Contractor vs. Employee: Which Should You Hire?
Get Ahead by LinkedIn News
We talk about leveling up, about geting ahead in your career and about excelling where you are right now.
?Learning how to become an independent contractor may seem appealing to existing employees that want to expand their repertoire. However, companies constantly evaluate whether employees or contractors are a better fit for their needs. Understanding how these two types of professionals differ will help workers and hiring managers to determine which option is right for them.
Companies depend on reliable, expert-like workers to do their jobs well to support the company’s bottom line. However, in the competitive environment that many companies exist in, finding the best of the best is not easy.?
For this reason, many organizations love the opportunity to choose between hiring independent contractors and employees.?
Both roles have pros and cons that make them perfect (or not the right fit) for certain jobs. As a senior recruiter, Amy Miller states, “Contract or contract/temp to hire roles can be a much needed [sic] boost for many job seekers.” Whether a professional works exclusively as an independent contractor or is looking for a new challenge, these are different roles within an organization’s structure.
Difference Between Contractor and Direct-Hire Employment
The main difference between contractors and employees is their employment classification.?
Employees work directly for an employer and receive wages from the company’s payroll. They follow the guidelines set by their employer and have ongoing employment.
Contractors are independent workers, which means they work for themselves. They may sign a contract to work with specific employers, but this is for a set period. Contractors have more flexibility in their work but do not receive the same benefits as direct-hire employees.
What Are Independent Contractors?
Independent contractors are self-employed workers that work in a distinct trade. These professionals control their work schedules, learn and improve on their own and work as often (or as little) as they would like.?
Many industries have independent contractors, such as IT, marketing, or engineering.?
What Are Direct-Hire Employees??
Direct-hire employees apply for and interview with companies for open full-time positions on their payroll. These are often long-term positions with no end date, and companies hiring employees offer candidates the job directly.?
Every industry has direct-hire employees since this is the standard model for employee work.?
Benefits of Hiring a Contractor
A few of the most significant benefits companies experience when hiring contractors instead of employees include:
Companies may enjoy bringing in a contractor for one or two projects instead of making a long-term commitment to a worker.?
There is a wider hiring pool for independent contractors because they often work remotely, meaning you can hire anyone for a job in any location. This leads to companies finding potentially more talented workers with less recruitment and training costs.
Additionally, since contractors work for themselves, companies won’t have to worry about paying for office supplies, employee benefits, payroll taxes and other expenses.
Drawbacks of Hiring an Independent Contractor
Some key drawbacks that companies may find when they hire contractors over employees are:
Contractors may work on projects for a company subject to copyright law . In this case, the contractor may own the final result, creating a legal necessity for copyright ownership transfer. This is extra time and money that the company needs to spend.
Since independent contractors work on their schedules, they complete tasks as they'd like and don’t have set working hours. Additionally, they may do other work for other clients, meaning they have complete control over their workload. This may be a downside for companies that need constant communication with or control of their workers.
The market for independent contractors fluctuates throughout the year, and just because a company needs a contractor doesn’t mean one with the right skills and experience will be available.?
领英推荐
Benefits of Hiring a Full-Time Employee
A few of the huge benefits of hiring full-time employees over contractors include:
Full-time employees have company loyalty because they are more permanent than contractors. They create relationships with their co-workers, have confidence in the company’s efforts, and are likely to remain with the company as it grows.?
Because full-time employees are around for the long haul, they also have more familiarity with the company's operations and expectations for their day-to-day tasks. Companies may invest less time overall with a task or process training since turnover is less frequent with employed workers.
Since full-time employees have loyalty to their company and team, they can support the company’s goals and brand. They know it is in their best interest to help with company development and growth to create a stronger organization.?
Drawbacks of a Direct-Hire Employee
There are a few drawbacks to hiring employees for a company rather than independent contractors, including:
What Happens if a Company Misclassifies a Worker?
Employee misclassification refers to labeling workers as contractors when they are employees.?
This would allow a company to save money by avoiding required taxes that cover employee benefits and protections. However, it is illegal because it creates unfair competition between companies and denies the government tax money.?
Companies must ensure they do not misclassify their workers. Misclassification leads to:
Additionally, employees misclassified as independent contractors lose the legal protections they would typically have, such as unemployment benefits or workers’ compensation. This creates a dangerous situation for the company and the worker.
Misclassified employees may contact the state’s Department of Labor or the U.S. Department of Labor to file a complaint. Alternatively, they may file for unemployment benefits or complete a workers’ compensation claim to find later that they were not classified as an employee, creating further complications.
The state and federal government agencies perform regular audits to determine if workers are independent contractors or employees, so they may also catch companies in this way.
Final Thoughts: The Best Hire Depends on Business Needs
A company may hire an employee if it knows a long-term need for a specific type of worker. Alternatively, they may hire an independent contractor for a one-off task that needs an expert’s touch.
The choice comes down to many factors, including:
Hiring managers and decision-makers may find it challenging to determine which option is best for their company. However, understanding the tax implications and long-term business goals will help with this decision.?
Creating onboarding guidelines that work for employees and independent contractors will help organizations create positive working relationships.
Top Takeaways
Contractor vs. employee: which should you hire??
(Reporting by NPD)