Table of Contents
Hiring Remote: A Wealth of Options
Full Time Employees: A Full Time Commitment
Hiring Employees: Advantages/Disadvantages
Independent Contractors: One-Time Specialization
Hiring Independent Contractors: Advantages/Disadvantages
Skip to the Independent Contractor vs. Employee Checklist
It is often said that wealth is not about having money … it’s about having options.
This phrase perfectly describes the process of taking a business remote. From hiring, to business model selection, to strategy implementation, the process of going remote never will fail to present you with a wealth of options.
One of the most important business strategies remote businesses must develop is their hiring strategy, specifically whether to hire employees or independent contractors. As previously discussed, this decision has the potential to present significant legal ramifications. From taxation, to benefits, to termination liability, employees and independent contractors are treated differently in the eyes of the law.
While an employer typically has more responsibility to employees than to independent contractors, this does not necessarily mean that it is improper to hire one over the other. Both have their benefits and drawbacks, and each option can serve your business given the proper “make or buy” circumstances.
Understanding this, one common problem that arises with young businesses going remote is that the doctrinal definitions of both employee and independent contractor are vague. It is important to understand each type of worker and when each can, and should, be implemented.
Without further ado, let’s take a look at both independent contractors and employees as well as their advantages and disadvantages. By the end of this article, you not only should have a better idea of each but also when their implementation is ideal.
Within the context of a remote team, a full-time worker will engage in remote work 100% of the time.
They will be the exclusive employee of a single company and will be compensated by either a salary or hourly rate. The employer will have a vast range of responsibilities to the employee, including filing for tax withholding and reporting, employee benefits and the expectation of long-term and integral employment, even if the employee is “at will.”
Another important characteristic of employees is that they are subordinate to employer authority to a greater extent than independent contractors. What exactly does this mean? It means that employees will have to adhere to company policies and requirements as a contractual obligation of their employment. Employees will be bound by the value statement of their employer and will receive their supervision, work hours and requirements from their employer.
What is a phrase that clearly defines the relationship of employer/employee?
Complete control over work method, complete control over work product and complete control over training.
But remember! With complete control comes complete responsibility. Health insurance, life insurance, full compensation, overtime, 401(k), etc. all come with the territory.
With all these duties and responsibilities, why would any employer opt for employment? Let’s take a look at a few of the advantages.
Contrary to popular opinion, hiring employees can still bring a return on investment (ROI) and value in the digital age. Well-trained and appreciated employees can help form the foundation for a strong and team-focused work culture.
Aside from work culture, some of the most important advantages of hiring traditional employees include:
While traditional employment has proven adaptable to the digital age, it is not without its flaws. Advantages and disadvantages are typically subjective and dependent on circumstance, but the following are generally agreed upon as the major disadvantages of hiring traditional employees in the digital age:
While no longer the most popular option, research does show that given the right growth conditions, traditional full-time employees (when remote) can be productive and engaged over the long-term. Therefore, they should always be considered when looking to hire remote.
While it is easy to say that independent contractors are simply the opposite of full-time employees, it would serve us well to review in what distinct ways they differ. Whereas an employee is subject to the full authority and control of their employer, independent contractors work with multiple clients on a per project basis OR with one company for a specified period of time. They are paid an hourly wage and are responsible for securing (on their own) almost every benefit allocated to full-time employees.
Paid time off?
All of these benefits and more will likely be delegated as the responsibility of the independent contractor. These cost savings are a distinct advantage in today’s digital economy and one of the main reasons why the independent contractor movement is expected to include 40% of the U.S. workforce by 2020.
To further understand this movement, let’s take a look at some of the commonly cited advantages and disadvantages of hiring independent contractors.
It is generally agreed upon that the independent contractor/freelance movement is mutually beneficial to both laborer and employer. Employers lower long-term risk and cut costs, while workers take more control over their careers and earning potential. Both enjoy enhanced flexibility. As we previously discussed these benefits in a prior post, let’s take a look at one additional (but just as important) advantage of hiring independent contractors:
A trademark of the digital age is the ability to access on-demand specialization.
Mobile and remote businesses have a unique set of needs in the global economy. With the rise of modern technology and the destruction of global information barriers, it is now easier than ever to find unique workers to meet unique needs.
Third-party staffing agencies exist that specialize specifically in freelance placement. From lawyers, to salesmen, to programmers, the global workforce is ready to meet the specialized needs of today. Companies such as Upwork and Freelancer can connect independent contractors to employers faster than ever before and without the need for training, HR processing and paperwork. Focused skill sets allow employers to supplement the jack-of-all-trades workforce by hiring independent contractors as needed.
Traditionally, specialized labor in the form of full-time employees resulted in a difficult cost-benefit analysis for employers. While employers were certain that specialized labor would be needed to resolve certain high-level issues, hiring specialized labor full-time often brought about diminishing returns in the long-run. If the highly unique skill set of specialized labor was not being used, the employees suddenly became a glaring cost due to lack of production and their guaranteed benefits.
Today, independent contractors can now be hired as needed, and if demand for work slows down or stops, specialized labor can be reduced or cut.
However, all is not perfect in the independent contractor world.
While generally yielding positive results, hiring independent contractors is not without its downfalls. Here are the most common disadvantages of hiring independent contractors in the digital age:
So there we have it!
You now have a basic idea of what to expect from hiring both independent contractors and employees. Which should you hire? Unfortunately, there is no one clear answer. Ultimately, it depends on the needs of your engagement.
Ask yourself these questions:
Review these questions, approach each decision on a case-by-case basis and always remember to be familiar with the legal rules and regulations of your work jurisdictions. Follow these simple steps and watch your ROI build with a wealth of options.
Here is a 10-question test to help determine the classification of a worker as either an employee or independent contractor. There is not a single factor that will indicate whether a worker fits one definition or the other, but rather it is a cumulative test. If there is a high number of “yes” answers, it is likely that the relationship is that of employer/employee. Remember, misclassification can have important legal ramifications and ultimately result in additional costs.
Number of “Yes” ____
Number of “No” ____