Perhaps the place to start is to understand whether there are employees available in the time-frame needed for your project. It usually doesn’t make sense to hire contract people when you have employees that are available and otherwise would have nothing to do (assuming the employees have “close-enough” skills).

Let’s assume that you do not have current employees available to staff your new project. Let’s also say you work for an organization that is open to utilizing contractors or hiring employees depending on the needs of the specific project. Let’s look at some of the criteria that you can use to make the hiring decision.

• Urgency. If you need to get started very quickly, you may need to hire contractors. In most organizations you can put a call out to the local contract companies and be interviewing people in a couple days. Most organizations can’t (and don’t want to) hire employees that quickly.

• Length of the need. If you need a resource for a short, finite duration, then a contractor may be the way to go. You can bring them in for a short contract and then release them when the work is done. If you have a full-time, long-term need, an employee would make more sense.
• Strategic vs. non-strategic work. Many companies identify certain types of work to be more strategic that other types. For instance, many companies chose to staff the senior project positions, like the project manager, with employees, and are more willing to use contract labor to assist with project team members.
• Skills and knowledge needed. Many companies make decisions about staff based on the type of skills needed. For instance, if you are moving into a new technology or new equipment, you may hire contractors that already have the expertise. If the skill is needed long-term you might want to transition in some employees so that they can learn the new skills before the contract staff leave.

• Confidentiality. Many companies chose to staff positions with employees if the project team will handle confidential or proprietary information. There is a sense that the information might not be confidential once the contractor leaves the company.

• Cost. With a contractor, you typically pay a higher hourly rate, but only for the length of time the contractor is needed. Employees may cost less in the short-term, but you are taking on a long-term cost commitment.

If you look at the decision criteria above, you can see that much of the answer for using employees of contractors comes down to risk. If a project is short, it might be risky to hire an employee since you may not be sure if you can keep the employee busy long term. If the project involves core skills to your organization, confidential information, or is strategic to your business, it may be too risky to hire a contactor.

Organizations tend to keep a leaner staff of core employees these days. The core staff stays relatively constant from year to year, while increases in workloads are staffed through contract resources.