At some point of your small business life you might face a dilemma of your business growing. The business is growing with more projects but you need more help, so you need to expand more. Adding to your human resources can result in added revenue and less chaos in your business. Now it’s your decision whether to hire a new employee or an independent contractor.

Hiring an independent contractor or new employee is an important business decision that you need to make for your business. To help you make the best possible decision, consider the pros and cons of hiring and employee or an independent contractor.

Pros for Hiring an Independent Contractor

• Reduced Overhead: There is a big attraction for small businesses hiring an independent contractor because of the reduced costs in: expenses, payroll, benefits, and other overhead. Lower the overhead is the less stress for a small business to bring in new business revenue to cover costs.
• No Health Benefits: This one is important and deserves separate mention. Employee health benefits is a burden on a small business, the uncontrollable costs of health benefits can hurt a small business. The average total cost of health benefits for U.S. employees was $6,215 in 2003, according to the Mercer 2003 National Survey of Employer Sponsored Health Plans.
• Work On Demand: Hiring an independent contractor allows more flexibility to the changing work demands of your business. This gives you the ability to take added opportunities as they present themselves, and during the slower periods allows better-cost control. Your contract workforce often comes fully trained and highly specialized.

Pros for Hiring An Employee

• Dedicated and Loyalty: Hiring an employee can be a huge commitment but it can result in having an individual with stronger loyalty than an independent contractor. The added dedication and loyalty can result in more productivity of work. Your loyal employees will be ready to do whatever its take to help your business grow.
• Multiple Roles: Staff in small organizations will often perform a variety of roles. This provides various learning opportunities for your employees and a flexible, diverse workforce for your business.
• Improved Work Flow: With a steady flow of business coming in, having an employee can a lot easier to coordinate projects. Trying to juggle multiple independent contractors/ freelancers to meet a project deadlines can be a challenge.

Cons of Hiring An Employee

• Added Responsibility: Hiring an employee can be an encumbrance for your small business and family as you have to make payroll for your employees to help them provide for their families also.
• Extra Overhead: There are extra costs to consider besides employee benefits and payroll. If you work out of your home or small office you might have to move to a bigger space, sign a lease and purchase equipment needed.
• Becoming a Manager: As your small business grows in employees, you will become less involved with projects and more involved in managing employees issues. Your business will be exposed to worker-related lawsuits. Independent contractors usually require less management due to more motivation from being self-employed.

Cons of Hiring An Independent Contractor

• Lack of Control: What makes an independent contractor “independent” is their choice of work that is performed. Independent contractors may have additional projects on top of your and may be less committed than a employee.
• No Fixed Rates: Your small business might find an independent contractor that they does great work but the rates charged can vary by project and overall market demand. With an employee you can usually set the pay rate until the next review date.
• Misclassification Penalty: If you make an error in classifying an employee as an independent contractor, you will be liable for employment tax, interest and a penalty. Use caution and keep current with the legalities.