Tech & Work

Should you contract work or hire new employees?

With his company in a growth phase, one IT manager wonders if he should hire contractors or full-time staff people. Tom Mochal covers some guidelines for making this decision.


TechRepublic columnist Tom Mochal receives dozens of e-mails each week from members with questions about project management problems. He shares his tips on a host of project management issues in this Q&A format.

Question
I know that a lot of companies are downsizing these days, but our company is fortunate to be in a growth phase. I have a project coming up that we’re not going to be able to fully staff with the resources that are available. I’m going to need to go outside for three positions. My manager asked me whether we should use contract resources or look for full-time employees. I didn’t feel like I could answer the question, since I was not sure of all of the implications involved. I’m familiar with working with contractors and employees. Can you give me some high-level pros and cons on when it makes sense to look for employees and when you should fill positions with contract staff?

Answer
I’ve worked a number of years for both traditional companies as well as contract/consulting companies, so I have a perspective on each type of resource. (I’m using the term “contractor” in this column, even though I know that many “contract” firms actually refer to their staff as “consultants.” I trust you will understand the meaning of the term and will not be offended. Likewise, I use the term “full-time” employee, rather than the term “permanent” employee, which your company may use.)

As with many of the questions I receive, the first place to start is with some perspective at a higher level. It’s hard to provide advice about whether a contractor or employee should be utilized on a particular project without knowing something about the staffing strategy for your whole company. I’ve worked at companies that did not want to utilize contract labor at all. However, most companies use contract staff when it makes sense, based on their staffing philosophy. I can share some of the pros and cons of using employees and contract staff. You will then be able to have an intelligent discussion with your manager about what type of staffing makes sense for your particular circumstances.

Short-term/long-term
Perhaps the place to start is with an understanding of whether the work is short-term or long-term. If you need a resource for a short, finite duration, then a contractor may be the way to go. I have seen companies that hire contract people for multiyear, ongoing work. I have also seen companies that hire and fire employees in relatively short time frames. However, it’s usually the other way around. If you have a full-time, long-term need, an employee would make more sense. If the need was short-term, and you did not have obvious long-term follow-up work, then a contractor might be more appropriate.

Core staff vs. supplemental resources
Many organizations like to have a core group of employees that they can count on over the long term. If the workload fluctuates higher, they supplement the core staff with contract resources. Then, when the work ramps back down, the contractors can go away. Eliminating full-time employees is very painful, so you typically don’t want to hire the number of employees required to fill all your positions at peak workload. Contract staff members provide a buffer for when the workload goes down. They can be let go, while protecting the core employee staff.

Strategic vs. nonstrategic work
Many companies identify certain types of work to be more strategic than other types. For instance, if your company felt that new projects were strategically more important than support of legacy systems, they might choose to rely more heavily on contract labor in the support groups. Likewise, many companies staff the senior project positions, like the project manager, with employees and are more willing to use contract labor to assist with programming, testing, and implementation. When contract staff members leave, they take acquired knowledge with them. If it’s important that the knowledge of the position stay in the company, it’s more likely an employee is needed to fill the position.

Skills
Many companies make decisions about staff based on the type of skills needed. For instance, if you’re moving into a new technology, you may want to hire contract staff members that already have the skills. This strategy saves a learning curve and allows you to get important business projects done correctly the first time. When the new technology becomes core to your business, you may decide to hire employees with those skills, as well as train current employees in the new skill sets.

Cost
In general, the cost of a contractor is more than the corresponding cost of an employee. However, this is not always the case. Make sure that you factor in the fully burdened cost of employees, including benefits. Of more importance are the long-term cost implications. With contractors, you typically pay a higher hourly rate but only for the length of time they are needed. Employees may cost less in the short term, but you are taking on a long-term cost commitment.

Confidentiality
Most companies will choose to staff positions with employees if they involve confidential or proprietary information. There is a sense that the information might not be secure once the contractor is finished with the project.

Summary
One company may choose to fill a position with an employee, while another company fills the exact same position with a contractor. Much of the decision depends on the company’s current staffing strategy. Once you better understand that, as well as the characteristics of the opening you have, you should be able to determine how to fill your particular positions.

Project management veteran Tom Mochal is director of internal development at a software company in Atlanta. Most recently, he worked for the Coca-Cola Company, where he was responsible for deploying, training, and coaching the IS division on project management and life-cycle skills. He's also worked for Eastman Kodak and Cap Gemini America and has developed a project management methodology called TenStep.

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