Independent Contractor or Employee? Determining Which One to Hire for the Job Workest

On the other hand, it’s a sign of success and an important part of the growth process. The typical penalty is a fine, which can be steep depending pros and cons of independent contractor vs employee on the severity of the offense. In most cases, the IRS will assess the situation and cut employers off when they think it was an honest mistake.

• In that case, the IRS generally assumes a worker to be an employee rather than an independent contractor.
• Employees and employers must know these fundamental distinctions to negotiate the intricate web of employment relationships.
• What matters to the DOL is whether the employer has the legal right to control the details of how and when services are performed.
• That doesn’t mean you can’t find independence in other ways — like freelance contract work.
• Independent contractors work for themselves; the companies they work with don’t technically employ them.
• The advantages and disadvantages of independent contractors are the opposite of those for employees.

If you provide the tools and training and have expectations for when, how, and where someone works—that’s an employee. Depending on your business needs and other factors like taxes, benefits, and worker supervision, one option may make more sense than the other. Learn how to evaluate these variables and determine whether you should hire an employee or a contractor.

Bridge the gap to success with a talented freelance team.

As an independent contractor, you’re your own boss, meaning you have more control, but you also have more responsibility. When you’re starting, apply to agencies that can connect you with contract work. Remember, though, that these agencies may withhold taxes and collect other deductions from your paychecks, depending on your working relationship with the firm. Agencies may also charge you a commission, which will reduce your compensation (although you can deduct it on your tax returns).

Contractors are a good choice for specific jobs and skillsets or if your needs are seasonal and you don’t require year-round staff. For example, if you sell Medicare insurance, you probably need extra help during the annual enrollment period. You can hire temp agents, content writers, and social media coordinators to help out with your sales and marketing efforts during this busy time. In navigating this decision, we recommend seeking legal counsel or consulting with human resources professionals to ensure compliance with labor laws and regulations. Your choice should also reflect your unique business needs, and by making an informed decision, you can propel your organization toward a more productive future.

Financial management

It’s essential to understand the difference between 1099 workers and salaried employees because you as the business owner could be liable for misclassifying anyone who works with or for your company. Contrarily, employers have full control over an employee’s work and how or where it is performed. Employers can decide whether employees can work on-site or remotely, the specified hours they must work, and how the overall work is performed. Often, they have supervisors and managers who oversee their employees’ workload.

They often work on a project basis with the contract ending at the conclusion of the project. Contractors also have the right to refuse work, negotiate their fees, and work with a variety of clients at the same time (unless their contract specifies otherwise). For those at the helm of major business decisions, the contractor vs. employee debate is a defining crossroads. The government wants its tax money, so it relies on each business to correctly classify every member of its workforce. Misclassified workers can wind up costing the government money—and you a fortune for the potential penalties. Next, the IRS considers how much responsibility the employer holds concerning the financial aspects of the worker’s job.

What is an independent contractor?

Setting up your own business as an independent contractor requires an investment of time and energy, but the risk can pay off handsomely. For those with a creative and entrepreneurial spirit, the rewards will be more than just monetary. Being an independent contractor has its advantages over being an employee. However, there are drawbacks to being an independent contractor as well. It’s important when considering independent contract work to understand the pros and cons of working as an independent contractor. It’s a good idea to vet a 1099 worker’s background so you can ensure they’re a fit for the job.

• Trusted contractors also provide the extra hands sometimes needed to take on projects which would normally be too much for regular staff to handle on top of their own responsibilities.
• This can result in hefty fines and penalties, especially if you fail to pay the correct minimum wage or provide owed holidays or neglect to pay the right taxes to state and federal governments.
• In today’s data-driven, digital-first business landscape, employee performance metrics and people analytics have become an i…
• When you don’t have staff on hand to handle an urgent task or need a worker with specialized skills, you may want to hire a contractor.
• Your employees are on your payroll and work a set number of hours per day in return for an annual salary or hourly rate.
• If you’re used to full-time employment, you may already be piecing together the difference between independent contractors and employees.

If you want to hire short-term help, decide on the best contractor for each project based on skill and expertise. If you want to hire employees, find individuals to fill a specific role, and decide what the position pays and how a person will perform their job. A contractor is often hired for a specific project, and businesses can decide to continue or terminate the relationship after the project has been completed.

For that, they receive all the awesome financial and non-financial perks. And that’s how you ended up here, comparing the prospects of hiring an independent contractor versus an employee. Whether you’re a part-time graphic designer or full-time software developer, you can sell your skills to corporate or individual clients for projects or contracts with a set length.

If you don’t you may end up entering into a contract with someone who can’t complete the job to your satisfaction, or worse, might damage your business or your reputation. Beginning in 2020, form 1099-NEC (non-employee compensation) was introduced to separate contractor payments from other miscellaneous payments covered by form 1099-MISC. The IRS looks for specific factors that indicate whether someone working for you is really an employee. On the other hand, firms typically hire contractors when they require their niche expertise for a particular project. For instance, it’s common for contractors to work for firms for a couple of months and then leave once they obtain certain milestones. Contractors usually run their own legal business entities, such as limited liability companies.