I was recently engaged in a thought-provoking exchange about the upsides and downsides of hiring outside contractors and freelancers to help with our workload. Yes, we like contractors because they are sometimes cheaper than full time staff. However, this is not always the case, and there are other important considerations that compel us to use contractors. Here are some of the things we’ve learned over the years. Do you have any additional insights to share?

1. A Limited Duration Need

We frequently purchase expensive talent – say, 150 hours of time from someone who charges $100 per hour – because we need them for 150 hours. We pay a high price not only for the talent, but for the convenience of not paying when we don’t need them.

2. Immediate Value

We also pay a premium for immediate to near-term availability. One way you pay for salaried employees that may not be immediately evident is the opportunity cost of finding them. If it takes me five weeks to find a great designer for this project that could start tomorrow, I’ve lost 40 hours * 5 weeks * $XX per hour. Hiring a contractor that can start tomorrow is a better business decision because they’ll be billing on the project right away.

When you have 40 hours of work, you can hire a full time person. What about when you have 15? or 30 hours? What if you have 40 hours every third week?

3. De-Risking Our Growth

Avoiding unnecessary overhead expenses when business is slow is critical. Since contractors can be hired on a project basis, we only employ them when they are making us money. Another way of saying this: When you have 40 hours of work, you can hire a full time person. What about when you have 15? or 30 hours? What if you have 40 hours every third week? Contractors allow us fill the space between zero hours of work per week and 40 hours of work per week.

A surefire way to lose money is to hire a full time (40+hours per week) person for 20 hours per week of work. This is of particular importance to us as a revenue driven service business – if we’re not profitable, then we lose our jobs.

4. Fit

For a small company, fit is crucial, and the only truly effective way to determine whether someone works well as a member of the team is to have them work on a project with the team. They also get a much better sense of what it’s like to work with us. If either side is unhappy with things after a “trial period,” then we split up. It’s less pressure on both sides, and we find it leads to good outcomes.

Scaling From Contracting to Full Time 

These are the reasons we cite when we ask people to join the team on a contractor basis. We discuss them plainly and openly. Almost invariably, the response is positive – I think because we’re really transparent about why we think it makes sense. We never discuss “flexibility” or “promoting individual responsibility,” because those don’t accurately reflect our motivation. If we said those things, we wouldn’t be acting in alignment with our values of honesty and integrity.

Moreover, knowingly operating in a way that potentially compromised our ability to build an enduring company, say, by always making a full time hire when there isn’t full time work – would also compromise our values.

We never discuss “flexibility” or “promoting individual responsibility,” because those don’t accurately reflect our motivation. If we said those things, we wouldn’t be acting in alignment with our values of honesty and integrity.

Another distinction is that we anticipate converting many of our contractors to full time as we scale. Once we 1) achieve the sustainable level of revenue required to support their salary, and 2) we’re purchasing all of someone’s time anyway, we’d make them a full time offer. We will always do this rather than deliberately attempting to keep people as contractors in order to lower our overhead.

It is important to note that we don’t make these argument because we are a tech company. We hire contractors because it is a sensible decision for a service-based business that generates revenue by billing for people’s time.

I would make these same arguments if I were running another type of service company, e.g., McKinsey, BCG, IDEO, Frog, Cravath, Deloitte, or KPMG. I cannot speak to tech companies that choose to keep employees as contractors when a full time offer is warranted. That doesn’t seem like a tech sector problem, it seems like a bad company problem – specifically, bad leadership.

We’re building a company for the long haul, and our company is our team. Thus, we take hiring incredibly seriously, since it literally determines the fate of Exygy. Right now, we see contracting as an instrumental part of our hiring strategy.

If you have ideas on how to better balance our value of treating people right against our vision of becoming the premier digital agency for the social sector, I’m all ears.