THIS INFORMATION IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Globalization Partners does not provide legal or tax advice and the information is not tailored to the specific situations of your company or your workforce.
Companies that hire contractors for the cost savings but then attempt to treat their contractors like employees may be sued for the benefits they sought to avoid by hiring contractors in the first place. Whether a company hires an independent contractor or a permanent employee, both types of working relationships have their pros and cons. However, in some situations, companies currently working with independent contractors may find it more advantageous to transition these workers into a full-time, permanent employee position. One of the biggest benefits of hiring independent contractors is access to specialized expertise at a lower cost.
Calculate total employer tax burden and other costs
If you have a contract position, your employer doesn’t have an obligation to pay for your taxes, medicare, or social security. That’s why many companies prefer hiring contractors to recruiting employees – they cost less. The amount of money a contract employee receives is based on the project or work that the company gives them. This compensation can vary and is usually delivered to them after services are rendered. Contract employees may ask for more money for their services because they have to provide their own benefits and handle their own taxes.
Contract work isn’t for everyone and requires an extra layer of hustle if you want to succeed. The employer is responsible for a lot of the cost of employing someone. If you’re a 1099 worker—you work for yourself—then you are the employer and you’re responsible for those costs and employment benefits. If you’re a W-2 worker, then you work for someone else, and they are probably responsible for those costs and employment benefits. This is meant as a quick primer in case you’re in a pinch and need to compare a contractor position to a full-time position.
Employee vs. Contractor: Which Should You Hire?
In the US, employees receive health insurance, Social Security, workers’ compensation, unemployment tax, and other protections. Depending on the workers country of residence, labor laws typically cover employees but not independent contractors. Managing independent contractors typically only involves the client controlling the outcome of the contractor’s work, not the process. However, in some countries, an independent contractor’s work is their intellectual property. When you sign a contract with them, you agree on the employee’s gross salary, paid monthly, weekly, or bi-weekly. The salary is usually fixed, but the employee may receive bonuses or commissions, depending on their performance.
- When a new employee joins a company, the employer typically provides them with training to ramp up.
- Attorney Christy L. Foley said these questions can help you determine how to classify a worker.
- They can work extra hours by picking up shifts or doing additional work during busy times of the year.
- Provide regular, constructive feedback for both contractors and employees to grow and improve their skills in their respective tasks.
If the employer has the right to instruct how work gets done, this is a sign of an employee. Examples of behavioral control include hours and schedules, location, methods, and tools. For instance, providing training is strong evidence of an employer-employee relationship.
The AOR Advantage: Risk Mitigation When Hiring Global Contractors
If your company, still needs the expertise of contractors, G-P Contractor allows companies to hire anyone, anywhere. Your company should be clear on the above legal factors before transitioning to a full-time position. This ensures the conversion is done correctly, fairly, and compliantly with each country involved. If you determine that you can convert the contractor into an employee, you’ll switch from Form 1099 to Form W-2. Learn everything you need to know about how and when you can terminate an agreement with an independent contractor.
If you want to bring in someone to supervise and train, then a full-time employee makes more sense than a contractor. For instance, you may want a full-time customer support person who’s available during normal business hours so you can respond to issues or questions quickly. However, one thing we didn’t touch on in that article is the contractor vs. full-time contract vs full time salary employee decision. Being a full-time employee has many benefits both for the employee and the employer. Designed for business owners, CO— is a site that connects like minds and delivers actionable insights for next-level growth. Of course, one of the less-obvious (but very important) benefits of long-term employees is a sense of family and community.