Whether you should hire an employee or an independent contractor comes down to your business’s individual needs. To help you make an informed decision as to which is best for your company, check out the following four considerations.
Knowing the Difference Between Employees and Independent Contractors Before You Hire
When a staff member is classified as an employee, as an employer, you dictate the employee’s work and schedule. You also need to withhold, report, and pay the required taxes. On the other hand, if you employ an independent contractor, you only pay the person for the projects he or she completes and you do not have as much control over the work carried out. Contractors pay their own taxes and work when and where they want. The IRS considers independent contractors to be self-employed. They do not qualify for things like benefits and unemployment insurance.
Signing an Agreement with an Independent Contractor
Due to the differences highlighted above, you will require different contracts for employees and independent contractors. You may think setting up an agreement with a contractor will be time-consuming when you already have a payroll and contract system in place for employees. But it does not have to be complicated. For instance, you can easily and quickly create a contractor agreement online, which is customized to your needs, with FormPros for little cost.
Knowing the Type of Work the Staff Member Will Be Doing
Although the legwork involved in creating contracts and making payments to contractors needs to be part of your consideration when deciding who to hire, your decision should primarily be based on the reason you are hiring the person. If you require short-term help or assistance with your business in a way that is not part of your core services or products, you should consider hiring a contractor.
For example, you may need a logo to be designed or you may require the services of a remote bookkeeper. On the other hand, if you need assistance on an ongoing basis, in areas that directly impact your business operations, it usually makes sense to hire a full-time employee. For example, if you need an administrative assistant or machine operator, hiring an employee is typically the best option.
Understanding the Advantages of Both Contractors and Employees
To help you decide whether hiring an employee or a contractor is best for your business needs, consider the following primary advantages of hiring each.
Advantages of Hiring an Independent Contractor
If you hire an employee, you will have more costs. For example, benefits alone can account for over 30% of total employee compensation. On average, employers spend $10.70 per hour for each employee on benefits. With an independent contractor, you simply need to pay the agreed price for a project and you do not have to worry about costs like withholdings.
Also, if you have an underperforming employee, unless you have a specific reason, it can be more challenging to let that employee go. If you hold on to a low-performing employee as you work through the legal process of terminating him or her, your business could suffer in the meantime. When you have a contractor who is performing poorly, it is usually much easier to part with him or her.
Advantages of Hiring an Employee
It is much easier to train, manage, and supervise employees than contractors because contractors do not have the same obligations to their employers as employees have. That could also potentially result in contractors making decisions that do not support your business’s best interests and long-term goals. Furthermore, it can be more challenging to control costs when you hire contractors because they can charge different prices for different projects. With employees, you have much more control over their work and their pay.
