Hiring Contract Vs. Full-Time Workers: What’s Right for Your Business?

By Kore1 on September 1, 2022 in Hiring


The Great Resignation and job-hopper economy are still in full swing, and it’s as difficult as ever to hire and retain the right people for your team. According to the Bureau of Labor Statistics (BLS), in April 2022 alone, 4.4 million Americans signed letters of resignation, making it the 11th month in a row that over 4 million Americans left their jobs behind.

BLS data from April also makes it clear businesses are desperate to keep the employees they do have, with layoffs and discharges reaching a record low of .08%. With workers as empowered as ever, how can business leaders engage competitive talent who can help them achieve their goals? More often, organizations are finding contract workers are the answer.

Read on as we clarify the differences between contract workers and full-time employees, so you can build the perfect team for your business.

What Is the Difference Between a Contractor and a Full-Time Employee?

Since hiring full-time employees is what many businesses are most comfortable with, you likely know what the process entails. Yes, choosing to hire full-time employees gives you control over their schedules and processes, but it comes with the shared responsibility for their income taxes, Social Security and Medicare, and unemployment taxes. Additionally, you’re on the hook for filling payroll reports and complying with healthcare coverage regulations. Payments you make to full-time employees are reported on W-2 forms at the end of each calendar year.

A contractor, whether independent or Corp-to-Corp, is an individual working independently (or through a staffing firm), who is not entitled to your company’s benefits, who can work for multiple companies at a time, and is not subject to your organization’s working requirements (i.e., schedule, location, processes, etc.).

With contractors, your business avoids handling payroll processing as well as withholding and paying various taxes. Payments made to contractors are typically reported on 1099 forms at the end of each calendar year, though this may differ for Corp-to-Corp contractors.

W-2 Contractors: An Exception to The Rule

Given the definitions of full-time employees and contractors, how can an individual be a W-2 employee and a contractor simultaneously? If an individual is employed by a staffing agency, the agency takes on the role of the employer. In this case, the staffing company will deduct taxes and issue a W-2 form to the contract worker. The contractor carries out their assigned duties for the business that pays the staffing company for their services.

So, the contractor is a contract worker from the perspective of the business that pays the staffing agency, and at the same time they are an employee from the perspective of the staffing company. In short, a W-2 contractor is a fusion of both types of employees—full-time and contract.

So, Which Type of Employee Is Right for Your Company?

Full-time employees are necessary for locking down talents that are essential to your business for a more ongoing period. These employees are more likely to become internal SMEs and carry those skills into promotions. Also, you’re able to closely monitor the progress and work of these professionals in their day-to-day activities.

The tradeoff is full-time positions are more costly to maintain and, unless you can justify the expense surrounding certain talents due to their frequency of use, might be less cost-effective than contractors. Plus, to successfully take care of the bare minimum requirements of employing full-time workers, you’ll need expert accounting and HR resources, which will create greater overhead expenses for your organization.

Independent contractors require a unique trust between your business and themselves compared to full-time employees or W-2 contractors. Since the independent contractor is responsible for complying with all federal and state tax laws, if they fail to do so, your business will be at higher risk for being audited by the IRS. If the legal validity of the classification of contractor vs. employee is put into question, your business may be required to pay back taxes plus interest.

Moreover, you also have less control over independent contractors— what tools and software they use to complete projects, where they work, and when they are available. You can only control the end result of the project, not how the work is performed.

Although, if you’ve vetted your contractors well, there are great advantages to hiring them as opposed to full-time employees. Since contractors handle their own taxes, withholdings, and benefits, you will save your own HR team from spending time and resources on those responsibilities; though you may pay a higher markup to cover these expenses, your company will save money in the long run. In addition, adding contractors to your staff can significantly increase the range of skills and knowledge available to your company.

Not to mention, if you work with a staffing firm to fill your open contract positions, there are more layers of accountability. Staffing firms are experienced at screening qualified people, so there is always someone proactively looking for the talented candidates you want. Because of this, if for some unforeseen reason a contractor leaves a project prematurely, the time it takes to find a replacement will be minimal.

Since these individuals are W-2 contractors, a staffing agency will also process payroll, withhold taxes, and provide insurance coverage and benefits to contractors. Essentially, you have someone else doing quality control, ensuring you are working with a high-quality contractor, and anticipating your needs, thereby simplifying administrative processes, and keeping your candidate pipeline full.

Contract Employees Are the Answer to Your Hiring Gap

No matter which type of employee you need for your business, it’s important to consider all options available to you. Definitions of contract work have changed drastically in the minds of jobseekers since even before the Great Resignation. Contracting is no longer seen by candidates as a temporary job they take just to get by.

By hiring contractors, especially through a staffing firm, you can avoid all the HR headaches that come with full-time employees. Someone else will handle quality control, proactively searching for contract candidates who fit your business. Not to mention, your team won’t have to worry about dealing with the taxes, withholdings, and benefits that accompany full-time staff members.

As a leader in your company, consider opening your mind to contract workers—it may take a new, healthy perspective to effectively attract the quality candidates you want. If you’re struggling to reach top candidates, it may be time to consider different avenues, such as hiring contractors for your company through a trusted staffing partner like KORE1.

Are you ready to hire top contractors to drive your business forward? KORE1 can help. Reach out to us today, and our team will source contract employees who meet your needs.