Employee vs. Independent Contractor: Which One Should You Hire?
Making the distinction between an employee and an independent contractor is key for any business owner. For one, it can help you ensure you comply with all applicable regulations, among other notable reasons. However, it also impacts your tax requirements, your ability to manage staff, and even the kinds of benefits or contracts you may provide along with working arrangements. In this blog post, we’ll explore how differentiating between employees vs. independent contractors can help ensure a smooth-running operation.
Employee vs. Independent Contractor
When deciding whether to employ or contract a worker, it’s helpful to understand the differences between an employee and independent contractor’s status.
Employees
An employee works under the full control of their employer. They typically:
- Receive a salary
- Are usually covered by employee benefits
- May be eligible for overtime pay
Independent contractors
Alternatively, independent contractors are generally self-employed individuals who provide services outside of an employment arrangement with an organization. Unlike employees, independent contractors do not receive regular wages. Instead, they work on specific projects or tasks for an agreed-upon fee.
Employee vs. Independent Contractor: Which One Should You Hire?
Now that we’ve identified employee and independent contractor statuses, the next step is determining which one best fits the needs of your business.
When deciding between an employee or an independent contractor, it’s helpful to consider the following:
1. The type of work that needs to be done
Depending on the type of job, you may need to hire an employee or independent contractor.
For example, if the job requires ongoing work that can be managed and supervised over a long period, then it is likely best to employ someone. However, hiring an independent contractor may be more suitable if the job is highly specialized, with specific skills needed, and not recurring in nature. For example, a one-off copywriting job might be better suited to an independent contractor than a permanent employee.
2. The amount and type of control required
When deciding between an employee vs. an independent contractor, you should also consider how much control you wish to have over the worker’s activities during their time with your organization. Keep in mind employees are typically subject to more strict rules than those who are contracted out as they fall under direct employee supervision.
(We talk about the basics of business law here)
3. Cost-effectiveness
You must also consider the cost-effectiveness of each option. One thing to keep in mind is that employees usually generate more overhead expenses. These include payroll taxes, employee benefits, and other related costs associated with regular employment. In contrast, independent contractor contracts are generally less expensive in terms of overhead costs.
4. Whether or not employee benefits are needed
Another important consideration is whether you need to offer employee benefits to attract top talent. Employees are typically eligible for employee benefits such as health insurance, paid time off, and retirement plans. On the other hand, independent contractors generally do not receive these benefits.
(We also cover starting a business versus buying an existing business in this article)
Conclusion: Hiring an Employee vs. Independent Contractor
There are many decision factors when determining whether to hire an independent contractor or employee. Considering the type of work, amount of control required, cost-effectiveness, and employee benefits are important before deciding which option is best for your business. With this knowledge, you can choose the best fit for your organization and help create a successful employee/contractor relationship.
If you would like to discuss the legal considerations that come with hiring employees versus independent contractors, schedule a 30-minute consultation with Contiguglia Law today. We provide knowledgeable and experienced legal advice related to employee vs. independent contractor-related issues and other business legal services in Denver.
With Contiguglia Law, you can rest assured the employee/contractor relationship is compliant with all applicable laws and regulations. So, contact us today to get started!
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