For people who don’t own their businesses, it might surprise them to learn how many different types of employees there are!
Today, I’m going to go in-depth on the 5 different types of employees you might be considering hiring and the pros and cons of each one.
Figuring out the types of employees you want to have on your team is a really great first step to building your team! There are many different types and levels of what hiring people looks like for a business.
You have a few options to choose from: employee, independent contractor, subcontractor, or agency. And even within those options, we have a couple of different subcategories! All of these different types of works can be a bit complicated to understand. If this is all new to you, I’m going to try and explain it as simply as I can!
(If you’re still feeling confused after you read this, don’t panic. Just scroll over to the bottom-right of this page and ask me a question on my website chat!)
Disclaimer: I discuss some regulations in this post that specifically applies to the United States. Other countries may have different rules!
The most popular type of worker, and probably the one you’re most familiar with, is a regular ol’ employee. These guys can be part-time or full-time.
Part-time employees typically work anywhere between 1-39 hours per week. Part-time positions also don’t usually come with any benefits.
Full-time employees typically work 40 hours per week. Full-time positions usually come with benefits, like health insurance, a 401k, and paid time off.
Here’s a whole list of the benefits employers must give their employees (part-time or full-time). All employers also must pay overtime if you work more than 40 hours in a workweek.
Many online businesses choose not to hire employees, especially when they are first starting out, because there are expenses involved. You have to pay payroll taxes, unemployment tax, and withhold FICA taxes from your employees’ paychecks.
It also can be a little complicated to set up payroll, unless you have a bookkeeper or accountant do it for you. Although services like Gusto have helped ease the process! (Personally I run my payroll with Quickbooks Online.)
But I still don’t recommend hiring an employee to be your very first experience with building your team.
This is more “advanced”. If you’re a small online business, it’s very likely that you will be your business’s first employee! Once you reach the point where you’re putting yourself on payroll, it’s a great way to get used to the process. Then, in the future, you can start thinking about putting other team members on payroll as part-time or full-time employees, too.
An independent contractor is like an employee, but different. The typical word that people use for this is “freelancer”. An independent contractor is someone who works for you, but they’re not employed by you (if that makes any sense).
As such, there are certain restrictions you have to keep in mind. As the employer, you don’t have the right to enforce anything like dress code, working hours, etc. And they typically provide their own equipment vs. using tools owned by the company (i.e. a graphic designer contractor would be expected to have their own version of Adobe Photoshop — you’re not required to purchase it for them).
There’s definitely a little bit of a grey area! Just keep these rules in mind, as companies have gotten in trouble for hiring people called “contractors” to save money…but really they were “employees” by definition.
Here’s how the IRS defines an independent contractor: “The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.”
For those of who are considering hiring people or building your team, an independent contractor is probably the type of worker that would work best for you.
Types of Independent Subcontractors
There are also two types of independent contractors to consider.
Some independent contractors are people that you outsource work to for one-off projects or certain specific services. Typically, lawyers, accountants, etc. would fall in this category. They are technically a member of your “team,” but they don’t work with you on a day-to-day basis, and they may even have their own team that works underneath of them.
Other independent contractors are long-term workers to whom you delegate work to within your team (like a virtual assistant, online business manager, etc.). These types of employees would be in your business on a day-to-day basis, and you’d probably have them in your project manager and communicate with them quite frequently. They typically also will work more hours and have more responsibility within your business.
Sometimes the line here is blurry or grey as well.
Start off with figuring out what you want and then try to find that! If you’re unsure of whether a prospective employee you’re considering fits the bill — simply ask them! Are they okay with joining your team and working with you on a day-to-day basis, or are they more a “behind the scenes” gal who would prefer to not join your project manager?
These are definitely things you’ll want to bring up during the interview process.
A subcontractor is very similar to an independent contractor — it’s just one level deeper.
So, for example, I myself am an independent contractor, as I provide systematic marketing services for my clients. Because I have a team, many of those team members are actually subcontractors who I have hired to help me complete my client work.
