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Lagos, Nigeria. In economies like Nigeria, mandatory regulations stipulating basic pension and life cover are in place/Photo: Femi Awoniyi

Should a growing business hire employees or contractors?

Business is booming in Africa, tipped as a continent to watch in the coming years. This is principally because African economies have experienced an influx of foreign investment interest and an explosion of local entrepreneurship in recent years. From the continent commanding the spotlight on solar energy to the businesses propelling the ‘Made In Africa’ label across the globe, the business world in Africa has blossoming and is thriving. With it, many startups are now expanding their operations and having to consider all that comes with growing a business, including expanding their workforce.

While full-time employee positions have been the norm traditionally, more of the younger African workforce is embracing freelancing. Estimates in the report show that Africa holds 10.1 percent of the freelancing population. So with employees and freelancers each holding multiple merits for a growing business, how does a business decide which category of worker is best for its growth plans? 

Can Your Growth Budget Afford Additional Staff Recurring Staff Payments?

One of the main points separating freelancers and staff workers is that compensation is paid according to job or time for freelancers. However, if you choose to recruit employees, businesses need to account for additional payroll, recruitment, and benefit costs. According to the Chartered Institute of Personnel Development, it can cost 20 percent to employ a mid-level employee and almost 200 percent if you are planning to expand your senior executive team. There is also the benefit obligations businesses are expected to fulfill if they opt for employees instead of contractors. 

In economies like Nigeria, mandatory regulations stipulating basic pension and life cover are in place. Signed in July 2014, the Pension Act regulation in Nigeria states that employers with a workforce of 15 or more employees are required to contribute to pension schemes for their workers with a minimum amount of 18 percent (10 percent paid by the employer and 8 percent paid by employee). Employers are also required to secure life insurance cover for each employee.

If you plan on expanding your workforce while growing your business, this is a key point to consider- particularly if you will be crossing the 15 employee threshold during growth. For many businesses, the financial benefits of growth strategies are not experienced immediately. Can your business’ operating budget during the transition and after, comfortably cover the costs of employing an employee? If not, you may be better off going with a contractor.

Does Your Business’ Growth Strategy Require The Consistent Skills Of An Employee On Payroll?

Another point to consider is whether an employee or contractor fits into your business’ growth strategy. Consider the individual goals in your growth strategy and how that translates into a job description. The African market is overflowing with growth opportunities like the expansion into new markets.

However, to break into a new market successfully, businesses need to perform adequate market research, financing, sales support, manufacturing, and digital presence. Analyze these separate needs and what they would entail for your growth plan before defining what the right business expansion team looks like. From there, it is easier to craft a clear job description- and decide whether a full-time employee or contractor is needed.

Do Your Plans For Growth Require Specialised Skills On A Time Crunch?

If rapid business growth is on the agenda, there is even more pressure to hire the right people in the right places. Most startups and SMEs in Africa face increasing financing challenges and with the fast-paced nature of the business world, moving quickly is often needed to stay ahead of the competition. However, recruiting an employee often requires a longer recruiting process. From the shortlisting and interviewing of local candidates to potential training and onboarding, it can take around 42 days to fill a vacancy. 

Thanks to the explosion of freelancing platforms in Africa like Hooros, Kuhustle, and Mintor, businesses can easily (and quickly) access the services of a contractor for half the cost and time. So, if time is of the essence or you require an expert for a specific task on your growth agenda (like creating a revamped business website or digital content campaign), then a contractor may be more suitable.

Finally, businesses should think ahead when considering whether an employee or contractor is the best move when growing their operations. Think of what the business’ future looks like and the place of that worker amongst it all. Do you see their role being long-lasting? There are many moving parts to achieving successful business growth. Creating the right team is a large part of it. Building the right team takes planning, strategy, and a good amount of thought. However, if done correctly, it can accelerate your business’ growth and the chance of success.

Sara O’Hare

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