Independent contractor vs employee: pros & cons

Fortunately, Practical Law provides a lot of resources to aid in-house lawyers in this responsibility. Harman noted that employees are hired to perform specific work at the employer’s direction. On the other hand, independent contractors are typically given a job or project to work on without the company controlling when and how they do it, he said. As an independent contractor, you may earn more money than as an employee. The hiring game is tough right now, so this is good news for employees.

A niche expertise in a particular area or industry can make you more valuable to potential clients and help you stand out in your field. Ensure all managers are trained on the policy and how to properly independent contractor vs employee treat and work with independent contractors. Without the support of a human resources department, you’ll also have to familiarize yourself with employment law and your commitments to the IRS.

Global trade compliance & management

An increasing number of people are now choosing to become independent contractors due tojob uncertainty and changes in the economy. In fact, a recent survey by Gallup found that 14% of workers now claim that being an independent contractor is their primary job. And this is changing the way companies employ their workforce and forcing employers to evaluate the pros and cons of hiring an independent contractor vs. employee. It’s important to classify your workers correctly to ensure you comply with all employment and tax laws in the US. Worker misclassification can result in a number of problems for you as an employer. For example, misclassification of independent contractors can leave you open to an employee misclassification lawsuit.

Indeed, full-time employees can be a driving force behind scaling your business. And this leads to a bunch of benefits (but certain constraints, too!). They perform a range of duties under your business name . For that, they receive all the awesome financial and non-financial perks. To make things easier for you, the table below further breaks down the differences between employees and contractors. Social contributions, tax withholding, bonuses, and benefits — cha-ching and 40% to 80% of your business income is gone.

Independent contractors have flexibility over their working hours

For example, you may also have to consider the type of job function being performed in comparison to your specific business trade. Any worker who earns a fixed salary or wage to work regularly can usually be classified as an employee. Unlike independent contractors, employees work for only one employer at a time. And if it was not enough, a 2020 survey by Forbes found that 49% of hiring managers rate access to highly skilled talent as the main reason for adopting this model.

• They can have flexible schedules and work on the project during the time they are the most comfortable.
• The client left them to their own devices, trusting that they would complete the job.
• Simply noting in a contract that the relationship is contractual and not an employment agreement is insufficient in proving an individual is a contractor if the company treats the individual as an employee.
• Unfortunately, if the company gets the classification of independent contractors wrong, bad things can happen.

Contracting, on the other hand, diversifies your income to keep money coming in. Increased independence means more control over your own hours. As long as you meet your deadlines and attend any required meetings, you can work as early or as late as you want.

Form SS-8

It is important to note that there is a legal distinction between an employee and an independent contractor. Companies that hire contractors need to be sure they do not treat the workers as employees. Simply noting in a contract that the relationship is contractual and not an employment agreement is insufficient in proving an individual is a contractor if the company treats the individual as an employee. Independent contractors are individuals who offer a service to clients and bill for their service and time through invoices sent to the client.

Independent contractors are not offered the same benefits as employees are. Workflow is also improved because now, coordinating projects is much easier, given that there is a steady stream of business. Relative to the complexity and challenge of juggling multiple freelancers to meet project deadlines, hiring a dedicated employee is the better choice in this aspect. As you complete projects, you’ll be able to build a portfolio of accomplishments that showcases your skills, expertise, and values. This can help you differentiate yourself from other professionals. HighQ A business management tool for legal professionals that automates workflow.

Tax Obligations

With more freedom and flexibility, independent contractors tend to be happier and more optimistic than their full-time employee counterparts. In a study by McKinsey Global Institute, 97% of contractors reported they were much happier than those who worked for someone as an employee. Independent contractors have also reported feeling a greater sense of pride in their work and feel that they are making a bigger difference in the world. Contract work provides greater independence, it can give you more predictable control of your work, and for many people, greater job security than traditional full-time employment. However, you are responsible for your own taxes, contracts, benefits and vacations. You also need to be aware of any legal requirements within your state.

There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed , see our Self-Employed Individuals Tax Center. Just as you can terminate any contractor at will, contractors are free to move on to the next job with little or no notice.