Have you ever recognized a hole in your business that needed to be filled but you weren’t sure how to fill it – or more specifically, who to fill it with? Before the pandemic, businesses immediately posted a job listing to recruit an employee. However, post-COVID, many workers left their traditional 9-5 jobs during the pandemic to work independently and in doing so, gave business owners more options than ever for filling in the gaps.
All that being said, independent contractors are not always the right choice for your business or the position you need to be filled. Determining which direction is right for you will depend on your business, its culture, needs, flexibility, and goals. In today’s blog, we are going to break down the differences between employees and independent contractors and how you can make the best choice for your business.
What is an independent contractor?
An independent contractor is self-employed, owning and operating their own B2B (business-to-business) business. When you hire an independent contractor, you are hiring them for a job – but you do not get to determine how they do their job or when they work on it. While you can impose deadlines and parameters for the finished product, you are not their boss. Independent contractors will work with multiple clients at once, managing their time accordingly.
An independent contractor is not on your payroll. They typically provide invoices for their work and are responsible for most of the tax filing, removing the responsibility from you, the business owner. Independent contractors will pay self-employment taxes, while the business owner who has hired them is only required to report the total amount paid per year via a 1099-MISC. This alone can be a major bonus for employers who don’t wish to bring on a team member who would require a company benefits package and a full-time salary.
In terms of consistency and commitment, independent contractors can be hired for a specific one-time task, to oversee a large-scale project, or to play a long-term role overseeing a portion of your business month-to-month.
Who are independent contractors?
Has this breakdown of independent contractors piqued your interest? Are you wondering what roles or responsibilities you could potentially hand to an independent contractor? Allow us to give you some examples of where these niched professionals could play a role in your business.
#1 Marketing: In today’s business market, marketing is one of the most common areas business owners look to hire out. From graphic design to social media and advertising, business owners look to seasoned professionals who can focus on these areas of their business since they require a level of experience and expertise to be effective.
#2 IT: Unfortunately for many of us, IT is not an area that anyone can simply “fake it till they make it”. Tech issues can quickly become major pain areas for businesses and even hold up operations. For those reasons, it is a popular area for business owners to seek help.
#3 Operations & Team Building: Did you have a great business idea but you don’t have much experience actually running a business? Hiring a business consultant or coach who can mentor you and provide you with tangible feedback for bettering your daily operations or even helping your team run more efficiently is a great choice for many business owners.
#4 Maintenance & Cleaning: We’ve talked about avoiding burnout and how business owners shouldn’t try and “do it all” in previous blogs and hiring independent contractors to help your business with maintenance and regularly scheduled cleanings is a great way to lighten your load. These professionals provide real value and should be considered when discussing how independent contractors can help your business.
What is an employee?
Did you just gasp? Yeah we know, you know what an employee is. You have them already after all. But stay with us as we highlight some of the key points about employees you need to consider when deciding whether to hire one rather than an independent contractor.
Employees are hired with a specific job description in mind as well as someone they will report to within the current structure of your business. That job description will have required hours, duties, and responsibilities that the employee must adhere to. Some companies have extensive codes of conduct that will need to be followed. In the same vein, an employer has full control of the parameters of the job. They determine the pay rate, any pay raises or bonuses, and how extensive the benefits offered are.
When it comes to financial implications, it is important to consider the payroll impact of hiring an employee. Employers are mandated to pay for unemployment insurance and workers comp in addition to overseeing tax withholdings such as federal and state taxes and social security. While these additional costs can be considered a con, employers should also consider the other end of the spectrum: employees are covered through an employer’s insurance, meaning unlike independent contractors, you are covered if the unthinkable happens and someone is seriously injured at work.
What You Need to Consider
Earlier in this article, we explained that choosing who to hire will come down to your business, its culture, needs, flexibility, and goals. What choice you make will have an impact on these areas. For example, if your business hires a contractor to build a website and makes payments, you may feel it is appropriate to add additional tasks to their plate but in reality, you will find they are only being paid for one specific job and anything outside of that will cost you. Whereas if you hired an employee to serve as a marketing manager to build your website, you can pay them a single salary and have their task list evolve when the website is done and your needs change. However, should you ask that same employee to oversee your Google AdWords only to find they have no experience with it, you may find yourself having to hire out additional subcontractors to fill in those gaps.
So how do you choose? Here is our list of pros and cons to help you decide.
Independent Contractor: Pros & Cons
- Advanced skillsets – highly experienced and trained.
- Little to no tax responsibility for the business owner
- Cost-effective in comparison to the cost of employee salaries, benefits, and resources
- Flexibility – no red tape should you want to terminate or extend your relationship
- Minimal supervision required
- Limited brand knowledge and loyalty
- Little control for the business owner
- Increased risk in case of injury or accident
- Unable to easily assign additional tasks
- Inconsistent access to them
Employee: Pros & Cons
- Personal stake in brand success
- Long term investment
- Covered in case of injury or accident
- Consistent access
- Ability to change or add to job description and duties
- More costly to the business
- Must adhere to labor laws
- Require more training
- Must provide opportunities for growth
- Required managerial oversight
Choosing the best way to fill the gaps in your business requires much consideration. But given the right reflection, you can make an educated decision based on your financial capabilities and boundaries, the level of commitment and flexibility you require, and the type of role or project you need addressed.
Are you ready to take a deeper dive into business operations such as hiring? Consider taking the first step toward clarity by looking into a small business advisor to help you go in the right direction. We would love to connect with you and find out how we can help your business set itself up for success.