It’s a common question: when does hiring an independent contractor instead of an employee make sense? Temporary cover aside, there are six projects where hiring contractors makes undeniable business sense (according to researchers and case studies).
When we get briefed on a new role, we often ask, “Have you considered a contractor instead?” It’s not because we want to sell in a contractor on a £400 day rate. It’s because sometimes it just makes better business sense to take on a contractor.
There are six types of projects where hiring independent contractors have always made business sense – increasing agility, eliminating risk, reputational damage. And eventually paving the way for employees to take over…
Please note: this blog summarises the findings in the CRSE’s “The Freelance Project and Gig Economies of the 21st Century”
1. Corporate Ventures
Large firms often separate the creation and launch of innovative corporate ventures from their core business offering, as they want employees to remain focused on their main ‘cash cow’. The innovative projects have the potential for reputational, stock market and employment law risks and so hiring contractors allows such companies to adopt an agile ‘test and fail’ approach to new ventures.
If the venture is successful, it’s gradually incorporated into the main business and the contractors are replaced by employees.
Examples: Argos Direct, Centrica British Gas and Npower
2. New business start-ups
New businesses often don’t have the resources to employ the diversity of skill sets to launch what is an inherently risky project: after all, most start-ups fail. Research by Burke (2012) shows that a freelancer (or contractor) model allows them to access such skills that they couldn’t justify hiring on an employee basis, putting them on a more level playing field with established players in the market. It also allows them to avoid ‘spare worker capacity’.
Examples: LookTouchFeel and Symvan
3. R&D and innovation
Highly specialist freelancers are often used to keeping up-to-speed in a fast-paced market of innovation, even in companies that have in-house innovative and entrepreneurial teams. Again, it can help SMEs keep up with much larger companies.
Examples: Medsa Group, ARM Holdings, Vocalink and the NSG Group
4. Adoption of new technology
When companies wish to adopt, adapt or integrate new technologies into their businesses they often hire contractors as it’s seen as the most efficient way and the least disruptive to the business. They often work outside of business hours to test the systems and will eventually hand over to employees once the project is snag-free and employees have mastered the new technology.
Examples: Global IT Corporation, Forewind, Major International Bank and Panosonic
5. Scaling on a freelance project basis
Contractors are often hired when firms look to grow and develop new market opportunities. Hiring contractors enables them to test whether the market opportunity is sustainable and also removes the risk of establishing what type of talent and organisational structure best delivers. Hiring contractors therefore enables an iterative ‘learning by doing ‘ approach.
Again, at the end of the project, once the talent requirements and structure have been established, contractors will usually be replaced by employees.
Examples: Amadeus, Flexmort, H&K Strategies and PTS Consulting
6. Unique projects for each new customer persona
Certain organisations offer unique product/service features for each differentiated consumer demands. Contractors will often be used due to the high risk and uncertainty of knowing exactly what their customers will want before the final version. Using contractors means that projects can be shut down quickly with lower risk than an employee-based model.
It offers advantages to SMEs fighting to compete with the big players, as well as to larger organisations that wish to avoid negative publicity or employment law issues once the work is no longer required.
Examples: Magic Light Pictures, Bid Writing, Market Gravity, BSKYB, Enhancing Clarity and TopInterim
As you can see, contractors and interim managers often offer increased agility with less risk and lower costs/higher ROI in the above examples.
But how do the initial costs compare? Find out with our True Cost to Hire Calculator see how pay, benefits, on-boarding and training impact the 1st year costs – whether it’s a contractor or employee.