Independent Contractor vs Employee: Here’s The Difference

If you’re reading this article it’s probably because your business has reached a point where you need to hire more people to get things done. Before we get any further, give yourself a pat on the back. Needing to hire is usually a good sign, but knowing who to hire isn’t always easy. 

When it comes to expanding your team, you’ll typically have two options: freelancers and employees. While both come with their own sets of benefits and disadvantages, it’s essential for you to know the main differences between the two.

That being said, below are some of the differences between both models so you can better decide which one would be beneficial to your business.

What is an Employee?

The best way to understand which one is better is to define each model.  While this may appear trivial since most of us already know the basic concept, you’ll be surprised to know that there are things about full-time employment you would have thought otherwise.

To make things much simpler, classifying a worker as an employee all comes down to taxes.  When a staff member is classified as an employee, you are required by the law to withhold, deposit, report, and pay employment taxes.

You are also required to withhold and pay medicare taxes, social security, and pay unemployment tax on wages paid, just to name a few.  You are also required by the IRS to file special paperwork for employees.

Employees get paid a regular wage or salary and have taxes withheld from those wages.  They also receive regular benefits such as health, life, dental, and vision insurance as well as overtime pay.  Regular employees are also usually given paid time off such as sick leaves and vacation leaves.

If the employee is a parent, he or she may also be entitled to childcare benefits and tuition reimbursement.

Some businesses also offer additional benefits such as relocation assistance, commuting and travel assistance, telecommuting options, wellness programs, gym membership, and workplace perks like food and coffee, flexible work schedules, and company picnics, just to name a few.

More importantly, full-time employees are provided a certain level of protection in terms of severance, worker compensation, and anti-discrimination.  Things an independent contractor is not entitled to.

Benefits of Hiring an Employee

While hiring an employee may seem disadvantageous given the amount of paperwork and taxes you have to shoulder, it does come with its own benefits too.

Complete Control

One of the biggest advantages of hiring employees is that you get complete control and authority over their work.  This means you have the final word on how you want the job done when you want it done, and where you want it done.

Hiring an employee also means that you have the right to require the person to work only for you which could come in handy because you can expect them to be more focused, unlike independent contractors who may juggle several projects simultaneously.

Long-term Commitment

The idea of someone working for you long-term is already compelling in itself.  This is because when you work with someone for a long time, the possibility of more consistent and efficient work becomes bigger.

In the end, what many deem as a long-term investment will bear its fruits, and you and your business will largely benefit from it.

A long-term commitment also promotes loyalty among employees particularly because they want to see their contributions lead to progress.

Flexibility

Having complete control also allows you to alter anything you see fit for the good of the business.

If the company needs to change direction in a rather unexpected way, it will be easy for you to make changes to their workloads without renegotiating a new contract.

Consistency

Having employees under contract means you don’t have to hire and adjust to new talent every so often.  This will give you better peace of mind because you don’t always have to wonder if the person you hired is up to the task.

If and when the need arises, you can control your employees’ schedules to ensure continuity of work.

What is an Independent Contractor?

An independent contractor is defined as a person or business that provides services for another person or entity under a contract.

Though an independent contractor is being paid for the services they render, they are not considered employees of the business they are providing services for.

Technically, an independent contractor is a business in itself whose mandate is to provide work for outside entities.

While remote work is at its peak, not all independent contractors work online.  Independent contractors can also come in the form of construction workers, woodworkers, musicians, and sculptors, just to name a few.

When it comes to independent contractors, it all boils down to the degree of control.  Unlike full-time employment, independent contractors have more control over their work hours.

They usually dictate when they would like to work or where they would like to work as long as they provide the results expected of them.

A freelance writer, for instance, can tell a client his ideal work hours or his availability throughout the day which can become an issue if they belong to separate timezones.

As long as the blog or the article is submitted before the due date, clients usually allow independent contractors the freedom to choose their schedule.

There are, of course, exceptions to this rule. It all goes down to what the individual contractor and the client agree upon but since they’re not your employees, they’d have a say about anything that’s related to your contract.

Benefits of Hiring an Independent Contractor

Though you won’t have complete control over them unlike you would with full-time employees, hiring an independent contractor comes with a couple of benefits.

Less Paperwork

One of the biggest benefits of hiring an individual contractor is that there’s less paperwork to take care of.  This is a given since you’re not required by the law to provide them any of the government-mandated benefits usually accorded to regular employees.

You don’t need to provide them a 401K, health insurance, or paid leaves for that matter.  The only thing you need to worry about is paying the money you pay them for services rendered.

Access to a Wider Talent Pool

If you’re looking to hire someone to manage your social media or take of your business’ customer service needs,  you don’t have to restrict yourself to candidates within your area.

One of the perks of hiring independent contractors is that you get access to a wider (make that global) talent pool, giving you more options to choose from.

Hiring remotely also reduces your recruitment costs because the people you’re trying to hire is just a click of a mouse away.

Save on Costs Per Employee

Apart from the reduced paperwork, hiring an independent contractor also saves you the money you would otherwise use on someone who will work in an office.

With an independent contractor, there’s no need to pay for additional office space, supplies, laptops, and utilities, among others.  This huge saving allows you more flexibility in terms of spending money on other aspects of the business.

Staffing Flexibility

There will always be instances when you’ll urgently need additional hands to help out, either because of a sudden spike in volume or if one of your staff is unable to go to work.

This is where independent contractors come in handy because you can bring them in on an on-need basis.  You even have the option to reassess their performance after the project is over and decide if you’ll continue the relationship or terminate it.

Reduced Training Expense

Most full-time employees are required to go through training whose costs you, as the business owner, will have to shoulder.

This is not going to be a problem with an independent contractor because these are highly-skilled people who specialize in what they do.

In fact, most of them are considered experts so you are rest-assured right from the get-go that they are capable of doing what you hired them to do.  That’s a huge save on training expenses which you can use in other aspects of the business.

Higher Efficiency

Let’s be honest.  When you hire an employee, it usually takes time before they can perform to their full capacity upon joining.  They’ll go through a period of adjustment as they go through the learning curve.

This is not the case with independent contractors because most of these people are regarded as experts and consultants in their given field.  They are experienced writers, social media managers, and SEO experts who don’t need to get acclimated to a certain system before they can perform at the top level.

In short, no time is wasted when you opt to hire independent contractors because they are “ready to go,” so to speak.

Conclusion

Hiring an independent contractor vs employee comes with their own pros and cons.  The decision on which route to take boils down to where your company is at the moment.

If you’re an established business who is looking for sustainability and consistency, hiring an employee may the best option considering the long-term benefits you can gain from it.

On the other hand, if you’re a startup that doesn’t have the big budget large companies can afford, hiring an independent contractor may be the more cost-efficient option. Freelancers are also a great option for short term projects. If you’re looking to find qualified freelancers, we can help. FreeUp vets all freelancers on the platform to ensure they’re qualified and ready to work. Sign up for an account with FreeUp and start the hiring process today.