Hiring contractors to fill gaps in projects that require specialized skills is an efficient way of adding key staff to your workforce. Contractors save expenses by using their own workspace and work tools. They also handle their own taxes and benefits, and being available temporarily. Many contractors operate under PAYG (Pay As You Go) contractor systems of payment. However, this brings up a lot of questions such as what does that mean and how does it affect employers?
Paying a contractor correctly is essential for remaining compliant with local labor laws. Maintaining legal compliance also helps to maintain a strong relationship between the company and the contractor. This results in better work results and harmony in everyday life.
Here, we answer your questions about contractors and also explain how you can convert PAYG contractors to employees. This way, you can retain top talent long-term to benefit your company vision.
What is a Pay As You Go Contractor?
Pay As You Go (PAYG) contractors are workers who provide their services and get paid by the hour. This is in contrast to workers receiving a salary or payment after a project is complete.
A PAYG contractor can be a self-employed individual or a contractor employed by an agency. This type of worker is usually employed temporarily or for one-time purposes. This could mean filling in a sudden vacancy or providing a specific skill.
They are not usually part of a company’s long term goals, and they are typically treated quite differently from employees engaged on the same project. This can have an effect on company culture, employee retention, and your mission and vision statement, so it’s a good idea to be certain of your responsibilities.
PAYG Contractors vs Fixed Contractors
A fixed contractor receives the same amount of compensation for the work they perform. They also often work regularly with the same companies. This is different from a PAYG contractor who is usually paid by the hour rather than monthly.
Additionally, a fixed contractor is usually hired for a longer period of time, from 3 to 6 months to a year, while a PAYG contractor can be hired for as little as a few days.
The Pros and Cons of Hiring a PAYG Contractor
Pros of PAYG Contractors
Unlike a regular employee that requires a lengthy recruitment process and onboarding, a contractor can be hired and start work immediately. As a contractor is entirely responsible for their working environment, this allows you to focus on other things.
Contractors are already specifically skilled in the services they offer, and this makes them uniquely qualified to deliver the results you want quickly and on time.
Reduced Time and Costs Spent
A full-time employee has to be provided with a workspace, training, work tools, and other employment benefits like paid leave and insurance. A contractor only has to be paid for the work they deliver.
All other tasks like taxes, health care, family and medical leave, etc., are covered by the contractors themselves or the agency that acts as their employer.
The Chance to Test Out New Talent
Hiring a new full-time employee can be a lengthy process, and you may be unsure if the employee is a strong fit for your company.
If you hire a contractor, you can see how well the worker matches the rest of the team and if their skillset compliments your vision. Then you can start the process of converting them into an employee by offering them long-term employment.
Cons of Hiring PAYG Contractors
A PAYG contractor is only part of your workforce for a short duration of time. If you want to find a new worker that will integrate your organizational culture, then a contractor may not work for you.
At the same time, if you find a contractor that fits well with your company you can convert them into an employee. However, they may not be willing to be tied down to a single company or lose their freedom.
For the contractors, there are similar problems. They lack the same benefits like employee retirement income security as the employees who work around them. In general, this may affect the way they interact with others.
Potential Compliance Errors
Misclassifying a worker is a mistake that can cost you expensive fees and fines. A contractor cannot be treated like an employee, and doing so risks compliance errors. Most countries’ departments of labor have stringent laws requiring distinct contractor vs employee labor laws.
At the same time, less employer responsibilities does not remove the need for basics such as occupational safety and health assurances.
Here, you can see our article for more about the legal and practical differences between a contractor and an employee.
How to Convert PAYG Contractors to Employees
The exact rules and labor laws around turning a contractor into an employee will differ according to local legal guidelines. However, these are some of the basic steps that you should keep in mind:
Determine the worker’s current status
Make sure that they are a contractor and not already classified as an employee.
Discuss contract details with the contractor
At this point, you may need to gather the necessary information to fill out the required forms. Then you will need to both agree upon a contract that suits each party, potentially requiring you to offer incentives.
Writing a vision statement that lays out your expectations can help the contractor to understand why and how they will benefit.
Adjust compensation rates accordingly
A contractor is not paid in the same way as an employee. If you continue paying them the same way you may be in danger of misclassification errors.
Becoming an employee means a loss of flexibility and independence for the contractor. You may want to offer some supplementary benefits to compensate for this.