An independent contractor does work directly for a client. An independent contractor employs a subcontractor to do work for the independent contractor’s clients.
You can also have subcontractors do work for you, as well. You’d basically be serving as your own client. This works out, because the benefit of being a subcontractor is that they do not have to go out and market themselves to find work — the independent contractor gets clients and then delegates the work to them. So it’s not as important that they have a website, active social media channels, etc.
There’s a lot less work, pressure, risk, and expenses involved in being a subcontractor, which is also why they are typically a lot less expensive to hire than independent contractors.
White-labeling is also a fairly common way of going about hiring people to help serve your clients. I frequently get asked to have my packages white-labeled (like my Perfect Pinterest Package).
White-labeling is similar to hiring a subcontractor. The difference is that you are requesting to purchase an existing service that is already being offered by an independent contractor.
You would purchase it at retail value. A discounted rate for white-labeling is not typical — which is one of the two main differences from subcontracting. In order to make a profit on it, you would bump up the price when offering it to your clients.
Here’s an example of how this would work in the real world:
Let’s say you offer web design to your clients. Maybe a lot of your clients are also asking for something you don’t offer, like copy for their website.
You have a few choices. You can…
- Tell your client no and miss out on an opportunity for extra cash entirely.
- Refer out to a peer who does web copy and grab a referral commission.
- Hire a subcontractor and make even more profit. (But you’ll have to spend a lot of extra time training them and holding their hand as you build out this new offering.)
- White-label someone else’s service that is already pre-packaged and ready to go. (You’ll make less profit than if you hired a subcontractor, but there’s a lot less hassle involved.) Once you find someone who offers what you want to offer, you can come back to your client. You basically sell the white-labeled service to them as if you were the one doing it yourself. If you ask, you may even be able to grab some things like testimonials, portfolio items, and stats you can show your client to help seal the deal.
If you do want to go the route of white-labeling, always make sure that you substantially increase the price to account for any management, communication, or other work that you may need to do in order to provide the service to your client.
And always get payment from your client first before paying upfront for the white-labeled service.
An agency is technically one of the types of employees that isn’t really one person — it’s a group of people. They are typically more expensive than if you were to hire just one person as an independent contractor.
Agencies most often specialize in a specific area. And certain niches are more prone to agencies than others, too. The most common types of agencies you might see around are ads agencies, PR agencies, social media agencies, and virtual assistant agencies.
So there are many different types of agencies, and they all run in different ways, too. There are 3 main types of ways an agency handles a client (a.k.a. you).
- You primarily work directly with the boss — the person who runs the agency (very similar to hiring an independent contractor).
- You have a “point person” assigned to you, who is either an account manager who takes your account and delegates the work out to other agency employees, or they handle everything for you themselves, basically serving as one of several mini-bosses. It might not be the person you have had your discovery call with. Likewise, it wouldn’t be the person who is the “face” of the company.
- You communicate and work with multiple people employed by the agency — maybe one person for social media, another for website design, etc. You may also have an account manager on top of that, who you communicate most frequently with.
If you’re considering working with an agency, it’s very important to use your discovery call as a chance to ask them how they work and who you would primarily be communicating with.
Usually, the best-case scenario would be option #1 from the list above, and then my list kind of goes down in what would be most preferable. If you have to work or correspond with too many different people in the agency, it can get kind of confusing, and it’s best if you have one main person who is overseeing everything so that all of your work is as cohesive as possible.
The awesome thing about an agency, though, is that when it’s done right, the work usually comes out really good. Agencies tend to be ultra-professional and are masters at the space they specialize in. They’re usually super on top of trends, don’t need a lot of guidance or hand-holding, and are super easy to outsource work out to.
This is why I love having an agency myself! Because having a bunch of experts on my team allows me to provide really amazing high-quality work to my clients.
Now that you know the main types of employees for your business, you can decide what will work best for you.
To help with guiding you through the process I’ve put together a checklist for you. This checklist will teach you what steps to take to ensure you add the best candidate to your team.