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To Hire or Not Hire an Independent Contractor

When you’re heading into an important project, there are some very real benefits to hiring an independent contractor (IC) for the project rather than an employee. Before you decide whether or not to staff a project with people from inside the company, or to hire for the project, consider the following benefits to using ICs to implement the project that you need.

The major advantages to using independent contractors rather than employees are:

It’s quite likely that you’re going to save a lot of money in the long range. Most employers must pay independent contractors more than they would pay employees for the same job but the employee is long term and other benefits must also be paid.

When you hire employees there are quite a number of other expenses that must be covered including social security, Medicare, unemployment compensation insurance, workers comp and other things that the employer covers in part. That means that when you hire an employee, you will have to pay a number of expenses that you don’t have to pay with ICs, including the cost of employer-provided benefits, office space and equipment. You will also have to make required payments and contributions on behalf of your employees, including: your share of the employees’ Social Security and Medicare taxes, which comes to 7.65% of employees’ total compensation; state unemployment compensation insurance; and workers’ compensation insurance.

All together, these payments can easily increase your payroll costs by 20% to 30%–or more.

Secondary to that, getting it done by independent contractors normally means that you’re hiring people who know precisely what they are doing and don’t have that learning curve involved. This is what they do for a living and they don’t need to learn anything about it in order to accomplish the task. That means your project is going to take less time and less effort usually coming in under budget.

When you use independent contractors you have a great deal more flexibility in your staffing. Independent contractors allow you a far greater leeway in when and how you use them. Hiring someone means that you have a given amount of legal requirements to follow when it comes time to paying, to benefits and to letting them go if you don’t need them. The hiring and firing process can be dramatic and traumatic, even sometimes causing legal issues for the company.

Independent contractors are not generally considered employees and as such may not unionize.

Author: Sue Nuss, CEO/President of TNG Workforce Management Division of CSI