Is It Better To Hire An Employee Or An Independent Contractor?
For your business to be successful you need to hire the best person for the job. The great debate when it comes to hiring is it better to hire an employee or an independent contractor?
Hiring an employee vs an independent contractor may not seem like a big deal, but it is important to make a distinction between the two as it can have an impact on your business. For both types of workers you are creating a business relationship based on who is providing goods and services for you. It is your responsiblity to understand the differences and the implications associated with hiring one vs the other.
Let’s take a closer look at the two types of workers to see if you should hire an employee or an independent contractor:
Independent Contractor – A self employed individual who provides goods and/or services under terms defined in a contract or verbal agreement on a temporary or freelance basis.
- Operate on a freelance basis under a business name.
- Send in invoices to collect payment.
- Work for multiple companies at one time.
- Set their own hours.
- Work at a location of their choice.
- Do not receive benefits.
- Work independently and with little control.
- Supplies their own tools and equipment.
- Incurs costs associated with finishing the job.
- Develop skills, education, and experience on their own dime.
- Payments are made in full. No taxes are withheld.
- Not eligible for unemployment or worker’s comp.
- Cannot join a union.
- Paid in accordance to the terms of the contract or verbal agreement.
- Not protected by workplace safety or employment laws.
- Can be fired at any time.
Employee – An individual who works for a single entity for wages or salary.
- Operate as an individual working for a single company.
- Paid regularly by the company.
- Work set hours at a set location.
- Receive perks and benefits.
- Employer controls work.
- Do not incur expenses for work completed.
- Receive training from the employer.
- Employers withhold taxes from paychecks.
- Eligible for unemployment and worker’s comp.
- Covered by federal and state wage and hour laws for minimum wage and overtime.
- Can only be fired with cause and for good reason.
- Protected by workplace safety and employment laws.
- May join a union.
For more bullet points defining employees vs independent contractors check out FindLaw.com.
As you can see there are some very distinct differences between the two types of workers. Hiring an independent contractor can be cost effective, reduce liability, and alleviate hiring and firing concerns. But misclassification can have legal consequences including penalties based on the Fair Labor Standards Act, paying back taxes, work comp claims, benefits, etc. Ultimately, the choice is one that you have to make based on your company’s situation.
If you’re not sure whether you should hire an employee or an independent contractor, you need to learn more about this topic. Do not base your decisions solely on this article. For more information on the great debate of employees vs. contractors consult with your company’s legal team. More information is also available on IRS.gov and SBA.gov.
So who are you going to hire? An employee or an independent contractor?