Whether you specialize in carpentry, web design, or accounting, the availability of online resources and professional networks enables almost anyone to engage with potential clients and manage essential day-to-day business tasks independently. This growing pool of freelancers and self-employed professionals has simplified the process for employers, making it easier than ever to hire independent contractors to fulfill specific business needs.
There are many benefits to using contractors instead of employees, but it's important to understand the differences in order to avoid the legal and financial consequences of misclassifying an employee. Whether you're an employer or an employee, here's what you need to know:
What's the difference between an independent contractor and an employee?
An independent contractor is someone who performs a service for multiple clients, negotiates his or her own wages, and generally controls his or her hours and workflow. An independent contractor may also have employees of his or her own. Alternately, an employee usually works for a single employer, and his or her hours, workflow, and that employer primarily controls duties. Independent contractors tend to work on short-term projects, while employees stick with a single employer long-term.
What are the pros and cons for business owners?
The primary benefit of hiring independent contractors is that it almost always saves the business owner money in the way of employment taxes and insurance fees. Additionally, if your needs can change from one month to the next as far as amount or type of work available, it might make sense to hire contractors on an as-needed basis.
Alternately, if your company requires staff that really understands the ins and outs of your particular business and will benefit from having long-term staff, it may make more sense to take on employees rather than outsource your worker needs.
What are the pros and cons for independent contractors?
Making your own schedule, choosing your clients, and an increased ability to negotiate compensation are major perks of being your own boss. The tradeoff is that you may lose certain benefits and worker protections that come with having an employer. Independent contractors are also responsible for paying their own taxes on income earned.
What employers need to know:
Intentional misclassification of an employee as an independent contractor is against the law. In addition to the criteria above, it's important to note that workers who are "economically dependent" on a single employer may be considered employees, even if their work is minimally controlled or directed by the employer. In addition, if the work a contractor does is integral to your business, he or she probably qualifies as an employee.
For questions about business insurance in the Washington, call or contact Potter Insurance today.