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In tough times, contractors can fill key gaps

Special to The Globe and Mail

A s Mississauga-based Playdium Corp. struggled to emerge from bankruptcy protection last year, money was tight and the company found it hard to make long-term commitments to prospective employees. Hiring contract workers helped it get back on its feet.

Contractors help pick up the slack when employees take sick or maternity leave from Playdium, which operates three virtual-reality entertainment centres and provides games to movie theatres, chief financial officer David Branigan says. Playdium also uses contractors to help with seasonal needs.

It's not alone. The series of economic setbacks of the past couple of years have left many businesses reluctant to make long-term financial commitments. Many are responding by using more contract workers, who can be brought in quickly for limited terms and allow smaller businesses, in particular, to avoid some of the complex paperwork for full-time employees.

About two-thirds of nearly 2,000 members of the Canadian Federation of Independent Business surveyed in 2000 contracted out work. About 95 per cent of them had fewer than 100 employees.

A couple of tough years have accelerated a long-term trend toward more use of contractors, says Judi Preston, vice-president of sales and marketing operations at contract-worker agency Manpower Inc. in Toronto.

"Financial constraint is definitely one of the motivating factors for small business to use contractors," says David King, regional manager of consulting services for Robert Half Canada of Toronto.

By hiring contractors, Mr. Branigan says Playdium can fill short-term needs without making long-term commitments. On average, they stay three or four months, though someone hired for one short-term project might spend less than a month at the company.

Playdium also saves some of the paperwork that comes with full-time staff.

It's not that contractors are paid less than permanent employees. If anything, Mr. Branigan says, they are paid a little more.

But when a company hires contractors, it is not liable for Employment Insurance, Canada Pension Plan and workers' compensation payments, nor do contractors usually receive other full-time benefits. Over all, Mr. Branigan estimates contract workers cost Playdium about 10 per cent less than permanent staff.

Mr. King says avoiding benefits saves some money in the short term, but the big financial benefit of hiring contractors is you pay them only as long as you need them. "The real cost savings come in the flexibility that the company has to bring somebody on just for that six-month period and then have them move on."

Whether some financial expertise is needed at year-end or marketing know-how will help launch a new product, using contractors means companies "don't have to maintain that skill set on their bench all year," says Steve Jones, president of The People Bank of Toronto.

Contractors with a range of experience bring fresh ideas into a company, Mr. King adds, and full-time employees and management can also learn from those with special skills. "When that person moves out of your firm again, they're probably leaving behind a more enriched and talented staff."

Convenience is another benefit. A company can pay a contractor by invoice, rather than calculating salary, payroll deductions, EI, CP and so forth. "A lot of times in very small businesses, it's the owner or some senior executive who deals with payroll," Mr. Jones says.

Nevertheless, Mr. Jones says small businesses sometimes use contractors for the wrong reasons -- to avoid paying benefits, for instance.

The Canada Customs and Revenue Agency has rules about who can be treated as a contract worker and who is considered an employee, and any business that labels someone who doesn't qualify as a contractor -- and consequently doesn't do the paperwork , such as deducting income tax and paying EI -- can end up in trouble with authorities.

Several rules of thumb determine whether someone is a contractor. The Canada Customs pamphlet Employee or Self-Employed? lays out the criteria in more detail. It is available on the agency's Web site at .

There are other reasons not to hire a contractor when what you really need is a permanent employee, Mr. King says. First, when you advertise a contract position, you reach a different pool of candidates than when the position is described as permanent.

Second, a permanent job implies more commitment. "If you hire a contract individual, there's always a bit of an arm's-length relationship," Mr. King says.

Another pitfall of contract hiring is thinking that because the position is not long-term, you needn't take as much care about who you hire. Contract workers should be evaluated just as carefully as permanent employees, Mr. King says.

Contract work is not just a way for beginners to get a foot in the door though. Nor is it, as it once was, mainly the preserve of semi-retired veterans keeping their hands in with part-time contracts. Now, Mr. King says, "we're seeing more people at all levels in their careers." That's good news for small businesses able to draw on what Mr. Jones calls "a huge resource of just-in-time inventory of contractors."

Companies often hire permanent employees who have most of the skills needed and are willing to learn, Mr. King says, but in hiring a contractor you should look for exactly the skills you want.

On the other hand, you can pay less attention to how well the person will fit into your company, because he or she probably will not be there for a long time. "You're not looking at somebody who's going to be your future president," Mr. King says.

Or at least not usually. Mr. Branigan first came to Playdium as a contractor. He says a contract position can be a good way to try out a candidate before offering a permanent position.

© The Globe and Mail

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