You might think it doesn't matter whether you hire a full-time employee or an independent contractor, but it does. It matters because typically you need to give full-time employees benefits, like those for healthcare and vacation time. It matters because independent contractors often feel little or no loyalty to your company. It matters because full-time employees can give your business the continuity independent contractors often can't. And, perhaps most important, it matters to the IRS.
YOU DON'T WANT AN AUDIT
Even if you don't particularly care how you classify your employees, the IRS does, and they have strict rules about what constitutes a full-time employee vs. an independent contractor. For example, the IRS defines independent contractors as follows:
"The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done."
So, what does that mean.?It means, in the first place, that unlike full-time workers, you have little control over the work of independent contractors—after all, they have their own business, and it's the success of their businesses—not yours—which is their principal concern. It also means that incorrectly classifying an independent contractor as a full-time worker could raise a red flag with the IRS—and that could mean an IRS audit of your business.
WHOM SHOULD YOU HIRE, FULL-TIME EMPLOYEES OR INDEPENDENT CONTRACTORS?
Full-time employees and independent contractors can both be useful to your business, but in different ways and for different reasons. Only you can decide which is better to complete key tasks, but you should know the strengths and weaknesses of each. Here then are the pros and cons of hiring full-time employees and independent contractors:
FULL-TIME EMPLOYEES
Pros: to begin, full-time employees generally make more of a commitment to your business. That means they're more likely to take pride in their work and to do a good job for you. They also tend to be less expensive than contractors doing the same job, and you don't need to scramble if your workload suddenly increases. It's also easier to delegate authority to full-time employees since they'll be with you over the long haul. Finally, full-time employees know your business so there's no need to continually focus on training new people,
Cons: the biggest negative with full-time employees is that you need to pay them benefits—and that can be expensive. Also, you're required to pay these employees even when your workload is light, something you don't need to do with independent contractors. Finally, there's usually more paperwork with full-time employees given the need, for example, to withhold things like Medicare, Social Security and taxes.
INDEPENDENT CONTRACTORS
Pros: you aren't required to pay benefits to independent contractors, and this can represent a significant savings. You also have greater flexibility: if one contractor doesn't work out, you can simply hire another who might do a better job. In addition, independent contractors are ideal for highly specialized or short-term jobs, like the redesign of a website.
Cons: the biggest downside to working with independent contractors is loss of control. As the above IRS definition notes, you have control over the results of the work they do (the so-called "deliverables"), but not on how the work is performed. You also lose continuity—for example, the freelancer you hire this year might not be available next year. Finally, independent contractors don't always feel loyalty to your business or brand—understandably, they tend to be more concerned with their own.
CONCLUSION
Deciding what kind of employees you need (and when) to complete specific jobs can be challenging. Fortunately, there are experienced companies which can help.
To learn more about the ways our talent data platform can help you maximize the potential of your business, contact us today.
Photo by Pablo García Saldaña on Unsplash
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