7 questions to consider when hiring contractors

Good companies can’t be built without good employees. Building an exceptional company takes special people who are also a strong fit with the employer. Yet staffing today is a monumental challenge for businesses in every industry, in part because of roiling workforce churn – and the complexity of the puzzle only seems to grow more difficult with time.

Peter Cappelli agrees. He’s the George W. Taylor Professor of Management at The Wharton School and Director of Wharton’s Center for Human Resources, Research Associate at the National Bureau of Economic Research and author of multiple books focused on leadership and employment, and he says it’s grim out there for human resource teams.

“Businesses have never done as much hiring as they do today,” Cappelli wrote in the Harvard Business Review. “They’ve never spent as much money doing it. And they’ve never done a worse job of it.”

If identifying and onboarding the right employees is so important, and if businesses have such trouble getting the process right, what’s the path forward? Contractors are a popular option – and with good reason.

From an HR standpoint, contractors offer more flexibility than staff employees, and more skilled, qualified people are content with – or even prefer – freelancing nowadays. Still, even hiring contractors requires careful evaluation.

To ensure you’re able to strike the right balance of talent, ask yourself the following questions:

How does the size of a business influence how many contractors are needed?

Though not the only factor, the size of your company  can often be a determining factor in the number of contractors you need. For most large businesses today, staff should be a mix of full-time and contract employees.

But the unique characteristics of your company will help you calculate the ideal workforce composition and determine your desired level of flexibility. Once you’ve landed on the right percentage of contractors, the size of your company will dictate how many contractors are needed.

Depending on the industry, is there a best time to leverage contract talent?

For industries with predictable cycles or seasonality, businesses should be able to leverage a combination of historical data and forecasting to predict when and how much contingent labor will be needed.

With industry competitors often vying for the same resources along a similar timeline, best practices suggest proactively engaging with the necessary vendors to secure the best available talent in advance of spikes in demand.

Are there any industries more suited for contract work? How might an industry determine the amount of contractors needed?

Yes. The value proposition for using contractors is stronger when a resource is needed for only a finite period. Manufacturing and retail companies that have seasonal volatility in demand, or service companies where contractors can be immediately deployed against revenue-generating activities, are particularly well-suited for contract hires.

One approach is to utilize full-time employees to cover baseline demand, while using contractors to cover any additional capacity requirements. The cost-benefit analysis used to determine the ideal number of contractors must take into account the cost of hiring, onboarding and offboarding contractors.

The hard and soft costs of flexing your workforce on a recurring basis can be reduced by developing a pool of known contractors who are familiar with your business, and you with their talents and capabilities.

How long should a contract extend?

Contract durations should be a function of the company’s reason for hiring the contractor. If a contractor is being hired, for instance, to assist with a software implementation that’s anticipated to last six months, the contract should last approximately that long. In most cases, employers do have the flexibility to extend contracts or end when needed without incurring a monetary penalty. This flexibility is a core part of the contract labor value proposition.

When is it better to hire a full-time employee?

It is certainly better to hire a regular full-time W2 employee when the company has an enduring need that will occupy a sufficient amount of the employee’s time on a long-term basis. Additionally, the strength of the traditional employment relationship makes companies more willing to invest in training, while also giving the employee access to a more desirable set of benefits.

Is bringing on contractors cheaper?

Not always, at least when viewed solely through the lens of direct wages. When handled correctly, though, the total cost of employing a contractor should be cheaper than hiring someone full time. Contractors typically don’t receive the same benefits afforded to W2 employees, a material savings for the company.

Contractors also enable you to better match your workforce to your needs, reducing costs when fewer employees are needed or enabling a company to capture short-term revenue opportunities when more employees are needed. This, too, should be taken into account when evaluating contractor-versus-staff costs and benefits.

As employees head back into the office, what should businesses consider regarding contract talent?

Some full-time employees may be reluctant to head back into the office, which could be problematic for an employer that needs onsite work performed. One way to bridge this gap is to identify contractors who are open to onsite work until enough full-time staff is willing to return.

What else should employers keep in mind regarding the contract labor market in 2021? Covid-19 has prompted even more workers to consider non-traditional career paths and forms of employment, accelerating the growth of the gig economy. For most businesses, staying nimble and competing in the marketplace will require the ability to efficiently tap into this growing labor market.