Small Businesses: How to Manage Human Resources Efficiently - Essay Sample

Introduction

Managing human resources is one of the common challenges that occur in running small businesses. It requires a dedicated team who ensure efficient coordination of the day to day activities of the business. Also, the businesses incur a significant proportion of costs in staffing, depending on the industry the business operates. The human resource expenses can thus consume up to 40 - 80% of the company's budget. Given the expenses, most of the small businesses are faced with the dilemma to either hire to contract employees for the various positions available. The two options differ depending on the business, and therefore, this article focuses on discussing the benefits and limitations of hiring vs. contracting employees, and it will further outline the various instance where each of the options is applicable.

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The Difference Between Hiring and Contracting Employees

A hired employee is typically a salaried employee who works for the business. Hired employees participate in employee benefit programs, employee relations laws, anti-discriminatory rules, and also provide services based on the company's needs and schedule. These employees are often guaranteed a minimum wage requirement, which is set the government in different countries.

On the other hand, employees on contract are subject to a standard salary rate like the hired employees. Instead, the amount is dependent on the type of work, the complexity, duration, and the terms of the contract. These workers are majorly acquired to provide specific skills and expertise to business for a specified period that is agreed between the worker and the business.

The Advantages and Disadvantages of Hiring Vs. Contracting Employees

Advantages of Hiring

Less training - Unlike contractual employees that work for a specific period, hired employees are acquired to provide services for longer periods. Therefore, the business only requires to train them once during the recruitment process, and in the future, they are aware of their duties and responsibilities within the business.

More control - Upon hiring employees, the new business owner can now delegate some of the tasks and therefore have free time to handle other relevant tasks for the business. More often, small business owners are less efficient as they have to do all the tasks on their own.

They provide continuity - Usually, hired employees are given specific tasks to which they are supposed to handle. Since they are sometimes given a long term employee engagement, these employees are always available to provide help to the business even on short notice. Besides, the business is confident of their service since they can shift focus easily.

Enhanced Commitment - When the business owner provides a good working environment for these workers, they reciprocate through a commitment to the business. These worked provide loyalty in return to how the employer values them.

Disadvantages of Hiring

Statutory laws and regulations - While hiring employees, the small business owners have to conform to the statutory rules and regulations govern the employer-employee relationships. It includes restrictions to termination of the employment, minimum wage requirements, and payroll tax, among others.

Advantages of Contracting

Provide specialized expertise - This is the most significant benefit of contracting employees. These type of workers provide specialized expertise and skills to the business, and therefore, they focus on a specific area of work within the business. It includes workers who are acquired to complete a specific task like designing a system, construction, or installing specific materials for the business.

Less legal compliance - Unlike hired employees who are subject to employment regulations, employees on contract are not eligible for such programs such as minimum wage requirements and compensation coverage. In this case, the business owner is not restricted to the process of terminating employment engagement. Also, these employees often have their insurance coverage, which contributes to reducing the business's vulnerability to legal cases.

Offer more flexibility - Unlike the regular (hired) workers who are bound to receive monthly salaries, contractual employees are paid based on the availability of the position. It means that the business is flexible to acquire a contractual worker to complete a project when the need arises and also based on the available budget.

Lower business expenses - It is noted that employees on contact are not bound to compensation rules such as minimum wages, overtime, and other additional benefits. Therefore, the business stands a chance to save the additional costs incurred while holding regular employees. Lower labor costs reduce the general expenses within the business.

Disadvantages of Contracting

Limited privacy - Contract workers often stay in an organization for a short period. During the contract period, they have access to the system within the business. On the end of the contract, these workers have the potential to leak confidential information to third parties. Therefore, the business faces the risk of instructions and leaking of confidential information either about the company or customer's information.

Factors to Consider When Hiring

• If the task available is long term
• If the work requires maximum supervision
• If the work requires direct control relating to the tools, equipment, and schedules using the worker
• If the tasks are central to the organizational efficiency and effectiveness, e.g. an accountant.

Factors to Consider When Contracting

• If the task is short term such as installing a system
• If the work is a peripheral job and hence not central to the organization, e.g. cleaning
• If the work does not require as much supervision
• If the task required specific technical expertise

Conclusion

The insights presented above can help in choosing between hiring or contracting. While there is no any specific method that is considered to be better than the other, small business owners should evaluate the business needs as well as the benefits and limitations of each choice before making a decision. Nonetheless, it is worth noting that the choice should fit within the company's budget, the needs, and also the type of work available.

References

Bennmarker, H., Gronqvist, E., & Ockert, B. (2013). Effects of contracting out employment services: Evidence from a randomized experiment. Journal of Public Economics, 98, 68-84. doi: 10.1016/j.jpubeco.2012.12.002

Grigg, B. A. (2019). 1099 vs. W2 Employee: Which Is Better for Your Business?. Retrieved from https://www.fundera.com/blog/1099-vs-w2-employee

Lisi, D., & Malo, M. A. (2017). The impact of temporary employment on productivity. Journal For Labour Market Research, 50(1), 91-112. doi: 10.1007/s12651-017-0222-8

Messina, F., Ely, B. P., Polack, L., & Messina, M. (2019). Employee versus Independent Contractor - The CPA Journal. Retrieved from https://www.cpajournal.com/2019/02/11/employee-versus-independent-contractor/

Murray, J. (2019). Should I Hire an Employee or a Contract Worker?. Retrieved from https://www.thebalancesmb.com/which-should-i-hire-employee-or-contract-worker-398616

Pacific Crest Group. (2019). Benefits of Hiring Independent Contractors versus Employees. Retrieved from https://www.pcg-services.com/benefits-hiring-independent-contractors-employees/