations. These are positions where ongoing commitment, collaboration, and loyalty are crucial to maintaining the company’s day-to-day functioning.

Employees are an integral part of your team, they will contribute to your business’s stability and improvement. They are your company’s most valuable assets because they will work and give results that aligns with your business goals. 

2. Have a long-term commitment

If you hire employee, you get a long term commitment because all they want is to grow professionally. Their commitment comes because they understand your business objective and have a sense of ownership. 

3. Get extensive training

When your business requires comprehensive onboarding and training programs, employees are an ideal fit. You can invest in their development, ensuring they align with your company’s standards and processes, resulting in a consistent and cohesive workforce.

Well-trained employees are more equipped to adapt to changing market conditions and innovate in their roles, resulting in improved productivity and performance.

Read Also: How Human Resources Managers Should Handle Breach of Contract of Employment

When to Hire a Contractor

You should hire a contract when you need;

1. Specialized skills

Contractors bring specialized expertise that may not be available within your existing workforce. When you require niche skills for specific projects or short-term assignments, engaging contractors can provide the knowledge and experience necessary to accomplish your goals.

Contractors offer a valuable opportunity to augment the company’s capabilities with outside knowledge. Their knowledge ensures that projects are completed efficiently and with a high level of expertise.

2. Flexibility and scalability

Contractors offer unparalleled flexibility, making them invaluable for managing fluctuating workloads or sudden project demands. If your business experiences periodic surges or requires additional resources for a limited duration, hiring contractors with good records allow you to scale up and down efficiently.

Their flexibility allows businesses to access specialized skills on-demand, ensuring that projects are completed efficiently and within specified timelines. Engaging contractors allows businesses to adapt quickly to changing market demands, avoiding the costs and complexities associated with permanent employees during periods of reduced activity.

3. Limited obligations

By engaging contractors, you can avoid the long-term obligations associated with permanent employees. Contractors are responsible for their own benefits, taxes, and administrative tasks, allowing you to focus on the project at hand without the burden of extensive HR management.

Remember that each member of your workforce, whether an employee or contractor, plays a crucial role in driving your organization’s success. Building a cohesive and harmonious work environment that values the contributions of each team member will foster a positive and productive workplace culture.


Selecting the right workforce for your organization requires careful consideration. By understanding the key differences between employees and contractors, you can make an informed decision that aligns with your business goals. 

Remember, each option offers unique advantages, and the choice should be evaluated on a case-by-case basis. Assess your specific needs, project requirements, and long-term objectives to determine whether an employee or contractor is the perfect fit for your team.

Ultimately, by making a well-informed decision, you set your company up for success in today’s dynamic business landscape.


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Oluwatitofunmi Olumuwagun
Oluwatitofunmi Olumuwagun
I am Oluwatitofunmi Olumuwagun , an accomplished writer with a unique blend of expertise in human resource management and other niches. With a career spanning several years, I have honed my skills in crafting impactful content that combines professional insights with a touch of creativity.

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