Pros and Cons of Hiring Independent Contractors

This article discusses the advantages and disadvantages of hiring employees vs. independent contractors. While it may seem like it always costs more to hire an employee, keep in mind that many contractors pay for their own self-employment taxes and benefits. That means the fee you pay for their work may actually be higher than the hourly rate you’d pay a full-time, salaried employee. Hiring an independent contractor vs. an employee is often an attractive option because independent contractors can be more cost-effective—plus, you don’t have to go through the process of withholding taxes. You also don’t need to pay more money in company benefits, like paid leave and employee insurance. However, most employer workforce compensation does not cover independent contractors, and contractors do not usually purchase their own workers’ compensation insurance.

Technology can help businesses tailor the onboarding process to fit their and streamline traditional procedures such as background checks, contract review, and compliance tasks. This can help independents move through the process more quickly, thoroughly, and efficiently. When it comes to small business hiring, there are many types of employment contracts you can offer the people that work for you.

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Suppose a worker receives relatively extensive evaluations of work performance, high degrees of instruction, and significant amounts of training. In that case, the IRS generally assumes a worker to be an employee rather than an independent contractor. When you look at the average costs of hiring an independent contractor or a full-time employee, it’s tempting to think, as a rule, that one type of worker costs more than the other. There’s no hard-and-fast answer, and it’s difficult to compare the costs side-by-side. Another good reason to hire a contractor is when you need that specific task done… for yesterday.

These laws offer protections and guidance for topics such as worker safety and health, minimum wage, workers’ compensation insurance, hours worked, employee benefit security and more. It’s also your responsibility to withhold and settle any taxes and social contributions on your employees’ behalf, such as healthcare, pension plans, independent contractor vs employee pros and cons and unemployment. Overall, workers hired on an employment contract enjoy more rights and protections than self-employed contractors, such as paid sick and parental leave and notice periods upon termination. It’s important to classify your workers correctly to ensure you comply with all employment and tax laws in the US.

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Usually, hiring a local employee is relatively straightforward from a tax and legal perspective. Allowing contractors to use their own equipment is safer from a legal standpoint but poses other threats, such as security and data protection. Also, some countries might assign intellectual property (IP) ownership of the produced work to the device owner. Most companies require their employees to use company equipment (such as laptops and phones) for work, usually under an employee equipment agreement. This regulates what your employees can and can’t do with your company’s devices, such as connecting to unsafe public Wi-Fi connections or using them for personal purposes. Independent contractors are free to set their own rates, based usually on their location and the industry.

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Pros and Cons of Independent Contractors

Whether you choose to hire an independent contractor vs. employee will be based on a variety of reasons. When you hire an employee, you have greater control over how they work. Employees are required to show up at a specific time and fulfill their responsibilities in a manner you designate. Since they are a separate entity, they have greater autonomy over their work processes. But arguably the biggest perk of hiring contractors over employees is knowledge sharing.

She works out of her home and pays all of her own business expenses including the cost of the applications and tools she uses to promote Company A. Employers must do their due diligence to understand the employment and contractor regulations worldwide when engaging with independent contractors. Seeking in-country expertise helps ensure compliance with local country regulations. Engaging skilled independent contractors for specialized work offers global companies many benefits—from time and cost savings to increased efficiency and the ability to quickly test new markets.

Consequently, it is critically important that in-house counsel take steps to ensure the company is engaging independent contractors in the right manner. Also, they should do this in partnership with the human resources department. Being an independent contractor can be rewarding since it offers you the ability to be your own boss, choose which clients to work for, and allow you to work from home. However, being an independent contractor can come with more responsibility.