Growing Your Team | Independent Contractor vs Employee

Are you considering hiring for your business? Expanding your business’ team can be an exciting step towards growth and success. However, it’s essential to recognise that hiring and onboarding new talent involves more than just offering a job and a salary. Whether you’re considering bringing on independent contractors or hiring employees, understanding the true costs involved is crucial for effective financial management and long-term sustainability.


The True Cost of Hiring


While the salary of a new employee may seem like the primary expense, there are several additional costs to consider:

1. Recruitment Costs: How will you find the right candidates? Advertising job openings, vetting applicants, and conducting interviews all come with their own expenses.

2. Training Costs: Once you’ve found the perfect fit, there’s the investment of time and resources into training them to ensure they can perform their role effectively.

3. Employee Benefits: Beyond the base salary, you’ll need to consider the cost of providing benefits such as paid leave, holiday leave, and potentially maternity/paternity leave.

In addition to these direct costs, there’s also the indirect cost of lost time and productivity during the onboarding process. It takes time for new hires to get up to speed, and existing employees may need to allocate time to assist with training, impacting overall productivity.


Tax and Payroll Implications


Navigating the tax and payroll landscape is another critical aspect of hiring, whether you’re bringing on independent contractors or employees:

1. PAYE Scheme: Under the Pay As You Earn (PAYE) scheme, employers are responsible for deducting income tax and National Insurance contributions from employees’ wages, requiring accurate payroll setup and ongoing management to ensure the correct amounts are deducted and reported to HM Revenue & Customs (HMRC).

2. National Insurance Contributions: Employers must also pay National Insurance contributions on behalf of their employees, which is a percentage of the employee’s earnings above a certain threshold and adds to the overall cost of hiring.

3. Auto-Enrolment Pensions: Employers are also required to automatically enrol eligible employees into a workplace pension scheme and contribute towards it. The minimum contribution rates are set by the government which can change, so staying informed is essential.

4. Real-Time Information (RTI) Reporting: Employers must report payroll information to HMRC in real-time. This includes salaries, taxes, and National Insurance contributions, ensuring transparency and compliance with tax regulations.

5. Employment Allowance: Small businesses may be eligible for the Employment Allowance, which can offer some relief in employment costs by reducing their National Insurance liability.

6. IR35 status: Under the IR35 rules, you will need to determine the employment status for tax of any contractors you engage. If the contractor is deemed to be “inside IR35”, they are deemed to be employed by HMRC and should be added to the payroll as an employee. If the contractor is deemed to be “outside IR35”, they are deemed to be self-employed and therefore are responsible for their own taxes and national insurance.


Advice from a HR Consultant


We asked our HR consultant, Laura at Flexworks HR® for her thoughts on what to consider when growing your team, and whether to partner with contractors or hire new employees.

“To grow your team sustainably, you need to think about what resource you need for the short, and long-term, and how this works with how you run your business.

Contractors are a great resource as you are growing your business, as they can hit the ground running, are experts in their industry, and don’t come with the cost and commitment of hiring and managing a permanent employee. However, it’s important to know that if using self-employed contractors, you have less control over how the work is done, when and where it is done, and the rates involved.

Employees come with a host of obligations on you as an employer, including (but not limited to):

  • Being contracted to work regularly unless they’re on leave and required to work a minimum number of hours and be paid accordingly. This means you have to pay them for those hours, whether or not you have sufficient work for them or not.
  • They require supervision and ongoing management from a suitably trained manager.
  • You are required to pay for holiday, statutory or enhanced family-friendly leave, sick pay, pension contributions, workplace tools and equipment, additional benefits, and to provide a safe working environment.

Anyone who has taken on employees will know there’s much more to it than that, but you need to ensure you have sufficient time and skills to support the onboarding and development of anyone you take on as an employee, or they might leave quicker than they joined.

There are other options, such as fixed-term employees, typically for 12 months or less, or interim contractors to strike the right balance for what you need.

Whatever the size of your business you need to have a people strategy at the heart of your growth plans.

Employment status determines someone’s legal rights, and your responsibilities as an employer, so it’s very important to get this right.”

If you need any advice when scaling your team, you can get in touch with Laura at [email protected], or find out more about her services at


Hire with Confidence


Understanding the financial, legal and practical implications of hiring and onboarding is essential for making informed decisions that support your business’ growth. From budgeting for recruitment to ensuring compliance with tax and payroll regulations, knowledge is key to hiring confidently.

If you’re unsure about the costs involved in expanding your team or need assistance with planning and budgeting, our team of experts is here to help. Get in touch with us today to streamline the hiring process and set your business up for success.

Want more ways to improve your business? Find out why using a B Corp certified accountant is good for your business