Permanent or Contract Employees: What You Need to Know

It’s relatively common these days for small businesses to have a combination of full-time and contract employees on their rosters. It’s a choice based on your business needs and the specific role or project you’re hiring for. The most significant differences are the employer-employee relationship and tax liabilities. 

In a recent Gusto survey, 90% of small businesses said they intend to increase or maintain their current use of contract employees. Another 33% said their company’s success depends on having access to contractors. 

The question we hear most often is “Who’s in control?” Consider these facts.

  • It’s up to you to oversee the work of your full-time staff, provide retirement benefits, health insurance, paid time off, and report their taxes to the IRS. It’s also up to you to provide your employees with regular reviews and performance feedback. 
  • Contract employees perform their services separately from your business and are responsible for paying their taxes on their own. However, a good relationship with a contractor can result in positive and reliable outcomes, making it feel like they’re part of your team.
  • Depending on job fit and company culture, permanent and contract employees can be equally loyal or disloyal. 
  • Contract employees save you money, but you may offer benefits and claim tax deductions if the working relationship is mutually beneficial. Since providing contractor benefits isn’t common, it may help attract more talent. 

Permanent and contract employees can be win-win or lose-lose situations. Two critical considerations to keep in mind are determining the business need and securing the best talent. 

For more information about adequately classifying employees, here are the IRS guidelines and a checklist to help you determine the difference.

If we can help with your Human Resources needs, email us at to schedule a call.

— Kat & Ashleigh
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