When to hire an FTE (and when a contractor makes more sense)

Every headcount decision is a runway decision. Whether you’re hiring your first non-founder or adding depth to an existing function, the choice between a full-time employee and a contractor will shape not only your cash burn, but also how your company actually operates day to day.

That decision is getting harder, not easier. In 2025, 79% of early-stage founders said their ability to attract and retain top talent was one of their biggest concerns. For many teams, the challenge isn’t just knowing who to hire, but how to hire: Should your company commit to hiring a full-time role, or bring in a contractor to move faster with less risk? Both options can be smart. And both can create problems, if used for the wrong reasons.

This article breaks down how to think about that choice. We’ll look at the real tradeoffs between hiring an employee versus working with an independent contractor, common mistakes founders make at this stage, and a simple framework to help you decide which option fits any given role.

In financial and legal terms, the difference between a full-time employee (FTE) and contractor looks like this: 

• Full-time employees are part of your company. You pay them a salary, cover taxes and benefits, and invest in them over time in exchange for sustained ownership and accountability.
• Independent contractors operate as external service providers. You pay for defined work, they manage their own taxes and benefits, and the relationship is governed by scope and duration rather than permanence.

Beyond the legal definition, the difference between hiring an employee and working with an independent contractor is about ownership, as well as how the work gets done and sustained over time. Typically, employees are hired to build and help develop your business long-term, whereas contractors are brought in to deliver something specific. Both choices can work well when used intentionally, but they solve very different problems.

This distinction matters because early-stage startups often blur the line. Founders sometimes hire contractors hoping they’ll work with the company for the long-term, or bring on full-time employees before there’s enough clarity, scope, or stability for the role to succeed. 

Here are common differences between independent contractors and employees, at a glance.

In short, you can think about the tradeoff this way: Employees create continuity, whereas contractors create optionality. Most early-stage teams need both — just not always at the same moment.

Hiring a full-time employee makes the most sense when the role is central to how your company operates and evolves. This creates durable ownership inside the business. If the work requires deep context, constant iteration, or long-term accountability, an FTE is usually the right call.

You should strongly consider a full-time hire when:

• The role owns a core function, not just a one-time output. The business depends on this work continuing and improving over time.
• You need sustained ownership, not just execution. Decisions, tradeoffs, and prioritization matter as much as delivery.
• The work is deeply integrated into your product, customers, or internal systems, making the need for ramp-up and context-setting unavoidable.
• The role will compound in value as the person builds knowledge, relationships, and judgment inside the company.

This is why early full-time hires are often roles like a first engineer, product owner, or go-to-market lead. These positions shape how the company functions as it grows.

For many early-stage teams, hiring contractors isn’t a stopgap measure, but a deliberate strategy. In 2025, 60% of startups said they planned to increase spending on freelancers and contractors, and 61% described their company as “very reliant” or “reliant” on contract talent. Even as founders prioritize key full-time hires, many still use contractors and consultants to fill talent gaps, move faster, and stay flexible as the business takes shape.

Hiring contractors tends to make the most sense when the work is important, but not yet permanent. This approach gives you access to specialized expertise and momentum, without forcing a long-term commitment before the role is fully understood.

You should consider a contractor when:

• The work is scoped and time-bound, with a clear beginning and end, like a site redesign or a short-term growth initiative.
• You’re testing a function before committing to a full-time role, such as paid media, finance, or compliance.
• You need senior or specialized expertise that would be difficult or expensive to hire full-time at this stage.
• Speed matters more than ownership, and you need progress now — not a long ramp-up.

When hired intentionally, contractors can help you stay nimble while you learn. The key is treating them as specialists brought in for a specific purpose, rather than as long-term stand-ins for roles that ultimately need ownership.

This quick decision tree is designed to help you gut-check the FTE vs. contractor decision before you commit. Ask yourself the following questions.

1. Is the work ongoing or time-bound? 

If the need has a clear end point, a contractor is usually the better fit. If the work needs to exist and evolve indefinitely, that points toward a full-time role.

2. Does this role need to own decisions or just deliver output? 

Contractors are well-suited to execution within a defined scope. If the person in this role will need to prioritize, make tradeoffs, or shape direction, that typically means hiring.

3. How steep is the ramp-up? 

If someone needs deep context about your product, customers, or systems to be effective, a full-time hire will compound in value over time. If expertise can be applied quickly with minimal onboarding, a contractor can move faster.

4. Would success depend on this person being embedded in the company? 

Roles that require close collaboration, constant feedback, or cross-functional alignment tend to work better as internal hires. More independent work can live outside the org without friction.

5. What happens if this role disappears in six months? 

If the business would stall or regress if this position were to vanish in six months, that’s a sign the role should be permanent. If progress would pause but not break, contracting may be the right first step.

If most of your answers point in the same direction, trust that signal. If they’re mixed, that’s often a sign that you’re still learning what the role needs to be, and that starting with a contractor can reduce risk.

Most resourcing mistakes happen when the employee-versus-contractor decision is driven by urgency, rather than clarity. For instance, founders might hire a full-time employee before the scope is understood, expect contractor-level engagements to deliver long-term ownership, or underestimate the management time required to make either model work. In each case, the issue isn’t the choice itself — it’s misalignment between the role and how it’s staffed.

The right question isn’t “Should we hire an employee or contractor?” Instead, consider this:  “What does this work actually need right now?” 

Being deliberate at this stage gives you more flexibility later — whether that means converting a contractor into a full-time hire or keeping your team lean while you learn. The goal isn’t to optimize for headcount, but to protect focus, runway, and momentum as your company grows.

For more founder resources that help you scale, including articles on how to make your first finance hire and how to build a founding team for your company, head over to the Mercury blog.