Should You Hire Employees or Contractors?

Category: Operations Startup

After a few years of toiling hard on your small business- sticking through it in every challenge and victory- you've successfully grown it to a size that requires a little more hands on deck to keep afloat. While getting your business to this stage is a major achievement, you may be feeling overwhelmed with the common conundrum: do I hire employees or independent contractors? The first step: don't panic! You're definitely not alone in figuring out what professional relationship is best suited for your business. Whatever you decide, I recommend that your purpose for hiring anyone should come from your business needs (i.e. revenue growth, brand building, market expansion, cost savings and productivity improvement). It is crucial that you do some research to determine whether you need an employee or contractor by first taking a look at their distinct characteristics (see especially page 7 of this handbook published by the Government of Alberta). 

Taking the first steps in evaluating the best fit for your business is an important one, so consider your needs carefully and don't be afraid to ask questions. Here are some quick tips to help you. 

Assess your needs

The following questions will help you decide whether an employee or contractor is best for your business:

  1. What is the job I need done?
  2. For the work I want them to do, do I foresee a long term or continuous workload (either full time or part time), or do I only need some experts to help complete a one-time project?
  3. For the work I want them to do, do I care about how the work would be done or only the result?
  4. For the work I want them to do, do I need them to be loyal and be only dedicated to my business, or can they also work for other companies?
  5. If I have an urgent job to be completed, do I have an established relationship with a (short) list of contractors to call upon?
  6. If I go on a long vacation, or want to do something else in my life in 3 years, do I have people who will be ready to take over the business operations?

Once you spend some time pondering these questions and forming your answers, you can then take a closer look at what the responsibilities of hiring an employee are, if that is the route you decide to go.

Hiring employees and complying with employment regulations

As an employer, there are obligations you must comply with when hiring employees that are very different than when you hire a self-employed contractor. Do your diligence in learning the regulations BEFORE you hire, to avoid problems later. The Canada Revenue Agency has a comprehensive guide "Employee or Self-Employed" that will help you determine a workers employment status.

According to the Canada Revenue Agency (CRA), "Employment status directly affects a person's entitlement to employment insurance (EI) benefits under the Employment Insurance Act. In an employer-employee relationship,the payer is considered an employer and the worker is an employee. Employers are responsible for deducting Canada Pension Plan (CPP) contributions, EI premiums, and income tax from remuneration or other amounts they pay to their employees." 

There are specific factors that CRA outlines when deciding if a worker is an employee or self-employed individual. Consider the following:

  1. The intent of the working relationship: did the two parties intend to enter a contract of service (employer-employee) or did they enter into a contract for services (business relationship)?
  2. The degree of control or independence held by the worker, as well as the payer's right to exercise control.
  3. If the worker owns and provides equipment and tools to accomplish the work, or if this is provided by the payer.
  4. If the worker can subcontract work or hire assistants.
  5. The degree of financial risk taken by the worker and if there are ongoing costs incurred by the worker.
  6. Whether the worker has the opportunity to profit or incur a loss.

Once you have reviewed these questions, you will have a pretty clear idea of what status your worker falls into, and what you are responsible for. 
If you decide that your best option is to employ staff members, then hiring the right people who aspire to grow with your business becomes your next challenge. Not only do employees generate different perspectives, add new skill sets, and connections to grow your business, but they are also your allies who travel with you along the challenging but exciting journey of entrepreneurship. If they are self-motivated, goal-oriented, devoted, and desire to work in a startup environment, then you must ensure they embrace the vision of your business. This way you know everyone on board is taking the same route to business success.

Do you have specific staffing questions? Get answers when you join our free live Human Resources BizChat webinar on August 26!

About the Author

With a MBA from the University of Alberta, and a Certified Human Resources Professional designation, Ada Tai has been working as an HR professional in a variety of industries and organizations for almost 10 years. In late 2015, Ada started her own practice providing generalized HR consulting services and corporate training. She is able to strategically integrate effective HR processes, programs and practices into clients' daily operations, as well as provide customized training sessions that align with clients’ business objectives. In her spare time, Ada volunteers on not-for-profit boards and mentors students in the University of Alberta's MBA program.