Deciding whether to hire a full-time employee or an independent contractor for your business can be a tough call to make, with each option offering its own set of pros and cons. But understanding the differences between these classifications can help you make the right decision. It’s also important to know how to correctly classify your workers as employees or independent contractors to avoid non-compliance with state and federal labor laws. So, before you dive headfirst into the hiring process, read the advantages and disadvantages of hiring a 1099/independent contractor or a full-time employee.
Key Differences Between Independent Contractors and Full-Time Employees
36 percent of the US workforce consists of freelancers or independent contractors, according to a recent survey by Upwork and Freelancers Union. These self-employed individuals provide services to companies under contract agreements, typically on a project or task basis. While they don’t receive traditional employee benefits such as health insurance, retirement plans, or paid time off, they are responsible for their own taxes, equipment, and schedule. Hiring an independent contractor is often a more cost-effective option for employers due to the lack of benefits and payroll taxes.
On the other hand, full-time employees are individuals who work on a regular basis for a company and receive benefits such as health insurance, retirement plans, paid time off, and other perks. Employers are also responsible for withholding employee payroll taxes and paying a portion of their taxes. While hiring a full-time employee can be a bigger commitment, it also offers the potential for a long-term, dedicated member of your team who can help drive your business forward. With the average American spending approximately 90,000 hours at work over their lifetime, hiring an employee vs. an independent contractor is a big commitment, and finding the right employees is crucial for any business.
When an Independent Contractors is the Better Choice
So, when should you consider bringing in freelance talent to gain a competitive edge, and when is it more appropriate to take the traditional route of hiring an employee?
Here are some situations where hiring an independent contractor may be the best option:
- Specialized Skills: Independent contractors are experts in their fields and can bring specialized skills to a project that full-time employees may not have. For example, if you need a graphic designer to create a new logo or a software developer to build a custom application, an independent contractor with specific expertise in that area may be the best choice. By hiring freelance talent for specific projects or tasks, you can save money and resources, while also tapping into a broader range of skills and experience.
- Short-term Projects: If you have a short-term project, hiring an independent contractor may be more cost-effective than hiring a full-time employee. Independent contractors typically charge by the project or hour, which can be less expensive than paying a full-time employee for a short-term project. According to a survey conducted by Upwork, 60 percent of businesses use independent contractors for short-term projects.
- Flexibility: Independent contractors offer more flexibility than full-time employees. They can work on projects as needed and are not tied to a specific schedule or location. This can be particularly useful for businesses that need to scale up or down quickly.
Independent contractors can be an excellent option for businesses that need specialized skills for a specific project or a short-term job. Virgin Group’s founder, Richard Branson, says, “An independent contractor can save your company time, money, and resources. They can bring in fresh perspectives and specialized skills that you may not have in-house . . . you can stay agile, adaptable, and competitive in today’s rapidly changing business environment.”
When to Hire an Employee
According to a recent survey by the National Small Business Association (NSBA), 62 percent of employers reported that they preferred to hire full-time employees over independent contractors. This is because full-time employees can offer a higher level of commitment, loyalty, and consistency than independent contractors. Moreover, when a business has a high demand for ongoing services, it may be more cost-effective to have a full-time employee on staff, rather than consistently outsourcing.
Here are some work scenarios where hiring a full-time employee may be the best option:
- Long-Term Commitment: If you have a project or task that requires ongoing attention, hiring a full-time employee may be the best choice. Full-time employees are committed to the success of the business and can provide stability and consistency.
- Company Culture: “If you want to build a winning culture, you have to start by hiring the right people. Full-time employees who share your company’s values, vision, and mission can be the key to long-term success,” says Tony Hsieh, former CEO of Zappos. Full-time employees are an integral part of a company’s culture. They work full-time together, collaborate, and build relationships, which can be difficult to achieve with independent contractors who work remotely and, on a project-by-project basis.
- Cost-Effectiveness: Hiring a full-time employee can be more cost-effective than hiring a 1099 contractor in certain situations. This is especially true when the work is ongoing and requires a consistent level of effort over an extended period. When hiring a full-time employee, the employer can often negotiate a salary that is lower than the total cost of paying a contractor for the same amount of work. Additionally, full-time employees can provide consistent productivity and value, which can result in higher profits and business growth.
Costly Consequences of Worker Misclassification
It’s important to correctly classify your workers as employees or independent contractors to avoid getting into legal trouble.
Misclassifying your workers can result in hefty fines, penalties, and back taxes. In fact, according to the US Department of Labor, about 10-30 percent of employers misclassify their workers as independent contractors, resulting in billions of dollars in lost revenue for the government. Misclassification harms the government and workers who may be denied benefits and protections that they are entitled to as employees. So, if you’re unsure about the classification of your workers, it’s best to consult with legal and tax professionals to ensure compliance with federal and state laws.
Questions about contracting vs. full-time placement options for your business? Our team can help you secure your next competitive advantage by partnering with you to build your ideal team. Call us at 216-435–5800 or at [email protected].
Tiffany Sacasas is a highly experienced Executive Recruiter who currently works with Gertsburg Licata Talent. With over 20 years of experience in a variety of fields such as property management, administrative support, and collective leadership, Tiffany is a versatile professional who has gained a wealth of knowledge and expertise throughout her career. Tiffany is widely recognized for her collaborative approach and ability to work effectively with others as a strong team player. Her dedication to helping businesses succeed in their recruitment efforts is evidenced by her unwavering commitment to identifying and placing the perfect employment candidates for their specific requirements.
Contact us today to discuss how we can help you secure your next competitive advantage.
