By Bryan Orr
There is a revolution underfoot in the working world called “freelancing.” It’s that promised land of being your own boss, carving out your own slice of the American Dream, and not having to pay with coins because there wasn’t anything in your account. According to a recent study by Intuit, over 40% of the workforce will be freelance by the year 2020.
This represents both challenges and opportunities for business owners, and it may be time to stop and think. Does your new task or business role require an employee? Would a subcontractor or freelancer be a better choice?
Here is a short summary of a few pros and cons of each option.
Employees
Pros:
- More reliability
- Less costly on a per hour basis
- Greater quality control
- Control over the specific workflow
Cons:
- More dependent on constant work
- Greater overhead cost
- More regulation
- Greater opportunity for personal conflict
- Higher “hidden” costs
Freelancers / Independent Contractors
Pros:
- Do not require a constant flow of work
- Can provide a more unbiased approach
- Lower overhead cost
- Less regulation
Cons:
- Less reliability
- Can be more costly per hour
- Must ensure you are compliant with IRS Guidelines for Independent Contractors
- Less quality control
Take the Quiz
To decide if a particular task is best suited for an employee or an independent contractor you can take my simple three-question quiz:
- What are the total number of hours per week that I need someone to do this task?
(one point per hour) - Is this something that is at the core of my business?
(very core = 50 points, somewhat = 25 points, not at all = 0 points) - How likely is it that I will be doing this task in the business 12 months from now?
(very sure = 50 points, somewhat sure = 25 points, not at all sure = 0 points)
Now add up your points. If you have over 75 points then you likely should lean towards hiring an employee, if less than 75 points it may be a good option to consider an independent contractor or freelancer.
The main thing to remember is that freelancers provide independence and simplicity, and employees give you reliability and quality control.
Make sure that you look at all of the legal and regulatory ramifications of both employees and independent contractors. Keep in mind that it is easy to step across the line regarding IRS Independent Contractor regulations, and you may end up responsible for years of tax withholdings if you miscategorize an employee as an independent contractor.
In our business, we have converted some subcontractors to employees and other employees to independent contractors. In all cases it was a win – win situation, because the classification suited the relationship.
Do you work more with employees or independent contractors?
