The pros and cons of freelancers and payrolled employees can be a minefield for entrepreneurs growing their startup. Here, we look at the benefits – and disadvantages – of using freelancers, or hiring paid employees, to boost your new business.
Freelance Versus Employed: The Basics
There is one very clear difference between a freelance contractor and an employee on payroll: a freelancer is responsible for their own taxes and benefits, while the business is responsible for taxes and benefits for an employee.
This means a startup has two cashflow options: pay a larger sum up-front for a freelancer, or pay less up-front for a paid employee.
For a startup, the cash required for a freelance contractor can be hard to find. However, before you go employing payrolled staff willy-nilly, check out the disadvantages of paid staff…
Payroll Employees Cost Your Business More Over Time
You need to arrange the employee’s taxes through PAYE. You also need to pay business taxes on top of that. You also need to make sure your employee is fully set up with all equipment, software, furniture, heating, lighting, power for equipment, and ongoing training.
A startup can benefit from paid employees, if your plan is to train them as you grow. Staff have added advantages over freelancers, such as greater teamwork, deeper brand and product knowledge, and a stronger emotional investment in the company.
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Why Is Emotional Investment Important To Consider?
Freelancers, working often by project or retainer, are unlikely to have the same emotional investment in your business. They want you to succeed, of course: you’re their bread and butter!
However, contractors will have other clients demanding their attention, too. A paid employee has a great emotional stake in the success of your business, as failure means they lose a steady income.
That’s not to say that a lack of emotional investment is a bad thing when it comes to startups. A freelance contractor with less emotions attached to your startup is more able to look at a business situation objectively. They can step away from your brand and assess the problems – and solutions – with an objective eye. This is often more productive when a company is starting out and still finding its feet.
When Should A Startup Use A Freelancer?
While freelancers are useful at any business stage, startups in particular can benefit from hiring a wealth of niche skills without the commitment of a paid employee.
For example, your new business will need a website. That involves graphic design, copywriting, and web development. It’s unlikely you have all of those skills yourself, so that’s when it’s handy to use a freelance contractor.
You can also consider long-term retainer contracts with freelancers even when your business is more established. A freelance contractor brings highly specific skills to your business without the commitment of payroll employees – but they also have a wealth of insight gained from their other clients, too.
When Is It Time To Hire The First Employee?
There will, however, come a time when your startup needs a more regular and reliable workforce. That’s where employees come in!
An employee can be trained over time to become a valuable and multi-skilled asset to your startup: they will often cover a broad range of duties compared to the niche skills of a freelance contractor.
A paid employee becomes value-for-money when you need consistency in deliverables, and an in-depth knowledge of the business.
When you make your first hire, consider the skill set that you’re missing and focus on filling those gaps first.
Your first employee, for example, might be a personal assistant that can manage your diary and administration. This allows you, the business owner, to focus on business growth.
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