Contract or full-time? A hiring guide for creative agencies

More people are working for themselves these days, and it’s changing how agencies build their teams. Thirty-six percent of employed Americans are doing some kind of independent work—freelance, contract, gig, or temp. That’s way up from 27% back in 2016.

A big reason? People want more control over their time. One freelance video producer we know recently turned down a full-time offer because the pay was lower and she liked the flexibility. 

This shift means agencies now have the option to build an agile, low-overhead team. But is that the right move for your business?

In this piece, we’ll break down the differences between contractors and employees, the costs of each, and the trade-offs to consider to help you make the best decision for your agency.

What’s the difference between independent contractors and employees?

Sometimes the line between contractor and employee can get blurred, but it’s important to get it right. Otherwise, you could face legal issues, fines, or back taxes for misclassifying a worker. 

So what makes them different? According to the Internal Revenue Service (IRS), it comes down to how much control you have over their process.

With employees, you’re the boss

A worker is considered an employee if you control what they do and how they do it, even if they have some freedom of action. For instance, if you hire a full-time graphic designer, you likely set their hours, assign them to client projects, and review their work regularly. You might also provide tools, software, or creative direction. In this case, that designer is clearly an employee.

With contractors, you’re the client

Conversely, someone is an independent contractor if you're only in charge of the outcome—how they do the work is up to them. You agree on the final deliverable and deadline, but they manage their own schedule, process, and tools. For instance, if you bring in a freelance motion designer to produce an animated video and simply share the brief and timeline but leave them to handle the process on their own, they’re likely a contractor.

Here’s a simple chart of how they compare:

Costs of hiring an independent contractor vs. an employee

Employees have a lot of ongoing costs. In addition to base salary and bonuses, you’re responsible for payroll taxes, benefits (like health insurance, paid time off, and 401(k) matching), training, equipment, software, and possibly office space if they’re in-person. 

The true cost of an employee is about 1.3x than their salary according to Joseph Hadzima, Senior Lecturer at MIT Sloan. So, if you hire a full-time

Hiring a contractor on the other hand is usually straightforward. You agree on an hourly or project fee, and while the final bill might vary if the scope changes, you generally know what to expect. You also only bring contractors on when you need them—none of the extra costs associated with full-time staff. 

But there’s a caveat. While it may seem like it always costs more to hire an employee, keep in mind that many contractors pay for their own equipment, software, self-employment taxes, and benefits. So, they often charge higher rates as a result. That means the fee you pay for their work may actually be higher than the hourly rate you’d pay a full-time salaried employee. 

To make a direct comparison between contractors and employees, it helps to break down the costs to an hourly rate. Here’s how:

1. Check Glassdoor or Indeed for the average salary in your area for the job role you need to fill.
2. Use the QuickBooks calculator or MIT Sloan’s ratio above (1.3) to calculate the true cost of an employee.
3. Then, divide that number by 2,080 hours per year (for a full-time employee, that’s 40 hours a week, for 52 weeks in a year) to get an hourly cost.

Using the content strategist example:

$158,600 total cost ÷ 2,080 hours = $76/hour for a full-time content strategist.

Once you know how much a full-time staff costs per hour, you can look for quotes from contractors with a similar level of experience and see which is more cost-effective for your agency.

When should you hire a contractor vs. an employee?

Not every project or role needs a full-time hire. Some work is better suited for contractors, while other responsibilities are more efficient (and cost-effective) to keep in-house.

Hire a contractor if your project is short-term or one-off, needs specialized skills, or is outside your core business offering. In other words, use contractors when you need speed, flexibility, or skills your team doesn’t already have. For instance, say you’re working on a brand refresh and the client requests a set of custom illustrations for their website and marketing materials, but you don’t have an in-house illustrator. You can just bring on a freelance illustrator for the project. You get the specialized work you need without the long-term commitment of a full-time hire.

Hire a full-time employee if the work is long-term, central to your offerings, or highly collaborative. Employees are a better fit when you need someone who can learn your processes, grow with your business, and contribute across multiple projects. So if your core service is content marketing, it probably makes sense to hire a full-time content writer. They’ll learn your style and help maintain consistent quality of work.

Pros and cons of a contractor vs. an employee

Contractor

Employee

Check profitability to make an informed decision

If you’re unsure what your agency can afford or where you’re getting the best return, check back in soon—we’re releasing a free profit and loss calculator. It gives you a detailed view of your profit margins by project, client, and team member. You’ll see where your agency is generating profit, where it isn’t, and what adjustments could improve your financial performance.

For example, you might realize that using too many contractors is reducing profitability and that hiring a full-time employee would be more cost-effective. Or you might see that a certain role isn’t contributing enough to cover its cost. Either way, the calculator helps you make clear, data-backed hiring and business decisions.