Are you looking for more people to help your business achieve its goals? Are you struggling between choosing to hire independent contractors vs employees?
We’ll discuss the pros and cons of hiring independent contractors vs employees and help you make the best decision for your business’s needs.
Independent contractors and employees can work together and perform the same tasks. However, there are stark contrasts between the two types of workers in terms of employer control, tax requirements, and labor laws.
Keep reading to find out more!
What is an Employee?
An employee is someone an employer hires to perform a particular job. They are individuals who have been recruited through various sources depending on the nature of their work.
Employees will receive instructions from a superior or, in other words, experts, managers, leaders, department heads, or directors in the business. The employer will control the employees to some extent. In general, the employer has the final say in regards to three main factors:
- Relationship: Employees comply with the regulations of the business and complete the assigned work. In addition to being paid, they will receive benefits such as health insurance, life insurance, pension, etc. All will be agreed upon in a contract that shows the relationship between the employee and the employer.
- Financial Control: The employer will control the financial aspects of the employee, such as salary, allowances, bonuses or reimbursements, etc.
- Behavioral Control: An employer can direct employees to do things and manage or control their behavior in a business. They can dictate the hours that an employee must be at work and the tools that they use to complete their work. They can make the employees sign the employer handbook dictating dress code and other legal guidelines.
Businesses are also accountable for employees in many other areas, including taxes, unemployment insurance, and remuneration. Taxes for each type of employee will vary depending on your state’s regulations and the state the employee resides in, if they work remotely. Businesses need to pay attention to these regulations to comply with the law.
What is an Independent Contractor (Self-Employed)?
An independent contractor is a self-employed person capable of working independently. They may operate under their own LLC. Independent contractors will provide a specified service with defined deliverables and then invoice the company once they have completed the work.
The company will then pay the independent contractor once the scope of work is completed. Depending on the work, the contractor may request partial payment to start the project.
The company is not responsible for paying unemployment or social security taxes for the contractor. The contractor will pay these themselves.
Companies can hire contractors to complete short- or long-term projects; the contracted time will depend on the progress of the work. A contractor can perform multiple jobs simultaneously for one or more businesses.
Some common types of independent contractors:
- Freelance Graphic Designers and Content Creators: Freelancers frequently serve as independent contractors for firms. They could be required to deliver text and image-based content and to businesses in exchange for a flat fee or hourly rate. The company almost always owns the delivered content once it has been paid for.
- Real Estate Agents: Real estate agents can help one or more enterprises sell through their network and get an agreed upon commission in return.
Pros and Cons of Hiring Independent Contractors vs Employees
What are the benefits or drawbacks of hiring independent contractors vs hiring staff? This analysis will give you a more objective viewpoint:
| Hiring Independent Contractors | Hiring Employees | |
| Pros | – Only hire when you need to.. – No requirement topay taxes, insurance, or equipment. – Low-risk exposure if any accident occurs. – Easy to sever the relationship – Self-managed – Typically have strong independent working skills. | – Always available at the time specified in the contract. – You can pay lower hourly rates. – Enterprises have the right to control, manage and prevent problems. – Creates employee loyalty to the company. – Controls time, location, and working method of employees. – Can provide upskilling opportunities |
| Cons | – They may not be available when you need them. – May charge a higher fee. – The contractor has no obligation to be dedicated to the business. – You can’t control the way they work. – Limitations in the amount of training you’ll invest in to ramp them up. | – More difficult to sever the relationship – Businesses must pay taxes, salaries, insurance, etc. -Employers are responsible for accidents or mistakes. – Maintain responsibility for the employer/employee relationship. – Responsible for training and management. – Employees may lack the ability to work independently. |
Conclusion
Hiring independent contractors vs employees: What’s the difference? Which one should you choose?
It is clear from our discussion that there are advantages and disadvantages of using independent contractors vs. employees and that both working arrangements can be successful. Both workers and independent contractors are capable of achieving objectives that benefit organizations. The differences between them lies in terms of taxes, relationships, working methods, and corporate control capacity.
The type of worker you chose to hire will ultimately depend on the needs of your business.. A self-sufficient independent contractor is ideal when you require skills or services for a particular project that has little to do with the company’s primary operations. Additionally, businesses do not have to worry about expenses like taxes and insurance and liabilities are reduced.
On the contrary, if you need a person dedicated to supporting your ongoing long-term goals, you should hire employees. This will allow you to have more control in how they support the vision of the organization on a long-term basis.
Hopefully, you’ve learned some key facts that will help you make the right choice when hiring employees. Thanks for reading!
References
- Government Oregon. (2013). Independent Contractor or Employee. Oregon: Oregon Government. Retrieved from https://www.oregon.gov/oda/shared/Documents/Publications/NaturalResources/20FactorTestforIndependentContractors.pdf
