Staffing for Sole Traders: Employees Vs Contractors

Hiring employees
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Very few businesses are able to go it alone. You can set up as a sole trader, and hire help when needed. How you hire will depend on how much help you need.  

Sole traders can bring employees aboard. You do not need to set up a Limited Company to staff your business. You can hire employees or branch out to bring aboard contractors.  

Hiring Employees  

Hiring employees can be the way forward when you know the help you require is guaranteed to be needed for at least three to six months in the future.  

It is going to cost at least the minimum wage or minimum living wage.  

Additional costs that need to be considered include:  

  • Enrolment in the PAYE scheme and running payroll, or outsourcing that part
  • Checking a person’s legal right to work in the UK 
  • The cost of a DBS check for each interviewee you are considering hiring if their work will involve vulnerable people, such as in healthcare 
  • Employer’s liability insurance because when staff are working for you, you are responsible for their health and safety in the workplace. Even if that work is off-site, such as employing a care worker or cleaner who visits other people’s homes.  
  • Pension scheme enrolment 

Contractors  

Contractors can save you money because you will not be responsible for pension contributions, PAYE, NI contributions and the employer’s liability insurance premiums that come bringing staff in-house. More importantly, you do not need to find “busy work” for them just because you agreed to pay them a salary for x number of hours.  

If you hire an employee and contract them to 16 hours per week, they need to be paid that regardless if you need them around or not. Contractors are flexible. You pay per contract, not by hours. Unless that is the agreement you have with the contractor but it is always for hours worked.  

The one thing you cannot get from contractors is loyalty. They are free to work with as many clients as they choose, and those can be your direct competitors.  

Depending on your business, product or service, non-compete agreements (NCA) may be included as part of a contract with a contractor. It needs to be reasonable though because there is a set of guiding principles called the restraint of trade, which prohibits restricting a contractor’s freedom to trade.  

Non-compete clauses are often used during a contractors’ active contract to protect client information from competitors. They can prevent a contractor from working directly with competitors while under contract, but once that is done, so should the contract be.

A misconception surrounding these types of contracting clauses is that they can be extended for years after the contract is complete. As an example, a non-compete agreement that forbids a contractor from “ever” working with a competitor. That is unenforceable because it clearly puts a restraint on the contractors’ ability to trade. The NCA becomes completely worthless. The restraint of trade protects contractors from such lunacy.  

The upside of using contractors is direct cost savings and most likely a risk-taker with time-management skills. These are people who have decided to work for themselves, set up as contractors and gone out on their own. They are their own bosses. As such, you have less control over what they can and cannot do.  

Provided they have experience, the less you need to manage them. An experienced contractor will get the information from you during talks before the job starts, create a Statement (or Scope) of Works, which is just a written description of the job they are being hired to do then they set about getting the work done in the agreed timeframe.  

The downside is that contractors will have their own fees inclusive of their overheads, and those can be higher than what you would pay an employee. Contractors with the right price may be affordable, but loyalty cannot be bought.  

When deciding on how to hire staff to help with your business, consider the hours you can commit to. If you need flexibility, contractors would be an avenue worth exploring. If you can guarantee hours, hiring employees would be worth exploring the total costs involved.  

 

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