Like most things in life, there are pros and cons to hiring a full-time employee, and the same goes for hiring independent contractors. Deciding which road to go down when hiring quality commercial truck drivers involves conducting a cost-benefit analysis to make the best decision for your business.
In this article, we’ll explore whether it is more cost-effective to hire a full-time employee or to hire a contractor so that you can make an informed decision.
The pros and cons of hiring full time employee truck drivers
Full-time employees work for you, which means they have agreements with your business. Hiring full-time truck drivers comes with more control over what job is delivered and how it gets done, as you have the right to manage and direct them.
As an employer, you are responsible for paying on behalf of your full-time employee:
- PAYE
- Holiday pay
- Sick employee replacement costs
- Kiwisaver employer contribution
- ACC employer charges
- Additional employee costs
- Insurance excess
- Third-party liability insurance
The above expenses can be factored into hourly rates to gain a true reflection of an employee's real cost per hour over the course of a year.
For example, let’s say you have a full-time employee named Sam. Sam works 60 hours per week at an hourly rate of $32. Yet when you factor in the above costs of having Sam employed full-time, your employee hourly cost is closer to $38.97. That is $6.87 more than Sam’s set hourly rate.
Not only that but if Sam were to qualify for time and a half, your employee hourly cost increases to $44.45 annually.
The pros and cons of hiring contractors
Contractors work for themselves, which means they are free to work for anyone. Hiring contractors means you have less control over when and how work is done, as you are not in charge of managing or directing them.
As an employer, you are responsible for paying your contract truck drivers:
- Hourly rate
A contractor sets their hourly rate themselves and is responsible for paying their own KiwiSaver, tax, ACC and insurance costs. Additionally, you are not required to cover a contractor’s holiday pay or sick leave.
Plus, you are not responsible for holding records and agreements as you would for full-time employees. However, it’s good practice to have an Independent Contractor Agreement (ICA) in place, which is why Road Ninja provides ICA’s for companies and drivers - so both parties can agree on the details of the arrangement.
Continuing on from the example above, let’s say you hire a contract truck driver named Carl. Carl charges $42, which costs you $3.21 more per hour than Sam does - not a big difference. Carl is ready when you need him, and once the job is done, you are under no obligation to hire him. Which means you are not responsible for supporting additional costs such as upskilling, training and unfortunate circumstances like bereavement leave that you would need to cover for a full-time employee like Sam.
And remember, if Sam qualifies for time and half, your employee hourly cost increases to $44.45. Annually, that works out higher than Carl’s $42 hourly contract rate.
Over a year, hiring a contractor like Carl would cost you no more than $5 extra per hour in comparison to Sam, your full-time employee. Contrary to popular belief, there’s not a huge cost difference between full-time employee truck drivers and contractors, particularly considering the long hours the industry requires.
Not only that, but contractors like Carl are ready when you need them - and Carl’s flexibility means your trucks can be driven more often than they might with only Sam behind the wheel.
Hiring a contractor like Carl can help you mitigate the year-round, full-time employment (FTE) holding costs discussed above when work is unpredictable or season dependent. Plus, you can grow your business with contractors by increasing the opportunities to expand into new regions and driving types.
It always pays to conduct a cost-benefit analysis when deciding whether to hire a full-time employee or contractor.
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