Is Hiring an IT Contractor Worth It for Your Small Business?

Budgeting and resource management are topics we frequently discuss, as small businesses always look for the best return on their spending. With the demand for IT services continuing to outpace the staffing supply, IT spending is projected to grow another 6.1% in 2024. That’s put more pressure on businesses to spend wisely and think more about their hiring strategy. IT contractors can be a good short-term solution, but there are some challenges and limitations to consider.

What Is an IT Contractor?

An IT contractor is a professional who provides specialized IT (information technology) services contractually. They are not considered employees of the business they deliver IT services to and are often self-employed. However, some contract roles can be hired through an IT company, such as IT consulting or vCIO services. IT contractors are most often used to help with specific projects, fill a temporary gap in IT needs, or are used for predefined tasks for a set period.

How Are Contracts Structured for IT Contractors?

The structure of a contract can vary depending on the specific needs and arrangements between the client and the IT contractor. Skill levels and payment options can vary widely, while the terms may be customized for business needs. Here are a few common contract structures:

Fixed-Price Contract: This type of contract involves a pre-determined fee for a specific project or deliverable. The contractor receives a fixed payment regardless of how much time or effort they put into the project. This type of contract provides cost certainty for the client, but the contractor takes on the risk of cost overruns.

Retainer Contract: In this contract structure, the client pays a regular fee (such as monthly or annually) in exchange for a certain amount of the contractor’s time or specific services. That can provide a steady income for the contractor and ongoing support for the client.

Contract-to-Hire: These are designed for independent IT contractors as a probationary period, after which the client can decide whether to offer them a full-time position. And if offered, it allows the contractor to decline the job. That allows both the client and contractor to assess whether a long-term relationship would be beneficial.

Project-Based Contract: This contract is specific to a particular project. The contractor is hired to complete the project and is typically paid based on milestones or upon completion. It may include additional terms that outline how to handle changes, such as an unexpected increase in project scale.

Statement of Work (SOW) Contract: These contracts are detailed descriptions of specific services that the IT contractor will provide. They typically include information about the tasks to be performed, the timeline for completion, and the payment schedule. They aren’t expected to complete any duties outside of what’s written.

Choosing a contract structure should benefit both parties and reflect the nature of the work, the timeline, and the specific circumstances of both the client and the contractor. When possible, have a contract reviewed by a legal professional before signing it.

What Roles Can an IT Contractor Fill?

An IT contractor can fill nearly any technology role in a business. What they can do is only limited by the worker’s skill set and the business’s needs. Here are ten of the more common areas that IT contractors help with:

1. Software Development: They specialize in designing, coding, testing, and debugging software applications. They might work on front-end (user interface), back-end (server), or full-stack (both) development.

2. Cybersecurity: These contractors help protect organizations’ digital infrastructure from security threats. They might conduct vulnerability assessments, implement security protocols, or respond to security incidents.

3. IT Consulting: These professionals advise how to best use IT to achieve business objectives. They can help with technology strategies, digital transformations, and system implementations.

4. System Administration: They manage and maintain an organization’s IT infrastructure, including operating systems, databases, networks, and servers.

5. Network Engineers: They focus on designing, setting up, and managing networks, ensuring they are optimized and secure.

6. Database Administration: They specialize in designing, implementing, maintaining, and repairing an organization’s database. They ensure that data is available, protected from loss and corruption, and easily accessible as needed.

7. Project Management: They oversee IT projects from initiation to completion, ensuring they are completed on time and within budget.

8. Data Analyst: These contractors collect, analyze, and interpret complex digital data to help businesses make decisions and identify trends.

9. UX/UI Designer: They focus on designing and improving the user interface and experience for software and web applications.

10. IT Support: They provide technical support to organizations, troubleshooting IT problems and assisting users with hardware, software, and systems.

The Challenges of Hiring an Independent IT Contractor

While some IT contractors are affiliated with an MSP, many aren’t. Independent IT contractors may have more flexibility with time and offer specialized skills, making them a good fit for some small businesses. However, since they’re working solo, they don’t have outside support and resources to handle some challenges. If something goes wrong, the cost can drastically increase if an additional specialist is needed. 

Even though IT Contractors offer strong skills in specific areas, they may lack the broader industry experience of working for an IT company. That can include less familiarity with new or unique solutions that best align with a situation. Additionally, contracts are often short-term, so they may only partially integrate with staff. Once they leave after the contract is finished, they won’t have support with any new issues.

An IT Contractor Can Be More Expensive Than an MSP

The cost of using an independent IT contractor or an MSP can vary widely depending on the complexity and scope of the work. Contractors often charge a fixed or hourly project rate, both of which can be high. Hourly contracts can lead to unexpected charges if a task requires more time than expected.

Fixed project rates can seem like a good value upfront. However, if the time needed is overestimated, businesses are stuck paying for all the hours that weren’t used. To some, that may seem like a good problem, as paying extra to have something done well ahead of schedule may be worth paying extra. Costing more doesn’t mean an IT contractor is a bad choice; it just requires good financial understanding.

On the other hand, MSPs design their contracts to custom fit budgets, especially if specific services are needed long-term. Many IT companies have a range of specialists on-hand that can fill the evolving needs of any business. They can also provide more on-demand support and additional technicians when situations call for it, giving them extra value. Broadly speaking, if the IT needs are long-term, an MSP is almost always cheaper.

An MSP Can Fill the Same IT Needs as an IT Contractor

There are a lot of benefits to using a managed service provider (MSP). One of the biggest, compared to independent IT contractors, is they’re able to offer a pool of IT staff to work with. That means they can scale the number of IT specialists to match the day-to-day needs of a small business. That prevents companies from overpaying for services or staffing they may not always need daily. It also ensures they have enough people in case of an emergency or unexpected project.

Ultimately, any service that an IT contractor can offer can also be done at a competitive price by an MSP. For small businesses with long-term IT needs, then that’s generally the best route to take. MSPs may also offer short-term contracts for tasks like IT consulting, vCIO services, and other preplanned projects. 

IT Contractors Are Best Used as Short-Term Solutions

IT contractors can serve as effective short-term solutions for small businesses, mainly when there’s a need for specialized skills or when a one-off project arises. They offer flexible expertise and capabilities that may not exist within the current team. That can be particularly useful for system upgrades, software development, cyber security enhancements, or IT consulting. With over 10% of the 3.12 million employee IT industry being IT contractors, there are many specializations that can be hired for.

However, despite their benefits, contractors aren’t always the best long-term solution for a company. Over a longer timeframe, a contractor’s costs can add up and often exceed the price of a full-time employee or hiring an MSP. Also, while contractors can provide specific skills and rapid project deployment, they may lack the deeper insight that a full-time IT partner will develop. Therefore, when deciding whether to use an IT contractor, looking at both the short-term and long-term needs is best.