Should You Hire a Contractor or a Full-time Employee?

Outsourcing work to independent contractors can be a cost-effective way to recruit expert talent, but not all hires qualify for freelance status. The terms of your agreement determine whether a worker is an employee or freelancer, so it's wise to think about what you expect from the relationship as you make a decision. If you don't want to run into legal trouble, consider these factors before you hire freelancers.

Exclusivity

Independent contractors work for themselves and are free to pursue as many clients as they wish. A contract job could last an extended period of time or require workers to sign a nondisclosure agreement to protect sensitive business information. However, asking freelancers to work exclusively for you creates a boss-employee dynamic, especially if they perform a significant role in your business.

Supervision

Does it make you uncomfortable to give independent contractors complete control over how and when they work? If so, hire employees you can supervise, as it's easier to coordinate a schedule and collaborate one on one. When you hire freelancers, you can set deadlines or require them to use specific style guides and software on a project, but they're free to manage their schedules and meet your criteria in whatever way they choose. Keep in mind, you can use a wide range of conferencing tools to communicate with independent contractors and achieve a level of supervision that works for everyone.

Equipment and Software

In most cases, independent contractors use their own equipment or software to complete a job, so you don't cover those costs. When a job requires access to a cloud service or company database, it might be necessary for freelancers to use your equipment. It's also possible to hire an independent contractor to work on-site for a preset period of time if working directly with your team and equipment is essential to the project. In these situations, it's important to clarify that the freelancer is providing a contractual service and not subject to any employee policies, other than project guidelines and safety rules necessary to get the job done.

Compensation

If money is a big factor in your decision, choosing an independent contractor might be your best option. Freelancers are responsible for their own benefits and overhead costs, including health insurance and retirement savings. As a result, the upfront cost of hiring independent workers is higher, but you're only paying for exactly the services you need. Recruiting and retaining an employee creates a significant long-term expense, and it takes an impressive benefits package to attract top talent. Freelancers only need a 1099 tax form to report their earnings, and you don't have to worry about unemployment or payroll taxes.

Contracts

Employees typically agree to standardized policies that apply to the entire workforce. Freelancers are providing a service and have more authority to negotiate terms they aren't willing to accept. A thorough freelance contract lays out the scope, deadlines and payment terms for a project while making it clear that the contractor and employer have no obligation to one another beyond the agreed-upon transaction.

If you repeatedly misclassify workers as employees or independent contractors, you can easily violate tax and employment laws. The IRS publishes strict guidelines to help you determine a worker's status, or you can file form SS-8 for an official ruling.

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