Two Decades of Hiring Contractors: Seven Costs Owners Overlook

Contractors often charge more per hour than employees doing comparable work, and a business owner with 20 years of experience hiring them says that gap is the first thing most employers miss. Writing for Entrepreneur, the author — an unidentified small-business operator with more than two decades of contractor relationships — argues that independent contractors are "not nearly as cheap, simple or risk-free as many business owners assume."

The piece is an opinion column, not a study, and the author is unnamed. But its warnings track the mechanics every owner faces. Here are the seven downsides, in the author's own framing.

Where do the supposed savings go?

Hiring a contractor can cut payroll taxes, benefits and other employment expenses. But contractors carry their own business costs and price them in. The result: hourly rates that often exceed an employee's, and rates that shift with market conditions, making long-term spending less predictable.

The author's recommendation is blunt: project the total cost of contractor versus employee for every position. In plain words, skipping payroll does not equal saving money.

What is the compliance exposure?

The legal line between employee and contractor turns on the working relationship — how the work is done, who supplies tools, how the worker is paid, and whether they run an independent business. The author keeps written agreements with every contractor covering scope, payment terms and deliverables. That is necessary but not protective.

"A contract alone doesn't determine someone's legal classification," the author writes. "Government agencies look at the actual working relationship, not just what the agreement says."

Depending on circumstances, businesses may need to issue Form 1099-NEC to report contractor payments. Misclassifying an employee can trigger penalties, back taxes, and liability for unpaid wages and benefits. The author's advice: run every relationship past an accountant and an attorney.

Will the rules stay the same?

No — and the author says assuming otherwise is a mistake. Federal and state governments classify workers differently, and rules shift with new administrations, court decisions and legislative priorities. Some changes tighten classification; others loosen it. The takeaway in plain words: review contractor relationships with legal and accounting advisers periodically, in every jurisdiction where you operate.

What happens when a contractor leaves?

Contractors are free to follow the money, and many of the author's serve multiple clients — something the author encourages because it reinforces the relationship's independent character. The cost is turnover.

To manage it, the author has built relationships with multiple contractors, including some who compete with each other, so no single person keeps a critical function running. The caveat: "Finding good people isn't easy." A reliable network takes time to build, and it must be built before you need it.

Is an 'independent expert' actually an expert?

Not always. "Anyone can hang out a shingle and call themselves an expert," the author writes, noting experience with self-described professionals who "misrepresented their experience and capabilities."

Employee hiring typically involves resumes, interviews, reference checks and other decision-makers. The author says contractor hiring demands the same rigor: work samples, conversations with previous clients, reference checks and clearly defined expectations. A website and an impressive title prove nothing.

How do customers react?

Sometimes with an eyebrow raised. Customers may see employees as more dedicated and easier to manage, and the author concedes they "are not necessarily wrong" that a business has less influence over a contractor than over payroll staff.

Hiding the relationship is not an option, and the author says customers are not really bothered by contractors at all. "They're bothered by uncertainty over who's accountable when something goes wrong." Owners must be ready to explain how they manage quality and to stand behind the delivered work.

What about the employees you already have?

Staff may resent contractors' flexibility, question why work is outsourced, or doubt their own contributions are valued. Practical risks add up too: confidential information, company data and access to internal systems require appropriate agreements and access controls.

A short-term contractor project is one thing, the author writes; relying on contractors for essential, ongoing responsibilities is another. How those decisions are managed shapes morale, accountability and culture.

The bottom line

The author still relies on contractors after more than two decades and frames the model as viable — with expectations set correctly. The rule of thumb offered: use contractors for specialized skills, project-based support and flexibility; hire employees for consistency, direct oversight, institutional knowledge and long-term commitment.

The closing caveat carries the column's real weight: "Just don't assume that outsourcing the work means outsourcing the responsibility."