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Contractor Management ROI: Financial Gains Beyond Project Completion

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Hiring contractors can be a tricky business. Many managers rush their projects and find not the best contractors available but the most convenient at a moment’s notice.  Reality often makes this the case, but it doesn’t have to be. Ironically, the supposed “strength” of hiring contractors, in this case,  flexibility, becomes a liability.

Flexibility comes from finding the perfect contractor for a job, and that’s not always the case. Operating under that assumption hurts both the business and the contractor.  That’s why managers shouldn’t treat contractors differently from employees in a professional setting.  Contractor management comes with a different set of skills from typical HR work. 

This article discusses the nuances of contract hires versus employees and why those differences shouldn’t matter for the actual work. By understanding this, financial gains for all parties will be all but guaranteed. 


The Differences Between Contractor and Employee


Here are some of the core differences between the two and why they must be understood: 




Employees have to work within the confines of the organization’s policies. They are also subject to the direct command of the employer at all times.  In contrast,  contractors operate as independents and use their methods and tools for tasks. 


They have the flexibility to determine when, where, and how they complete their assigned tasks. HR professionals should recognize and respect the autonomy of contractors while ensuring they meet project objectives within agreed-upon timelines.




Employees receive regular salaries or wages on a predetermined schedule. They are also eligible for benefits such as medical and maternity leave.  In contrast, contractors are typically paid based on project milestones, deliverables, or hourly rates specified in their contracts. 

They invoice the hiring organization for their services and negotiate payment terms before commencing work. HR professionals should ensure that payment terms are clearly outlined in contractor agreements to avoid disputes and delays in compensation.


Skills and Training


Employees are a long-term investment for the company. Thus, employers invest in training and development programs to enhance their skills and capabilities. Employees may receive ongoing training to improve job performance, develop new skills, or prepare for career advancement within the organization. 

Companies hire contractors who are highly skilled at their tasks from the get-go. Employers expect them to have the qualifications and experience necessary for the project. While contractors may receive project-specific training, they are generally responsible for maintaining and upgrading their skills to remain competitive. 


Short-Term Projects


As previously mentioned, companies expect full-time hires to stick around. While projects and assignments may vary, the company considers employees integral parts of the workforce. The company may reassign them to different roles or projects over time, but they will stay within the system.

Meanwhile, companies hire contractors for short-term projects or specific tasks with defined objectives and timelines. Once the project concludes, the contractual relationship may end. Contractors may hold a cordial relationship with companies for future work, but they are not obligated to. 




While some flexibility may be available to employees, such as flexible work hours or remote work options, employers have the final say in work schedules. Employees typically won’t have control over their workload and project assignments. 

Contractors enjoy greater flexibility in managing their work schedules and commitments. They may accept or decline projects based on availability, preferences, and business priorities. This flexibility allows contractors to balance multiple projects or clients simultaneously and maintain a diversified portfolio of work.


Figuring out the ROI for Contractors


Now that you understand the unique differences between employees and contractors, you can start to calculate their ROI:  

Set Clear Objectives

Establish clear objectives for contractor engagements. It is paramount for maximizing ROI. Clearly defined project goals, deliverables, and timelines provide contractors with a roadmap for success. By aligning contractor activities with organizational objectives, HR professionals ensure contractors use resources efficiently, minimizing wasted time and effort.

Utilize Tracking Software

Utilizing software management tools allows HR professionals to monitor contractor progress, track project milestones, and assess performance against predefined metrics. By leveraging technology to capture real-time data on project activities and outcomes, organizations can identify areas for improvement, allocate resources effectively, and optimize contractor ROI.

Analyze the Costs

Thoroughly analyzing the costs associated with contractor engagements is essential for calculating ROI accurately. Beyond direct payments to contractors, HR professionals should consider additional expenses such as overhead, administrative costs, and any necessary equipment or resources. By conducting a comprehensive cost analysis, organizations can determine the true financial impact of contractor engagements and make informed decisions to maximize ROI.

Reflect on Opportunity Costs

In evaluating contractor ROI, HR professionals must also consider opportunity costs—the potential benefits gained or lost depending on the course of action you take. Assessing the opportunity costs associated with engaging contractors versus hiring employees or outsourcing tasks helps organizations prioritize investments and allocate resources effectively to achieve optimal ROI.

Compare Flexibility with Reliability

Balancing the flexibility offered by contractors with the need for reliability is essential for maximizing ROI. While contractors provide flexibility, organizations must also assess their reliability in delivering quality work consistently and meeting project deadlines. 

Monitor and Review

Continuous monitoring of contractor engagements is essential for maximizing ROI over time. HR professionals should regularly assess contractor performance and identify areas for improvement. By staying vigilant and proactive in managing contractor relationships, organizations can adapt to changing circumstances, mitigate risks, and ensure that contractor engagements remain aligned with strategic objectives to achieve sustained ROI.

Final Thoughts

Like any other professional, contractors have advantages and disadvantages in a corporate setting. While they offer immediate skills and experience that a new hire might not have. They also have the flexibility for use in specific projects, and there’s no need to worry about where they go once the project finishes. 

However, never get complacent with contract hires. Too often, the fault of ineffective contract work lies in recruiters overlooking the potential negatives because of the appealing positives.  A balanced approach is essential for maximum ROI on contractors. Lastly, don’t get caught up in the numbers. Regardless of differences in pay or autonomy, treat contractors with courtesy and respect, regardless of employment status.