Help Wanted: Employee or Freelancer?

Today’s businesses get to decide whether they hire employees or freelancers. There are benefits and disadvantages to both. This makes it important for companies to weigh their options before deciding whether they want to hire employees or pay independent contractors.

Hire Freelancers for Short-Term Projects and Expertise

According to a 2014 survey, 53 million Americans work as freelancers. That gives businesses plenty of options when they need experts to fill short-term positions. Instead of hiring full-time employees, businesses get to pay independent contractors for specific jobs.

The right freelancer should have enough experience to work independently while meeting project goals. In many cases, freelancers will be able to hit the ground running and use their expertise to accomplish tasks without the company having to watch over them and provide instructions along the way. This is a great option for businesses that need experts to satisfy the needs of short-term projects, but it’s not usually the right solution for businesses that need full-time help.

Thankfully, today’s companies can use websites that specialize in helping them find suitable freelancers. A new infographic from Elance-oDesk shows that the company has over 9.3 million registered freelancers to help meet client needs.

Hire an Employee When You Need Full-Time Help

Businesses don’t have much say in how or when freelancers work. Successful freelancers meet project goals, but they work independently and set their own hours.

Companies that want more control over their workers should consider hiring full-time or part-time employees. This lets business managers set work schedules and decide how they want employees to accomplish goals.

Any business that wants that level of control should hire an employee instead of a freelancer. Doing so, however, will likely cost more money.

Understand the True Cost of Hiring an Employee

 

Businesses that hire employees have more control over how and when people work. These benefits come with extra costs. Understand the true cost of hiring an employee before you advertise a position.

Payroll Taxes

The IRS requires employers to withhold taxes from wages. Even low-level employees can become quite expensive when you consider the cost of Social Security, Medicare, FUTA (federal unemployment tax), and compliance with the Affordable Care Act.

Payroll taxes differ depending on how much employees earn and where they are located. Typically, you can expect to spend about 15 percent of each employee’s salary on taxes. For example, if you have an employee earning the national median household income (about $51,000), you should expect to pay about $7,650 in payroll taxes.

Benefits Packages

Most full-time employees expect benefits packages that supplement their incomes. Benefits usually include:

  • retirement savings such as matching 401(k) contributions
  • health insurance
  • paid time off

Employers have control over the benefits package they can offer. However, those that don’t offer a competitive package will have a tough time attracting and retaining talented employees.

Hidden Costs

There are a lot of hidden costs that businesses often forget when hiring new employees. Some of these hidden costs include:

  • payroll processing
  • office supplies
  • equipment such as desks, chairs, and computers
  • training

Freelancers often have higher upfront rates, but companies may find that they save money by avoiding associated costs.

Understand the Differences Between an Employee and Freelancer

Since taxes play a significant role in why many companies choose to use freelancers, it’s not surprising that the IRS has its own set of rules to determine whether a worker is truly an independent contractor instead of an employee. Don’t think that you can get the advantages of using a freelancer while treating that person like an employee.

The IRS says that a person is not an independent contractor when the employer controls the details of how jobs are accomplished. Trying to control how a freelancer reaches goals could unintentionally turn them into employees, which means businesses have to pay additional taxes.

You can’t get the best of both worlds. Consider your options to decide whether a freelancer will work well within your organization. If you need to control how and when someone works, then you should hire an employee. Treating a freelancer like an employee could lead to legal complications that no one wants to experience.

Freelancers fill important roles in today’s fast-paced business environment. Their flexibility and niche expertise can help make companies more agile so they can compete in the global economy. Of course, it doesn’t hurt that they can also help companies save money.

 

 

 

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