It is important that you know the difference between hiring an independent contractor vs. an employee so that you can determine which is best for you and your business. Before reviewing the pros and cons of each, start by gaining an understanding of the differences between the two:
- Operates under a business name other than your own
- Operates as an employee under that business name and therefore limits your ability to control the contractors tools, processes, hours, etc
- Maintains a separate business checking accounts
- Represents the contractor’s business name and advertises his/her services as such
- Invoices for work completed
- Likely has more than one client
- Keeps separate business records
- Performs duties and responsibilities as dictated by you and your company
- Requires added responsibility such as training, support, health benefits, management, etc.
- Works for only one employer, your business
With a brief understanding of the differences between independent contractors and employees, you can begin to think of the benefits that each present.
- Often cheaper in terms of associated labor costs and overhead
- No health benefits are required
- Flexibility in regard to only hiring when works is demanded of your company, especially for businesses that are seasonal or experience fluctuating streams of business
- Reduction in liability
- More flexibility in regard to hiring and firing
- Stronger sense of loyalty and dedication
- Employees can perform a variety of roles
- Improved work flow, especially for businesses that experience a steady stream of business
It is important that you take the proper legal steps when hiring an employee or independent contractor and ensure that you hire them under the correct legal classification in order to avoid costly legal consequences down the road.