Business owners have the option of hiring traditional employees or independent contractors to get work done in their organization. Before hiring they need to consider carefully what type of employees they need because it can impact the entire business model. There are many companies that prefer hiring independent contractors rather than regular employees. This is mainly because of the cost savings factor. It is cheaper to hire independent contractors because no benefits are offered that need to be given to a regular employee. Independent contractors, being technically self-employed, handle all employment-related expenses such as health insurance, pension contributions, and employment taxes. Workers’ compensation benefits that are granted based on a medical record review to injured employees in a company, are not available to those hired as independent contractors.
Though the independent contractor employment model is cheaper, businesses must carefully consider the pros and cons of both models when recruiting employees.
Full-time employees – Pros and Cons
- Full-time workers are more likely to be loyal and have a long-term commitment to the organization.
- They form a clear understanding of how the business works and do their jobs without constant direction or training.
- They are always available when a busy period comes, and you don’t have to rush around hunting for employees to do the extra work.
- You can relax, and be assured that your employees are efficiently running your business even when you are away on some business or on vacation.
Now, for the downsides. With full-time employees, business owners are responsible for their training, professional development, or licensing. Their salaries have to be paid on time even during difficult times for the business. This means business owners must always be careful to have sufficient money in reserve to meet those requirements. With regular employees, employers also have definite legal payroll compliance requirements. Employees’ taxes must be withheld and other necessary deductions made. This would involve money, effort, and time.
Independent Contractors – Pros and Cons
When business owners hire independent contractors, their responsibilities and costs are reduced.
- You can hire someone with the specific skills and experience you are looking for.
- Independent contractors are responsible for their own training, professional licensing, and development.
- You may have to pay more for each job or per hour, but you get to save money if you hire someone who does the job efficiently.
- You don’t have to pay them a regular salary or benefits.
- If you are unhappy with an independent contractor you hired, you have no obligation to hire them again.
Independent contractors also come with certain cons or drawbacks. Their payment per hour or per day may be more. Unlike regular employees, they may not have loyalty to your business. Often, independent contractors do not work on site and therefore business owners have less control over them and how tasks are done. When you need a different skill set for your next project, you will have to find someone else. Moreover, during busy periods, you cannot rely on them to shoulder the extra work.
Understand the Main Differences between the Two Types of Workers
When hiring employees, business owners must have a clear understanding regarding how to classify them correctly. Some important considerations are:
- Is the person’s work an integral part of the business? If yes, the person is more likely to be classified as a regular employee.
- Does the person have a significant impact on the business’ profits? If yes, he/she will be classified as a regular employee.
- What degree of control does the employee have? If the hired person can determine his/her own hours of work, where they work, when they work, and a specific end date, he or she is more likely to be classified as an independent contractor.
- Does the worker make his/her own self-employment deductions? If yes, he/she is an independent contractor because independent contractors are required to pay their own self employment taxes such as social security and Medicare tax.
- Does the person provide regular written progress reports? Independent contractors are required to provide such reports and send an invoice every week or month.
- Does the person have more than one client? If yes, he or she is an independent contractor. Because, a full-time employee works with a single company only.
Whether you are an insurer, or own a medical chart review company, law firm or any other business, it is vital to classify your employees correctly from the very beginning. Wrong classification could lead to serious consequences including legal hassles and associated expenses.
Read our blog on the consequences of misclassifying your employees.
It may be difficult to make a clear distinction between regular employees and independent contractors when hiring employees. It’s best for business owners to talk to an experienced attorney or accountant for a better idea.
Disclaimer: The content in this blog has been traced from reliable internet resources. It is not legal advice and is meant only for informative purposes. For a professional opinion on this topic, please consult a qualified attorney.