Before working remotely became the norm, the majority of employers relied on one option to get the work done - they hired permanent employees.
Today, the workplace environment has changed completely. Employers and business owners now battle with the question of whether to collaborate with people as independent contractors or as full-time employees (FTEs). Deciding which best suits the needs of your business depends on a range of factors. These factors include the type of work, the legal procedures, costs, skills, flexibility, and your future goals.
When hiring remotely, before deciding whether you should hire independent contractors or FTEs, it's important to understand the difference between these types of workers. Even though they may be capable of getting the same job done, there are key differences that you need to consider. For instance, the legal requirements, tax regulations, and the level of control you have as an employer.
In this article, we will look at the distinction between employees and independent contractors, the advantages and disadvantages of each, and considerations for employers to consider before hiring either one of them. Let’s dive in.
Differences Between Hiring Independent Contractors vs. Employees
Employers and business owners must know the differences between employees and independent contractors to avoid wrongful categorization of their workers.An employee is hired under a contractual agreement to perform specific tasks. Under the agreement, the employer has control over how the work gets done and the working hours. Also, the agreement binds the employee to work only for the employer.
An independent contractor, on the other hand, is a worker who is hired to work alone on a contractual basis on specific projects. Their contract can be short- or long-term based on the project. They aren’t on the company's payroll and can work for different employers at the same time.
The key differences between employees and independent contractors are:
Legal Procedures, Benefits, and Payment
Unlike independent contractors, employees are on the company’s payroll.
Legally, the employer is required to withhold the required taxes from the employee’s salary. For US companies, for example, these statutory taxes include federal income tax, Medicare tax, and social security tax. Additionally, the employer pays benefits to the employee, such as pension contributions. None of this applies to independent contractors.
Even though an independent contractor will get paid for his services, the employer can’t withhold taxes from the agreed amount, and is not legally obligated to provide benefits. Therefore, hiring independent contractors is often a more cost-effective way to hire remotely.
Control and Independence
Under their contractual agreement, employees don’t have control over their working hours and how their work is done. All these are determined by the employer, giving them much more control over the individual and what they produce.
However, when independent contractors are hired, the employer has much less control over how and when the work gets done. Independent contractors are, by definition, independent of the organization, and their work should therefore be measured by the achievement of deliverables and by output, rather than attempting to define when and where they fulfill their responsibilities.
Because they are often hired on a long-term basis, the onboarding process for employees is intense. They need to know and understand the company’s goals and culture.
For independent contractors, the onboarding process isn’t as involved. They only need to understand aspects relevant to their specific project.
An employee is bound by a contractual agreement to work only for the employer. The working hours for employees aren’t as flexible as they work under the employer's direction and control. Independent contractors, on the other hand, can work for many companies at the same time. Contractors’ working hours are flexible as they get to decide how and when they work.
As an employer or business owner, hiring an employee is ideal for you if:
- The work must be done with your supervision
- It’s long-term
- You must schedule and control how and when the work is to be done
Hiring an independent contractor is perfect for an employer who is looking for a worker who:
- Can do the job with less supervision
- Is an expert and the project is short-term
Pros of Hiring Independent Contractors vs. Employees
The following are the primary benefits of hiring independent contractors:
- Flexibility: They get to work at their own pace, choose their hours, and get to decide how the work gets done.
- Modern skills: Because they are hired for particular projects, independent contractors often bring with them the latest skills and perspectives to the job. This also gives room for competitiveness and innovation.
- Quicker onboarding: They only need to know the necessary information related to their specific projects.
- Need less supervision: You don’t have to supervise and direct their work.
- Benefits and statutory taxes: Hiring independent contractors will save you the cost of paying their taxes and other benefits that employees are entitled to.
The following are the main advantages of hiring an employee:
- Productivity: Since employers get to direct how and when the work is done, the quality of work is usually high.
- Loyalty: Since they are bound by an agreement to work for one employee at a time, employees are generally loyal and committed to the job.
- Uniformity: Because the employer controls how the work is done, there’s uniformity.
- Control: Employers have more power over employees than they do independent contractors. They get to determine how and when the work is done.
Cons of Hiring Employees vs. Independent Contractors
The main disadvantages of hiring employees are as follows:
- Mandatory regulations: As an employer, you must meet the required regulations of hiring an employee or face the consequences. Meeting these regulations doesn’t come cheap.
- Familiarity: Because they are hired on a long-term basis with routines and schedules, employees tend to become familiar with and sometimes bored with their jobs. This can impact their productivity.
The main cons of hiring independent contractors are:
- Lack of loyalty: Since they can work with different employers at the same time, independent contractors can’t be loyal. They can decide to walk out on you at any time. Also, because they are hired for specific projects, for them, it tends to be more about the job than building relationships beyond the job.
- Irregular availability: Since independent contractors have control over when and how the work is done, their availability is irregular.
- Conflicting work quality: Even though they are hired for their specific skills and assignments, the quality of work can be inconsistent with your company’s culture and brand.
The question of hiring independent contractors vs. employees depends on the employer’s various needs and goals — and there is no hard-and-fast rule.
At RemotePass, we help tailor your hiring to the specific needs of your organization — giving you the flexibility to choose whether to hire full-time employees, contractors, or a mixture of the two.
Contact our team to arrange a demo today.