We recently talked about the huge increase in freelance work in the past few years, but how do you know when to hire employees versus freelancers?
Employee vs. Freelancer: What’s the Difference
An employee is someone who typically performs job tasks that are controlled by others (a supervisor, owner, CEO, etc.). Freelancers, on the other hand, are typically in charge of their own projects and workload. This doesn’t mean freelancers don’t work with anyone else at your company, it simply means the freelancer is the one who can bid on or accept (depending on the industry) the jobs they want to do by picking and choosing for themselves, rather than projects or tasks being assigned to them by management.
Quick Pros and Cons of Employee vs. Freelancer
There are pros and cons to hiring employees over freelancers and vice versa.
The biggest pros to hiring full employees are that you are able to control their workloads, you have a dedicated presence in the role, and you can train them to your own specifications and needs. There are also very few restrictions on what kind of work you can assign to an employee.
However, there are some cons to employee hiring. There are more laws and regulations attached to hiring and paying an employee. Hiring an employee also means you will need to invest more time and money into this person to help optimize their participation in the role you’ve given them.
The pros for hiring a freelancer are the opposite of the pros associated with employees. While you can set a deadline and dictate certain projects or parameters, you can’t tell the freelancer or independent contractor how they should do the work. They get to do it how they want to, often with you or other leaders in your company having some say or final approval in the deliverables once they’re finished. But the responsibilities associated with a freelancer as a worker do not rest with you. Freelancers have more freedom, which means the regulations that you must follow are much less strict because they work independently. This also means your company doesn’t hold much liability in terms of the work, tools and equipment, and taxes.
Employee vs. Freelancer: Taxes
Speaking of taxes, there are vast differences in your financial and tax responsibilities when comparing employees to freelancers.
Your business is more responsible for withholding and income-related taxes for employees. Employers are responsible for withholding state and federal income tax, Social Security tax, Medicare tax, unemployment tax, and you must complete a W-2 for every employee.
For freelancers and independent contractors, employers are not responsible for any of the abovementioned taxes. But you do have to produce a W-9 and file a 1099-NEC form for every freelancer that you pay more than $600 to in any given year.
Choose What’s Right for Your Business
While there are obvious benefits whether you choose to hire employees or freelancers, it’s important to ask yourself whether the work they will be doing is something that you want control over, how central the work is to your business, whether the project is short- or long-term, and more.
Either way, eFile360 can help you file your tax forms to ensure they are accurate and secure. For tax questions and user-friendly digital tax solutions, sign up for a free eFile360 account today.