Bookkeeping Business FAQs: Should I hire an employee or a contractor for my bookkeeping practice?

If you're planning to grow your bookkeeping business, at some point you'll need to hire someone. But is an employee or contractor the best option for you?

So you can make the best hiring decision for YOUR business, I'll start with a general overview of employees vs contractors, based on my own experience as well as the experiences of many bookkeepers I've mentored over the years. Followed, by a comparison of contractors and employees in the following areas:

• Wages and Costs
• Entitlements and Obligations
• Commitment and Dedication

Of course, there is a third alternative which, if you're interested, I've covered  in another Bookkeeping Business FAQ Should my bookkeeping practice hire onshore or offshore staff?. 

Hiring an employee vs. a contractor

Business owners, including bookkeepers, are often driven to hiring contractors through their fear of commitment to an employee. Employees generally need to be paid for set hours, but when you're hiring your first employee you may worry that you might not have the work available.

What if you lose a client or two, or some other uncontrollable mishap occurs, and somehow you still need to pay a permanent employee? 

Often this fear has the biggest influence on bookkeepers which lead them to believe that hiring a contractor is the less ‘risky’ option. But this isn’t necessarily the case.

In fact, over the years, I've seen in my own bookkeeping business, that there are major benefits of having an employee instead of a contractor. 

It's not to say there's no place for a contractor. Contractors can be great if you need someone to step in urgently, need assistance with occasional overflow work, but working with contractors on an ongoing basis, can potentially cause more problems than the perceived avoided problems.

This can be very stressful for you as a business owner. Put another way, a permanent employee works for you and only you. This means they are committed to your business vision and long term growth. 

Employees are also generally more open to your feedback and training because they aren’t providing you with a service, they are helping you to deliver one instead.

You are also willing to put more time and effort into training an employee as they are a valued asset of your business. When an employee is trained, not only will they become more knowledgeable and work more efficiently, they’ll feel valued which positively assists in retention. 

At the end of the day, making the right decision for your business is paramount. Interruptions such as staff turnover, by contractors or by employees, and having to hire new staff can cause major disruptions to workflow. This can lead to projects being halted and more often than not, having to be started from scratch. In these circumstances, the costs add up dramatically.

Key points when making your decision

Wages and Costs

• Contractors usually only work with you for billable time. On the other hand, employees conduct both billable and non billable work, so not all their time will be charged. Tasks such as extra admin, mistakes and re-doing work, training, technical issues and client handover are just some examples of non billable time.
• Although contractors tend to have to absorb their own costs, this generally means that their hourly rate is much higher to factor those costs in. In most cases, a business owner will also have to pay a contractor’s superannuation regardless.
• An employer wears any costs involved with necessary training, providing a safe workplace and the upkeep of facilities to keep the business running. Whereas with a contractor, it’s generally the responsibility of the contractor to cover these costs in their rates. 

Entitlements and Obligations

• Unlike contractors, full time and part time employees are entitled to super and paid leave whether it be accrued annual leave for holidays or sick leave.
• When it comes to hiring, a contractor can be terminated at any time for any reason without notice, whereas an employee falls under different rules, which means notice dates apply. 
• For small businesses, an employee can be terminated within 12 months for any reason under trial period. However after this period, they can only be terminated for a good reason including performance issues, misconduct or genuine redundancy.
• Often you will find a contractor through networking or word of mouth. When hiring an employee, they will usually need to be sourced through a proper, respectable hiring platform or agency.

Commitment and Dedication

• A contractor is never going to be as committed to your business, or your clients’ businesses, as you and your permanent staff are. In most cases, their primary focus is to support their business, and they likely became a contractor because they wanted the flexibility and autonomy that comes with it. 
• An employee’s commitment often comes with their want or need for long term security, learning and structure.
• A contractor usually works with many different businesses. For this reason, your business might not be their highest priority, especially if something more interesting or with better pay comes up.

Is a contractor or employee more suitable for your bookkeeping business?

When making the decision to hire an employee or a contractor, there are many different factors to consider. There are pros and cons when it comes to both avenues, so it’s important to do your research, explore all considerations and be confident that the decision you make is ultimately the right one for YOUR business.

As a business owner, you may enjoy the lack of “commitment” involved with hiring a contractor, but this can also come with a lack of “commitment” from the contractor as well. On the other hand, while there are a number of entitlements and obligations on the employer’s behalf towards their permanent employees, their business also reaps the rewards of a dedicated team who are committed to the business for their own job satisfaction and security.